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2019 (6) TMI 663

ound that the quantum of total Related Party Transactions was less than 25% of the total transaction - HELD THAT:- AO did not apply any RPT filter but the CIT(A) had applied RPT filter of 15% and the three concerns were excluded in the hands of the assessee. In view thereof, we find no merit in the issue raised by the Revenue vide ground of appeal No.1. We hold that the RPT filter needs to be applied in the present set of facts and the three concerns having not fulfilled RPT filter cannot be included in the final list of comparables. In the case of assessee itself, the Assessing Officer / TPO had applied RPT filter of 25% in assessment year 2005-06. Hence, there is no merit in plea of Revenue. Inclusion of Hindustan Motors as functionally comparable - The case of AO was that it cannot be included in the final list of comparables on the ground that it incurred losses during the year. However, as pointed out by the CIT(A), the said concern was not persistent loss making concern and in such circumstances, there is no merit in excluding Hindustan Motors from the final list of comparables. Accordingly, we uphold the order of CIT(A) in this regard and dismiss ground of appeal No.2 raised .....

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out considering that the business model followed by the appellant is consistently same over a period of time. 4. Without prejudice to the above, the Hon'ble CIT(A) erred in neither specifying the quantum of adjustment on account of additional non-cenvatable duties paid by the Appellant, which is to be allowed to the Appellant nor suggesting any methodology for determining such quantum of adjustment. 5. The Hon'ble CIT(A) erred in directing the AO to allow the adjustment on account of under utilization of capacity which is not in accordance with the provisions of the Rule 10B(1)(e)(iii) of the Income-tax Rules, 1962 as well as the decision of Hon'ble ITAT in case of Global Vantedge Pvt. Ltd. (2010-TIOL-24-ITAT-DEL). 6. Without prejudice to the above, the Hon'ble CIT(A) erred in neither specifying the quantum of adjustment on account of under utilization of capacity, which is to be allowed to the Appellant nor suggesting any methodology for determining such quantum of adjustment. 7. The order of the AO be restored and that of the CIT(A) be vacated. 8. The appellant craves leave to add, amend or alter any grounds of appeal. 4. The Revenue is in appeal against the order .....

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ted Party Transactions. Hence, all companies with Related Party Transactions exceeding 15% of the total income be rejected as comparables. The assessee also referred to the decision of Pune Bench of the Tribunal in assessee s own case for assessment year 2003-04 reported in 122 TTJ 699 (Pune), order dated 12-03-2009 wherein it was held that the transaction has to be between two entities which could not influence or control each other decisions. The CIT(A) observed that in view of the same the inclusion of Honda Siel, Hyundai Motors and Maruti Udyog in the final set of comparables was not warranted. Reference was made to Rule 10B(1)(e)(iii) of the Income Tax Rules in this regard. With regard to Hindustan Motors where the plea of the assessee was that it was functionally comparable and it was not a consistent operating loss making company; the CIT(A) did not agree with the order of the Assessing Officer/Transfer Pricing Officer, since Hindustan Motors had made operative profit of 0.11% during financial year ending 31-03-2003. The CIT(A) thus directed the Assessing Officer to include Hindustan Motors in the final set of comparables. 7. The next issue which was decided by the CIT(A) wa .....

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is RPT filter. 12. Such is the proposition laid down in Sony India Pvt. Ltd. reported in 106 TTJ 175 (Del). The observations are reproduced under para 4.3 at page 7 of appellate order. 13. Applying the said filter of RPT, the benchmarking has to be carried out. In the facts of the present case before us, the Assessing Officer did not apply any RPT filter but the CIT(A) had applied RPT filter of 15% and the three concerns were excluded in the hands of the assessee. In view thereof, we find no merit in the issue raised by the Revenue vide ground of appeal No.1. We hold that the RPT filter needs to be applied in the present set of facts and the three concerns having not fulfilled RPT filter cannot be included in the final list of comparables. In the case of assessee itself, the Assessing Officer / TPO had applied RPT filter of 25% in assessment year 2005-06. Hence, there is no merit in plea of Revenue. Ground of appeal No.1 by the Revenue is dismissed. 14. The issue raised vide ground of appeal No.2 is against the inclusion of Hindustan Motors as functionally comparable. The case of the Assessing Officer was that it cannot be included in the final list of comparables on the ground th .....

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e assessee is in second year of operation and has pointed out that it has only utilized 33% of the total capacity whereas the comparables have on an average utilized 50 to 70% of the total capacity and hence, the margins of the comparables need to be adjusted accordingly. 20. The Hon ble Bombay High Court in CIT Vs. Petro Araldite (P) Ltd. (supra) had held that while computing the Arm s Length Price wherein adjustments need to be made in the hands of the comparables and where there was difference in level of capacity utilization of assessee and level of capacity utilization of the comparables, then adjustment would be required to be made to provide margins of the comparables in terms of Rule 10B(1)(e)(iii) of the Income Tax Rules. Similar is the proposition laid down by the Pune Bench of the Tribunal in Tasty Bite Eatables Ltd. Vs. ACIT (supra) and Vishay Components Pvt. Ltd. Vs. ACIT (supra). 21. The Delhi Bench of the Tribunal in DCIT Vs. Class India Pvt. Ltd. has laid down the procedure for computing capacity utilization adjustment under the TNM method. Hence, we hold that the said procedure be applied by the Assessing Officer/Transfer Pricing Officer to work out the adjustment .....

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