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2017 (1) TMI 110 - AT - Income TaxTransfer pricing adjustment - TPO rejected the internal TNMM method adopted by the assessee for the bench marking transactions with AE since the volume of transactions with a non AE is not significant- Held that:- We notice that the sales to the non AE is insignificant and is amounting to only ₹ 34 crores whereas the sales to AE is around 235 crores. For a proper bench marking of ALP, there should be adequate sales turnover for the assessee with the non AE and AE’s. In the instant case, since the sales turnover of the assessee with the non AE is insignificant compared to the overall export turnover of this division, the internal TNMM adopted by the assessee, according to us, has been rightly rejected by the TPO. Non adjustment to the working capital - Held that:- We notice that the assessee in its TP study has not given adequate details for grant of working capital adjustments. Moreover, the comparables selected by the assessee has not been granted the working capital adjustment. Hence, the TPO has rightly rejected the claim of the assessee to grant working capital adjustment. Receipts from sale of scrap and export entitlement should be included in the operating profits - Held that:- The scrap is the bi-product of the direct manufacturing, and prima facie, we are of the view that the same ought to have been reduced from the raw-material cost. If the receipts on account of sale of scarp goes to reduce, cost of raw materials, needless to say it is part of operating profits. Similarly, the export entitlements is also nothing but realization of export sales and is closely linked to the export. The assessee has produced the TPO’s order for the asst year 2013-14 wherein the TPO had accepted assessee’s TP study including the receipt on account of sale of scrap and export entitlement as part of operating profits. Therefore, we are of the view that this matter needs fresh examination by the TPO and accordingly we remit this issue to the TPO for de-nova consideration. The TPO shall dispose of the issue as expeditiously as possible after affording a reasonable opportunity of hearing to the assessee. Upward revision of Tooling division - as argued by the assessee that the TPO disregarded the lower capacity utilization of the assessee's plant - Held that:- We notice that the Tooling Division of the assessee has been in operation for more than ten years. There is no specific reasons given by the assessee as to why the capacity utilization is only at 40% and it should be given adjustments. Normally adjustment is given for underutilization of capacity when the unit is in its infancy, lockout due to workers unrest, power cuts etc., In the instant case, the assessee has not stated any specific reason for underutilization of its capacity. Moreover the assessee has not furnished any details with regard to the capacity utilization of the comparables. Since there is no adequate information as regard to the capacity utilization of the comparables; we deem it appropriate that no adjustment needs to be granted for underutilization of assessee’s plant in the tooling division. Upward transfer pricing adjustment of patent cost - Held that:- We notice that for the assessment year 2012-13, the assessee had returned back this amount of patent cost as no more payable and has offered it for taxation. Hence, the assessee has accepted the decision of the TPO since the patent cost was no more payable by the assessee. If at all what has been returned in the assessment year 2012-13, is to be deleted, the assessee has to move a rectification petition for AY 2012-13 and no direction can be given by us. Grant of additional depreciation - Held that:- The eligibility for deduction of additional depreciation stands admitted, since 50 per cent thereof had already been allowed by the AO in the the immediately preceding assessment year. Therefore, obviously, the balance 50 per cent of the deduction is to be allowed in the current year, thus we direct the Assessing Officer to grant additional depreciation of balance 10% for the current assessment year namely asst.year 2011-12. It is ordered accordingly. Addition made u/s 14A r.w.r 8D - Held that:- It is an admitted fact that there were common administration expenses for all business activities including the investment activities of the assessee. The assessee incurred routine expenses to maintain its establishment and towards administration. Necessarily, a portion of said expenditure has to be attributed for managerial and directors’ remuneration. Managerial staff and directors are involved in making decisions on investments. Such being the case, a portion of this managerial remuneration and director’s remuneration should be attributable towards investment, the return on which is exempt being dividend income. Therefore, the Assessing Officer has rightly invoked the provisions of section 14A r.w.r 8D(iii) of I T Rules and disallowed ₹ 13,65,688/-.
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