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2019 (4) TMI 2110 - AT - Income TaxTP adjustment done to manufacturing segment - not considering export incentives as part of operating revenues of appellant and comparables or reducing from cost to determine operating profits - HELD THAT:- As by respectfully following this judgment of Welspun Zucchi Textiles Ltd. [2017 (1) TMI 1037 - BOMBAY HIGH COURT] we hold that the export incentives should be included in the operating profit of the assessee as well as the comparables. But it should be ensured that such export incentive is in respect of turnover of the present year only because if the export incentive is relatable to the turnover of an earlier year then the same cannot be included in the present year profit for TP analysis because in that situation, the profit will remain included in the numerator, but the corresponding turnover will not remain included in the denominator and this will give absurd result. Hence we direct the AO/TPO to decide the issue afresh - Ground no. 4 is allowed for statistical purposes. Non considering the under utilization of manufacturing capacities of your appellant and the resulting idle costs - HELD THAT:- As relying on assessee own case for ay 2009-10 directed the A.O./TPO/A.O. to consider the claim of the assessee for the purpose of giving adjustment on account of low capacity utilization. We make it clear that the adjustment is only on account of cost attributable to idle capacity for the year under consideration. Accordingly, the assessee has to provide all the details of capacity utilization of assessee as well as comparable for computation of adjustment if any - we restore back this matter to the file of AO/TPO with similar directions. Ground no. 5 is also allowed for statistical purposes. Application of functional similarity filter while rejecting companies selected by appellant as comparables - HELD THAT:- As as per clause (c) of Para 3.7, this is admitted position that this was the dispute raised before DRP that the TPO has committed errors in selection of comparable companies. TPO has wrongly selected 10 companies as comparables whose businesses and operations have nothing in common with that of the assessee. From the decision of DRP we find that this issue was decided by DRP that TNMM is the most appropriate method and there is no decision on any other aspect of the issue in dispute. In Para 3.9 of DRP directions as reproduced above, the decision is with regard to charging notional interest on the guarantee commission and in this Para also, there is no decision regarding selection of comparables. Hence we feel it proper to restore the matter back to the file of DRP for fresh decision. Ground no. 6 is also allowed for statistical purposes. Selection of Indfrag Limited as comparable - HELD THAT:- For this company it is stated that rental income of Rs. 68 Lakhs has been considered as operating revenues. In the impugned order of DRP, there is no decision on this aspect that as to whether the same should be included in operating revenue or not and for this issue also, we restore the matter back to DRP for fresh decision. Ground no. 7 is also allowed for statistical purposes. Risk adjustment - HELD THAT:- As decided in own case assessee is claiming the risk adjustment because of the majority of the sale to the AE in comparison to the comparables making sales to the third party. The Id. AR of the assessee has submitted that the assessee has furnished all the requisite details. Risk adjustment is one of the component to be taken into account for FAR analysis. Therefore the TPO/A.O./A.O is directed to consider the claim of risk adjustment on the basis of the details to be furnished by the assessee
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