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2023 (2) TMI 79 - ITAT CHENNAITP Adjustment - exclusion of comparable companies - HELD THAT:- M/s.Shyama Power India Ltd. - Assessee is providing steel fabrication and construction services to L&T Construction and Samsung which are engaged in commercial and residential work. Therefore, we are of the considered view that M/s.Shyama Power India Ltd., is not a good comparable when it comes to functions carried by the assessee. Therefore, we direct the TPO to exclude M/s.Shyama Power India Ltd., from the list of comparables. M/s.Sunil Hitech Engineers Ltd - As gone through various details filed by the assessee including annual report of M/s.Sunil Hitech Engineers Ltd., we find that functions carried out by the assessee and M/s.Sunil Hitech Engineers Ltd., are altogether different and further, M/s.Sunil Hitech Engineers Ltd., is predominantly carrying out construction works for power projects, whereas, the assessee is carrying out steel structural fabrication and erection works for commercial and residential structures. Therefore, we are of the considered view that M/s.Sunil Hitech Engineers Ltd., cannot be a good comparable to the assessee company and thus, we direct the TPO to excluded. M/s.Everest Infra Energy Ltd - functions carried out by the assessee and M/s.Everest Infra Energy Ltd., are broadly similar in nature, although, the client base is different. Therefore, we are of the considered view that there is no error in the reasons given by the TPO and the DRP to include M/s.Everest Infra Energy Ltd., in the list of comparable and thus, we reject the ground taken by the assessee. Consideration of foreign exchange loss as operating in nature - HELD THAT:- As question whether foreign exchange loss is operating or non-operating is depending upon the nature of loss incurred by the assessee and treatment of said loss in the books of accounts by the assessee. The assessee has treated foreign exchange loss as other income and further, excluded foreign exchange loss for computing operating margin on the ground that it is non-operating in nature. On perusal of details filed by the assessee and also observation of the TPO, we find that the assessee has incurred foreign exchange loss on account of creditors for purchase and debtors for sales and services. In our considered view, said loss is having bearing on operating margin on the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the TPO/DRP to include foreign exchange loss as operating in nature for the purpose of computing PLI and thus, we reject the ground taken by the assessee. Working capital adjustment while determining the net profit margin of the assessee - HELD THAT:- When assessee seeks adjustment for working capital considering the amount of working capital employed in their business consisting of own funds and borrowed funds in light of working capital position of comparable goes, then it is the duty of the TPO to provide necessary working capital adjustment while computing operating margin of the assessee and this position is supported by the decision of ITAT Chennai Benches in the case of M/s. Doosan Power Systems India Pvt. Ltd [2021 (3) TMI 1262 - ITAT CHENNAI] where similar decision has been reiterated by the Tribunal. Therefore, by following the decision of ITAT, we direct the TPO to reconsider the issue of working capital adjustment in light of various averments made by the assessee and also evidences placed on record. Adjustment for underutilization of capacity - assessee submitted that the TPO/DRP is not appreciating the fact that the fixed cost to sales ratio to the assessee is 26.62% as against 13.01% of the comparable companies selected in TP order. Therefore, suitable adjustment needs to be provided - HELD THAT:- There is no merit in ground taken by the assessee for providing capacity utilization adjustment, because, the assessee has failed to make out a case of underutilization of capacity when compared to comparable companies selected in TPO order, except stating that fixed cost ratio to sales is higher in the case of the assessee when compared to comparable companies. Therefore, we reject the ground taken by the assessee for capacity utilization adjustment. Rejecting the application of multiple year data for the purpose of bench marking the international transaction - HELD THAT:- When the data available in the public domain in respect of comparable companies, the question of going into the multiple year data does not arise and thus, we are of the considered view that there is no error in the reasons given by the TPO / DRP in rejecting application of multiple year data for the purpose of bench marking of international transaction entered during the year. Disallowance of reimbursement of expenses u/s.40(a)(i) - HELD THAT:- Admittedly, the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, is not before the TPO. For the first time, the DRP on the basis of international transaction reported by the assessee in Form No.3CEB, opined that payment towards reimbursement of expenses, is in the nature of FTS. The assessee, although, claimed before the DRP that reimbursement of expenses is on ‘cost to cost’ basis without any mark-up, but no details or explanation was submitted by the assessee - issue needs to go back to the file of the TPO for further verification. Hence, we set aside the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, and direct the TPO to re-examine the claim of the assessee in accordance with law. Depreciation on UPS - assessee had claimed 60% depreciation on UPS, Printers and other accessories - AO has restricted depreciation on UPS printers @15% which is applicable to normal block of plant & machinery - HELD THAT:- This issue is covered in favour of the assessee by the decision of Sundaram Asset Management Co. Ltd.[2014 (2) TMI 224 - ITAT CHENNAI] where it has been clearly held that UPS and Printers are part of a computer systems and eligible for higher depreciation of 60%. A similar view has been taken by Macawber Engineering System (India) Pvt. Ltd.[2013 (11) TMI 131 - ITAT MUMBAI]. Therefore, we are of the considered view that the assessee is entitled for 60% depreciation on UPS and Printers and thus, we direct the AO to allow 60% of depreciation on UPS and Printers as claimed by the assessee.
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