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2015 (8) TMI 977 - AT - Income TaxTransfer pricing adjustment - low utilization of capacity - Held that:- In order to arrive at an appropriate adjustment, the entire factual matrix is required to be examined at the appropriate level. The TPO as well as the DRP did not accept the plea of the assessee in principle, while the same has been accepted by us. Therefore, in order to allow an appropriate adjustment, necessary verification on the basis of the material to be furnished by the assessee, deserves to be carried out by the Assessing Officer. Therefore, while upholding the plea of the assessee, we restore the matter back to the file of the Assessing Officer who shall allow the assessee a reasonable opportunity to make submissions and produce relevant material in support of its stand and thereafter the Assessing Officer shall allow an appropriate adjustment in the operating margins of the assessee for low capacity utilization and high fixed operating costs incurred in the initial year of operation. - Decided in favour of assessee for statistical purposes. Computation of assessee’s margin for the purposes of comparability analysis - As per the assessee, future year’s actual margins be also considered to determine its profit margins in order to determine the ALP. The aforesaid plea is sought to be justified on the basis that due to exceptional circumstances of being the initial year of set-up, the assessee has incurred loss during the year, while it has earned profits in the subsequent two years. Therefore, assessee submitted that future year’s actual margins be also considered for analyzing the comparability of current year’s margin with the comparable uncontrolled transactions. The TPO as well as the DRP have not accepted the plea of the assessee and held that having regard to rule 10B(1)(e) of the Rules, there is no scope to consider data of the subsequent assessment years. In our considered opinion, the assessee has to fail on this aspect for the reasons assigned by the lower authorities. Also the earning of profits in the future two years by the assessee may be a good ground to justify the loss being incurred in this year because of the exceptional circumstances of being the initial year of set-up, under capacity utilization, etc., but there is no justification for inclusion of the future year’s profit margins while determining the ALP of the current year’s international transactions. - Decided against assessee. Non providing adjustment on account of working capital differences vis-à-vis the comparable uncontrolled entities - Held that:- We are inclined to remit the matter back to the file of the Assessing Officer who shall examine as to whether or not in the present case the working capital requirement constitute an item of difference so as to require adjustment as per the para-meters laid down by rule 10B(1)(e)(iii) r.w.rule 10B(3) of the Rules for the purposes of analyzing the comparability of the comparable uncontrolled transactions with the international transactions of the assessee. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth material and submissions - Decided in favour of assessee for statistical purposes.
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