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2017 (2) TMI 1449 - AT - Income TaxTP Adjustment - comparable selection - Functional dissimilarity - HELD THAT:- Assessee company is engaged in the manufacture of tube pipes automatic components and tubular products primarily in the auto industry thus companies functionally dissimilar with that of assessee need to be deselected from final list. TPO not considered the Forex loss as non-operative in nature while calculating the operative margin of the company - HELD THAT:- Foreign exchange loss or gain due to reinstatement of balance outstanding at the end of the year cannot be held as operating profit/loss since the same is on account of notional loss to comply with the accounting standards. With regard to the foreign exchange loss incurred in business operations for purchase of materials or for international transaction do not give any extra benefit to the AE who supplies the material, since the AE receives the payment in foreign exchange and the assessee also makes the payment in foreign exchange. The loss was due to exchange difference between the foreign currency and the Indian currency. Therefore, while computing the PLI, operating income for the purpose of PLI, both foreign exchange loss or gain should be excluded from the operating income. The DRP has allowed loss on Forex to exclude from the operating income, relying on the safe Harbour Rules which provide for exclusion of Forex loss from operating expenses. Therefore, we do not find any infirmity in the directions given by the DRP to exclude both foreign exchange loss or gain of the tested party as well as comparables from the operating income. This ground of Revenue is dismissed. Working capital adjustment - Assessee has not furnished the pricing model and reasons for extending extraordinary credit to its clients. Similarly the assessee did not furnish the pricing models of the comparable companies as well as the AE. The terms and conditions of sale and interest clause if any require verification - HELD THAT:- The issue of working capital adjustment requires verification of facts from the assessment records of the assessee and the data of comparables companies in the light of discussion made above. Therefore, we remit the matter back to the file of the AO to examine the assessee’s claim of working capital adjustment on facts and make appropriate adjustment on facts and merits. It is needless to say that the Assessing Officer should give opportunity to the assessee to present the case. This ground of the assessee is allowed for statistical purposes. Idle capacity utilization - HELD THAT:- The assessee has not furnished the details of installed capacity and capacity utilized and the reasons for non-utilization of the installed capacity and resources available and utilized by the assessee. Similarly, the assessee has also not furnished the details of the comparable companies installed capacity and utilized capacity and the levels of break even. In the absence of reasons for non-utilization of installed capacity the claim for capacity adjustment is unfounded. The assessee claimed to be in the second year of operation but furnished the details in respect of sales to fixed costs which is insufficient information to decide whether installed capacity was due to start ups or not. The assessee did not explain the reasons for non-utilization of optimum capacity and therefore, this objection of the assessee cannot be accepted and the decision of the Co-ordinate Bench in the case of M/s.Mando India Steering Systems Pvt. Ltd., [2015 (4) TMI 176 - ITAT CHENNAI] is not applicable and this ground is dismissed. Selection of Armtek Ltd as comparable - HELD THAT:- In the instant case, the assessee is following accounting year from April to March and the comparable company M/s.Amtek Ring Gears Ltd., is following June, 2008 to June, 2009. Once, the company is following a different accounting year, there will be a wide range effects in the operating results and the company seized to be a good comparable. The AO has not reconciled the financials of the comparable company to the corresponding period of the tested party by collecting necessary information and re-casted the financials. Therefore, we direct the AO to exclude the M/s.Amtek Ring Gears Ltd., as comparable. This ground of Cross-Objection of the assessee is allowed. RPT filter - HELD THAT:- TPO has applied the RPT filter of 25% and the assessee objected for restricting it to 25%. The DRP has rejected the assessee’s objection on the ground that the 25% has become more or less acceptable and it gets support from the fact that 26% is a threshold limit for treating the company as AE u/s.92A. Similarly, Sec.40A(2)(b) treats 20% as the threshold limit for having substantial interest in the company. Therefore, the DRP held the application of 25% is reasonable. No argument has been made by the assessee on this ground and we consider that as per the reasoning given by the DRP for application of 25, application of RPT appears to be reasonable and this ground is dismissed. Not considering the fresh set of comparables submitted by the assessee for bench marking the margins - HELD THAT:- DRP has rejected the objection of the assessee stating that the additional set of companies were nothing but cherry picked by the Ld.AR without proper objectives and analysis. During the appeal hearing, the Ld.AR did not place any additional information except reiterating the submissions made before the DRP. The Ld.AR has not placed TP analysis and the FAR analysis and the financials of the additional comparables before the tribunal. Therefore, we uphold the directions of the DRP and this ground of the appeal is dismissed.
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