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2019 (6) TMI 663

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..... nd 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 by the Revenue Economic adjustment on import duty and adjustments to be allowed on account of capacity under utilization - HELD THAT:- The 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. The Delhi Bench of the Tribunal in DCIT Vs. Class India Pvt. Ltd. [2015 (8) TMI 755 - ITAT DELHI] 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 on account of capacity utilization. - Decided against revenue - ITA No.154/PUN/2011, CO.34/PUN/2011 - Dated:- 10-6-2019 .....

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..... ment 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 of CIT(A) while deciding the issues raised in relation to the Transfer Pricing provisions. 5. Briefly, in the facts of the case, the assessee had filed original return of income declaring total income of ₹ 1,70,07,180/-. The assessee had entered into several international transactions with its Associated Enterprises. The Assessing Officer made reference to the Transfer Pricing Officer for determining the Arm s Length Price of the purchases and services availed by the assessee company u/s.92CA(1) of the Act. The Transfer Pricing Officer noted that the assessee was engaged in the business of manufacture and sale of passenger cars. The Transfer Pricing Officer issued a show cause notice to the assessee as to why adjustments on the basis similar to the basis adopted by the Transfer Pricing Officer for assessment year 2003-04 be n .....

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..... pany; 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) was the adjustments on account of high level of imports and under utilization of the capacity. Relying on the earlier orders and the decisions of other cases, this adjustment was also allowed to the assessee. The Revenue is in appeal against the order of CIT(A). 8. Ground of appeal No.1 by the Revenue is against exclusion of Honda Siel, Hyundai Motors and Maruti Udyog from the final set of comparables on the ground that the quantum of total Related Party Transactions was less than 25% of the total transaction and hence their margins could be applied. 9. The learned Departmental Representative for the Revenue pointed out that the comparables selected in preceding year were applied by the assessee both for inclusion and exclusion of the companies. 10. The learned Authorized Representative for the assessee pointed out that the Assessing .....

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..... 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 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 by the Revenue. 15. Now coming to the grounds of appeal No.3 and 4 raised by the Revenue are against the economic adjustment on import duty and grounds of appeal No.5 and 6 are against the adjustments to be allowed on account of capacity under utilization. 16. The learned Departmental Representative pointed out that no such capacity utilization adjustment was allowed by the Transfer Pricing Officer on the ground that no method was prescribed in the Act. 17. The learned Authorized Representative .....

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..... 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 on account of capacity utilization. We direct accordingly. The Grounds of appeal No.5 and 6 by the Revenue are thus dismissed. In view of the concession of the assessee, the grounds of appeal No.3 and 4 become academic and the same are dismissed. 22. Now coming to the revised memo of Cross Objection filed by the assessee; it was pointed out that the grounds raised in the said memo of Cross Objection are in support of the order of CIT(A). In view thereof, there is no merit in the said grounds raised in the Cross Objection and the same are dismissed. The assessee has also raised additional ground of appeal to the Cross Objection and it was pointed out that the same would become academic if the Revenue s appeal is dismissed. Since we have already decided the appeal of the Revenue and dismissed the appeal in the paras above, we dismiss .....

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