TMI Blog2018 (5) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1963 and looking to the facts and circumstances, it is our considered opinion that this Addendum to the agreement goes to the very root of the matter and it will suitably assist the lower authorities to reach a logical conclusion on the issue. Since the lower authorities did not have the benefit of examining this document, the matter has to be necessarily restored to the file of the Assessing Officer/TPO for deciding the issue of royalty afresh after duly considering this agreement and after giving due opportunity to the assessee to present its case. - ITA No. 5930/Del/2012 And ITA No. 1630/Del/2014 - - - Dated:- 14-5-2018 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Ajay Vohra, Sr. Adv. Shri Abhishek Aggarwal, CA For The Respondent : Shri Sanjay I. Bara, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, J.M. Both these appeals have been preferred by the assessee. ITA 5930/Del/2012 pertains to assessment year 2008-09 and is preferred against the final order dated 29.10.12 passed by the Assessing Officer consequent to the order of the Hon ble Dispute Resolution Panel (DRP) dated 27.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions undertaken by the assessee with the AEs were considered to be at arm s length price. During the year under consideration, the assessee had also paid royalty @ 2% amounting to ₹ 90,38,675/- to the Associated Enterprises (TP USA) in terms of the royalty agreement dated 2.1.2002. 2.3 The case was referred by the AO to the Transfer Pricing Officer (TPO) and on the basis of fresh search, the TPO and, thereafter, the Hon ble DRP considered 19 companies with operating profit margin of 28.60%. The TPO in the order passed u/s 92CA (3) of the Act determined the PLI of the comparable companies for determining the ALP after allowing working capital adjustment of 6.70% at 21.90%. However, the TPO, while computing the operating profit of the assessee considered expenditure on account of payment of lease rent for unutilized capacity amounting to ₹ 1,34,28,691/- as operating expenses. The TPO further denied the adjustment on account of lower realisation of export proceeds on account of decline in the value of the Indian currency due to exchange rate fluctuation amounting to ₹ 4,67,25,395/-. Accordingly, the TPO after making these adjustments, compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se were retained in anticipation of future growth of business and also for third party domestic business. The Ld. AR highlighted the fact that the assessee was not only providing services to the AE but was also engaged in provision of services to uncontrolled entities. It was reiterated that the premises were taken on lease in anticipation of new business from third party for domestic purposes. It was further submitted that as a consequence of these two floors remaining underutilized, the assessee had incurred the idle cost in respect of rent and maintenance of unutilized capacity which was allowable as an adjustment for the purpose of computing the ALP. Ld. AR also submitted that the ITAT Delhi Bench in assessee s own case for assessment years 2004-05 and 2006-07 in ITA Nos. 4068/Del/2009 and 4796/Del/2010 respectively had upheld the assessee s claim towards adjustment of idle capacity under similar circumstances. Our attention was drawn to the relevant paragraphs in the said order and it was further submitted that these orders of the Tribunal had been affirmed by the Hon ble Delhi High Court in ITA Nos. 618/2012 and 619/2012. The Ld. AR submitted that since this issue was covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tensively from the order of the TPO as well as the directions of the Hon ble DRP and submitted that the business of the assessee was a cogent mix of related and unrelated parties business and it was a little farfetched for the assessee to claim that the vacant premises had been intended to be used for third party business only. It was also submitted that more than 80% of the assessee s business came from related parties and, therefore, it was a little incomprehensible as to why the assessee had kept a portion consisting of approximately 25% of the work area unoccupied for a period of almost 17 months. Ld. CIT DR vehemently argued that the assessee s claim for adjustment on account of underutilization capacity in respect of rent and related charges should not be allowed. 4.1 Arguing on other issue relating to royalty, the Ld. CIT DR opposed the assessee s application for admission of additional evidence. It was vehemently argued that this Addendum to the agreement which the assessee was seeking to file at this stage was dated 2002 and, therefore, there was no justifiable reason for the assessee to have not filed the same before the lower authorities during the course of proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises of the assessee were lying vacant/idle during the year under consideration. Accordingly, on identical facts, it is our considered opinion that requisite adjustment should be allowed to the assessee on this issue. Accordingly, we restore this matter to the file of the Assessing Officer/TPO with a direction to work out the requisite adjustment for the idle capacity in respect of rent and related charges after giving assessee proper opportunity. Thus, this ground stands allowed for statistical purposes. 7.1 As far as the assessee s plea regarding adjustment in respect of royalty is concerned, we have duly considered the assessee s application for admission of additional evidence which has been filed under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and looking to the facts and circumstances, it is our considered opinion that this Addendum to the agreement goes to the very root of the matter and it will suitably assist the lower authorities to reach a logical conclusion on the issue. Since the lower authorities did not have the benefit of examining this document, the matter has to be necessarily restored to the file of the Assessing Officer/TPO for deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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