2023 (3) TMI 706 - AT - Income Tax

TP Adjustment - not considering the losses on account of foreign exchange fluctuation as operating in nature and not allowing purchase price adjustment - HELD THAT:- Admittedly, similar issue came for consideration before this Tribunal in assessee’s own case [2022 (5) TMI 34 - ITAT BANGALORE] as held TPO and the DRP have not properly analyzed the submissions of the Assessee. There is no analysis whether there was any adverse foreign exchange fluctuations during the relevant assessment year, which is abnormal in nature and what is its effect on the operating margin of the Assessee and the comparables - we are inclined to remit the issue to the file of TPO on similar directions.

Non-allowing adjustment on account of custom duty and surcharge incurred by the assessee - Similar issue was considered by Bangalore bench in the case of Continental Automotive Components India Pvt. Ltd. [2021 (11) TMI 1059 - ITAT BANGALORE] as held issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. However, the TPO/AO/DRP shall see to it that the difference in question is 'likely to materially affect' the price/profit in the open market as envisaged in sub rule (3) of Rule 10B of the Income tax Rules, 1962 - thus we remit the issue to the file of AO/TPO for fresh consideration on similar lines.

Depreciation adjustment - DRP not excluding depreciation while computing the operating margin of the Appellant and the comparable companies - HELD THAT:- As decided in assessee own case [2022 (5) TMI 34 - ITAT BANGALORE] we observe that there is no analysis with respect to depreciation policy of the assessee and comparable cases. Therefore, we are of the view that let this matter be reexamined by the TPO / AO afresh. The assessee should demonstrate whether there is any difference in depreciation policy of the assessee and the comparable companies and what is its impact on the computation of arm's length price. If the assessee is able to demonstrate the same, the TPO may allow reasonable depreciation adjustment while determining the ALP for the international transactions. Thus we remit the issue to the AO/TPO for fresh consideration.

Capacity utilization adjustment - As we direct the TPO to exercise powers under section 133(6) of the Act to call for information on capacity utilization of the comparable companies such as Installed Capacity, Actual Production in Units,Break-up of Fixed Cost and Variable Cost, Segmental/ product wise information, if any. Post obtaining the information, he is requested to provide the assessee an opportunity by sharing the details so obtained, and accordingly, grant the adjustment for capacity under-utilized - we remit the issue to the file of AO/TPO on similar direction.

Working capital adjustment - We of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case [2022 (5) TMI 34 - ITAT BANGALORE] held keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Respectfully following the decision of the Coordinate Bench in the case of Huawei Technologies India (P)Ltd. [2018 (10) TMI 1796 - ITAT BANGALORE] we also hold that the working capital adjustment is to be allowed as per actual on the final set of comparables - Therefore the working capital adjustment as claimed by the Assessee should be allowed. thus we remit the issue to the file of AO/TPO on similar lines.

Admission of additional grounds accepted - transfer pricing adjustment should be restricted only to the AE related transactions of the assessee - we remit this issue to the file of AO/TPO for fresh consideration.