TMI Blog2015 (3) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... ents for variations, which could materially affect the amount of net profit margin in the open market in comparable uncontrolled transactions, are to be made in respect of net profits realized by the comparable transactions or enterprises. Learned CIT(A) was thus clearly in error in proceeding to make capacity underutilization adjustments in the profits earned by the assessee. As the assessee does not have the liberty to work for any other customer, and is wholly dependent on its AE for productive use of its capacity to work, the AE should normally make good any losses to the captive unit caused by its not being able to make use of the available capacity. In the case before this, the AE has indeed given some financial support to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of arm s length price (ALP) adjustment made as per TPO order under section 92CA (3) of the Act. 2. Briefly stated, material facts of the case, as culled out from material on record, are like this. The assessee before us is a subsidiary of a German company by the name of EDAG Engineering Designs AG, engaged in the business as an engineering expert in the automotive industry and is said to be one of the global leaders in offering closed process chain services i.e. complete services for integrated development- including design and product development, template and prototype construction and from testing division to turnkey manufacturing facilities. The assessee is a captive unit for its German parent company and is engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted the arm s length revenue at 105.59% of the cost incurred by the assessee, which came to ₹ 6,91,13,540 as against book value of these revenues at ₹ 4,22,37,633. The difference thus came to ₹ 2,68,75,906. However, as the assesse had subsequently received a financial support, by way of waiver of dues by the AE, amounting to ₹ 1,02,88,176, the ALP adjustment was reduced by this amount. The ALP adjustment was thus computed at ₹ 1,65,87,730. In the course of the assessment proceedings, the Assessing Officer made this ALP adjustment to the value of transaction entered into with the AE. Aggrieved, inter alia, by the ALP adjustment so made by the AO, assessee carried the matter in appeal before the CIT(A). Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position. 5. We find that learned CIT(A) has granted the impugned relief by making adjustments, on account of capacity underutilization, in the results shown by the tested party and thus computing hypothetical financial results which the tested party would have achieved in perfect conditions. Such an exercise, in our humble understanding of law, is impermissible. As as is the undisputed legal position, such comparability adjustments can only be made in the comparables and not the tested party itself. It is specifically provided in Rule 10B (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial support extended to the assessee are not clear from the material on record. Learned CIT(A) has granted the impugned relief merely by making capacity underutilization adjustments to the profits achieved by the tested party, but then such an approach, as we have noted earlier, is wholly unsustainable in law. 6. In view of the above discussions, as also bearing in mind entirety of the case, we deem it fit and proper to vacate the impugned order and direct the CIT(A) to decide the matter afresh after giving an opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order. We order so. 7. In the result, the appeal is allowed for statistical purposes in the terms indicated above. Pronounced in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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