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TMI Blog2016 (8) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing issues are concerned, are as follows: 1. General 1.1 The learned Assistant Commissioner of Income Tax, Circle-9(2), New Delhi ("the Assessing Officer" or the Ld. AO") and Learned TPO pursuant to directions of Hon'ble Dispute Resolution Panel ('Hon'ble DRP'), has erred on facts and circumstances of the case and in law in completing the present assessment at an income of Rs. 1,39,59,460 as against the returned income of Rs.(-) 4,05,01,773 is bad in law. 1 2 That, the Learned Deputy Commissioner of Income Tax, Transfer Pricing Officer -1(2)(1) (hereinafter referred as 'learned TPO')/Hon'ble DRP has grossly erred in making/upholding an adjustment of Rs. 5,41,00.671 in respect of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assumptions 41 The Ld. TPO/ Hon'ble DRP erred in passing an order that is perverse in law ignoring the relevant submissions, information and documents provided by the Appellant to substantiate the services and benefits received by the appellant in lieu of payment of royalty, and based on a preoccupied mind reached at an inappropriate conclusion that the arm's length value of the transaction pertaining to payment of royalty should be Nil. 4.2 The Ld, TPO/ Hon'ble DRP erred in rejecting the adjustment for difference in the capacity utilization of the Assessee vis-a-vis the comparable companies. 4.3. The learned AO/Hon'ble DRP erred, on facts and circumstances of the case and in law, in arbitrarily rejecting one of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orcoolding ASA, Norway. The assessee is engaged in the business of glass door merchandising. It has a manufacturing plant which caters to the domestic market as also to exports to neighbouring Asian countries. During the course of proceedings before the Transfer Pricing Officer, one of the issues which came up for scrutiny was capacity underutilization adjustment. The TPO noted that the assessee was informed by his key customer, i.e. Coca Cola, of likely performance failure in some of the visicoolers sold and installed by it. Subsequently, because of the fault of the products already sold, the assessee's sale dwindled. As against a production of 1,11,000 visicoolers in the immediately preceding year, the assessee could produce only 39,500 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be relevant in making capacity underutilization adjustment is when ALP is being determined for the raw material rather than sales. It is only when purchases are being made from the AEs and the revenues are being generated from the unrelated parties that such an adjustment, even theoretically, can come into play. In view of these discussions, and noting that "AE should have provided some price support to the assessee", the TPO rejected the capacity underutilization adjustment. The assessee did raise an objection before DRP but without any success. The DRP noted that "the TPO has given valid reasons for not accepting the assessee's claim" and that "the assessee has failed to controvert the reasons given by the TPO for rejecting the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of a one hundred percent captive service unit, as is the assessee before us, the very concept of capacity underutilization may not really make any sense unless the assessee has not been able to offer, for reasons beyond its control, the underutilized capacity to its AE". It is thus clear that the observations of the coordinate bench, which one of us (i.e. the Accountant Member) had the occasion to articulate, was specifically in the context of one hundred percent captive units. That is not the case here. There is also no dispute that there were serious issues with respect to its products and there was a fall in production by over 64%. In these circumstances, there was clearly a substantial underutilization of capacity. The stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the relevant facts and circumstances are similar. It was in this backdrop, and after rejecting the submissions against the enhancement, that the DRP directed the Assessing Officer to make "similar (arm's length price) adjustment towards royalty and management fees as has been upheld by the DRP in 2010-11". When the matter thus travelled back to the Assessing Officer, he made an ALP adjustment of Rs. 5,41,00,671 as against ALP adjustment of Rs. 2,39,58,750 as originally proposed by the TPO. The assessee is aggrieved and is in appeal before us. 7. Having heard the rival submissions and having perused the material on record, we find that the issue is covered, in favour of the assessee,the order dated 8th April 2016 passed by a coordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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