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2018 (1) TMI 1044 - AT - Income TaxTPA - ALP determination - comparable selection criteria - whether the quantum of turnover of non-AE i.e. uncontrolled transactions with total turnover has to be considered for treating as comparables? - non-adoption of internal TNMM - Held that:- Profitability of the organization will have an impact when there is huge underutilization of the capacity. There has to be an adjustment internally within the organization by allocating overhead to the segments, for which, capacity was utilized and for idle capacity. Otherwise, there has to be an adjustment of idle capacity when compared with outside comparables. In the given case, assessee has not properly maintained allocation of overheads, even though, assessee has relied on the services of Cost Accountant, who has allocated the overheads only to the segments, in which, turnovers were recorded and failed to allocate for the idle capacity. Therefore, in our considered view, assessee has to submit the segmental results based on the absorption of overhead on capacity utilization and idle capacity. This is imperative that assessee allocates manufacturing overhead, administrative overhead and other fixed overheads on the basis of capacity utilization. As advisable for the assessee to submit segment-wise report i.e. export to AE, export to non-AE, domestic sales to non-AE and idle capacity. Considering the above factual matrix, we direct the TPO/AO to consider the above revised segmental profit and loss reports of the assessee and arrive of the ALP adjustment by considering non-AE transactions as one of the comparable in determining ALP by following TNMM method afresh - remit this file back to the file of TPO/AO for determining the ALP afresh. - Decided in favour of assessee for statistical purposes.
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