TMI Blog2018 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ts capacity. The different comparables Entities may have different Depreciation Policies, Accounting Methods and despite general economic conditions being common to all, their Profit Margins and claim of Depreciation may differ. Neither the Transfer Pricing Officer(TPO) nor the Tribunal, muchless this Court can undertake any such exercise of comparing the Operating Profit Margins down to the extent of a hair-splitting exercise. It is the broad comparison of the homogeneous comparables, which is envisaged and is done under Section 92-CA of the Act. The findings or the premise taken by the Dispute Resolution Panel (DRP) in the subsequent year does not render the findings in the previous years per se illegal or unsustainable merely because the Dispute Resolution Panel (DRP) takes a different view in the subsequent years. As already held in M/S. SOFTBRANDS INDIA P. LTD. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] this entire exercise is in the realm of fact finding exercise and unless on the face of it, the findings of the learned Tribunal or the Authorities below is found to be perverse and it can be said that the view taken by them is wholly unsustainable according to the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that there was huge under utilization of the installed capacity. According to the assessee, Depreciation on fixed assets that was to be considered while working out the operating profit should only be in proportion to the actual utilization of the installed capacity. Assessee pointed out that its turnover had gone down by 60% compared to that of the preceding year and only 10% of the installed capacity was used. 15. TPO required the assessee to give details of its claim of under utilization of capacity. To this assessee stated that economic slow-down, frequent power disruptions, spiraling cost of the raw material all resulted in lower utilization of the capacity, leading to under absorption of fixed costs. As per the assessee, its capacity utilization for the relevant previous year was only about 28,336 sq.mts of granite blocks though it installed capacity for 2,88,000 sq.mts. However TPO was not impressed. According to him, the reasons for under utilization stated by the assessee applied equally for its competitors also. Comparables also suffered from the same business negativities. As per the TPO for the previous year relevant to A.Y.2009-10 assessee had claimed fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia P. Ltd v. DCIT [64 DTR 225]. 18. Per contra, Ld. DR Strongly supported the orders of authorities below. 19. We have perused the orders and heard the rival contentions. Case of the assessee is that it had a capacity for production of 1,22,233 sq.mts of granite but it had only produced 28,336 sq.mts during the year. As per the assessee, because of this its sales went down by more than 60%. This does indicate underutilization of capacity and assets. Fixed cost remaining the same, irrespective of the actual utilization, such cost had to be charged the production and this is a costing principle that apply to all business and not assessee alone. Among the comparables selected, we find that two companies namely, Neelkanth Rock Minerals Ltd and Ceeta Industries Ltd also had a trend of decreasing sales. Reasons shown by the assessee for under utilization are that there were difficulties in procuring raw material, not owning any captive mines, and severe shortage of power. These vagaries of business are nothing but adverse environment faced by all competitors who are selected as comparables. Assessee s contention is that its fixed assets were under utilized and therefore there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of Manufacturing and Export of cut and polished Granite. During the year in question, on account of severe adverse economic conditions, the business of the assessee dipped to a large extent and the sales had gone down by more than 60% and as against the production capacity of 2,88,000 Sq.Meters, the Assessee could produce and export only 28,336 Sq.Meters of Granite and since the manufacturing was only to the extent of 10% of the installed capacity, the Depreciation claimed by the Assessee should have been proportionately reduced to determine the Operating Profits of the Assessee Company as compared with the other comparables by the learned Transfer Pricing Officer (TPO) and in such Transfer Pricing Analysis given by the Assessee Company before the learned Transfer Pricing Officer. The learned Transfer Pricing Officer had rejected the Transfer Pricing Analysis given by the Assessee on the ground that despite such adverse economic conditions which could be presumed to be available and present for all such similarly situated Companies engaged in the business of Granite manufacture and export, six of the comparable Entities had shown increase in the turnover and therefore, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant material are binding on the lower Authorities as well as this Court and unless an ex-facie perversity is established in the findings of the learned Tribunal, no substantial question of law arises to maintain the appeal before this Court under Section 260-A of the Income Tax Act, 1961. 9. The relevant portion of the aforesaid judgment rendered on 25-06-2018 is quoted below for ready reference. Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tear of the Plant and Machinery. 12. The claim of Depreciation does not have a direct, linear or proportionate relationship with the capacity utilization. The Tribunal has rightly held that even without actual utilization of the Plant and Machinery, Depreciation can still be claimed as a deduction from the Operating Profits. 13. Not only the learned Tribunal has found similar situation in the case of two named comparables in the year but, the reason assigned by the learned Tribunal itself in the quoted portion of the Order above cannot be said to be per se incorrect or a wrong statement of Accounting Principles. 14. The Assessee Company could not have insisted upon a proportionate reduction of the claim of Depreciation in relation to the under-utilization of its capacity. The different comparables Entities may have different Depreciation Policies, Accounting Methods and despite general economic conditions being common to all, their Profit Margins and claim of Depreciation may differ. 15. Neither the Transfer Pricing Officer(TPO) nor the Tribunal, muchless this Court can undertake any such exercise of comparing the Operating Profit Margins down to the extent of a hair-sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
