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2021 (12) TMI 141 - AT - Income TaxTP Adjustment - main grievance is the non-granting of the adjustment with regard to underutilized capacity - HELD THAT:- The settled law is that adjustment on account of capacity utilization has to be granted. In this regard, the TPO is bound to exercise its powers under section 133(6) of the Act and to collate the information on capacity details of comparable companies such as actual capacity in units, installed capacity, breakup of fixed and variable cost, product wise segmental profitability (if any) and provide the assessee opportunity by sharing the details so obtained on the comparable companies. There is want of information / data, adjustment can be made to the tested party also - it would be just and appropriate to set aside the impugned order on this issue and remand the issue to the AO / TPO to carry out the exercise of allowing adjustment on account of underutilized capacity. Not allowing working capital adjustment has been rejected by the DRP but the DRP has given the direction to the TPO / AO to take the margins of the comparables by considering finance cost as non-operating in nature - The directions of the DRP cannot be regarded as substitute for not granting working capital adjustment and therefore we direct the AO / TPO to allow working capital adjustment. Whether transaction of payment of royalty can be aggregated with the international transaction of manufacturing activity also requires afresh look in the light of the submissions made by the learned Counsel for the assessee that the royalty payment as to whether it is linked with the trading segment also has not been verified. Comparables adopted by the assessee in the TP study, it is seen that the DRP has not properly analysed the submissions of the assessee. The 7 comparable companies also are engaged in manufacturing of plastic goods. The DRP has made observation that the assessee is engaged in manufacturing of plastic closures, caps, etc., and therefore the 7 companies are not functionally comparables. There seems to be a contradiction in the order of the DRP - we deem it fit and proper that the issue with regard to determination of ALP should be remanded to the AO / TPO for determination afresh in the light of the observations made by us in this order. AO / TPO shall decide the issue of determination of ALP in the manufacturing segment afresh after affording assessee opportunity of being heard. Accordingly, the order of the AO is set aside and the issue remanded to the AO / TPO.
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