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2016 (8) TMI 644 - AT - Income TaxTransfer pricing adjustment - capacity utilization adjustment - Held that:- DRP in principle has accepted that adjustment on account of capacity utilization is to be allowed to assessee. However, in the absence of non-availability of item wise expenses, in the case of comparable companies, restricted the adjustment only to depreciation. In our opinion, this is not the correct approach because unutilized capacity has direct bearing on the operational profits of the company, because in initial years there is over-absorption of fixed costs leading to losses. The fixed cost is not limited to depreciation only but there are other elements of fixed costs also. Therefore, proper adjustment has to be allowed to assessee. We, therefore, restore this issue to the file of ld. AO/ TPO to compute the quantum of capacity adjustment. The assessee is directed to provide necessary details in this regard. In the result, this ground is allowed for statistical purposes. Working capital adjustment - Held that:- It is now well settled that in order to arrive at correct comparability criteria, it is necessary that the working capital employed by comparables vis a vis working capital employed by tested party has to be examined and necessary working capital adjustment has to be made in order to arrive at level playing field. We, therefore, restore this matter to the file of ld. TPO to consider the working capital adjustment as claimed by assessee as per pages 313 to 315 of appeal set and allow the capital working adjustment, if so required. In the result, this ground is allowed for statistical purposes. Disallowance of service charges paid to AE - Held that:- We are of the opinion that entire service charges paid to AE by assessee could not be disallowed. It is true that assessee is required to maintain the information and documents as per Rule 10D requirements but once assessee has furnished the information and documents as maintained by it, then ld. TPO has to consider the same and if he finds that same cannot be relied upon for determining the ALP, then he can resort to his own search process in order to find out the ALP of the transactions. We, therefore, restore this matter to the file of ld. TPO to find out local comparables which had undertaken similar service as the assessee. In the result, this ground is allowed for statistical purposes.
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