TMI Blog2017 (9) TMI 1881X X X X Extracts X X X X X X X X Extracts X X X X ..... parable with the profile of the assessee. That exercise of bring more comparables in the form of TP study had not been done by TPO and TPO had determined the ALP adjustment based on only one comparable and further notice under section 133 were not issued to the comparables for seeking the necessary information s on capacity utilization . The case in hand is not one case, where it is not possible for TPO to find out the other suitable comparable after rejecting the comparables of the assessee. But no efforts were made by the TPO to find out the more comparable so as to make the ALP adjustment based on mean profit margin of the comparables. In our view, the making adjustment on the basis of standalone comparable is not a healthy practice, unless the comparable available is internal one and is therefore required to be dissuaded. Adjustment made by the TPO on the basis of one comparable is not sustainable in the eye of law and accordingly we have no hesitation to reject the orders passed by lower authorities however we deem it appropriate to direct the TPO to conduct a fresh TP study after taking into consideration the above said observation and also the profile of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the Ld.AO/Ld. TPO determining the arm s length price of the Appellant s international transactions from associated enterprises in the following manner- 4.1 By disregarding the multiple year data selected by the Appellant in the TP documentation and in selecting the current year (i.e. financial year 2009-10) data for comparability despite the fact that at the time of comparison done by the appellant, the complete data for financial year 2009-10 was not available within the public domain; 4.2 By rejecting 3 out of 4 comparable companies selected by the Appellant in the transfer pricing documentation and selecting only 1 company as comparable for determining arm s length price. 5. The Ld. CIT(A) has erred in rejecting the alternative approach of considering PBDIT/Sales as the appropriate PLI which would address. 5.1 The difference in the depreciation policies adopted by Appellant vis-a-as comparable companies and 5.2 The inconsistency in disclosing licensed/installed capacity and actual capacity by comparable companies in order to reliably perform capacity utilization adjustment. 6. Without prejudice to the above grounds Ld. CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.82% Companies with similar manufacturing activity 2.04% Import of capital goods 63,09,548 Payment of royalty 32,83,626 Availing of technical services 1,72,28,906 Availing of product development services 1,46,58,966 Receipt of inspection charges 52,46,523 Sales of finished goods 2,82,628 Receipt of loan repayable after 3 years No Benchmarking required 7,66,60, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable only namely Brakes India Limited. While doing so, the learned TPO rejected the submission of the assessee with respect to capacity utilization adjustment. The DRP had confirmed the order without dealing with the contention of Assessee, hence the Assessee is before us. 7. At the outset, the learned AR has drawn our attention to page 595 of the paper book where our specific attention was drawn to the installed capacity of the tested party and also of the comparables and further our attention was drawn to capacity utilization ratio. We would like to reproduce the comparative table from the part of the paper book which is as under:- Nissin India-Tested Party Class of Goods Installed Capacity (Unit Nos.) Actual Production (Unit Nos.) Value Per Unit Installed Capacity (Value) Actual Production (Value) Reference Tandem Master Cylinder Assembly 136,136 54,206 1,912 260,227,356 103,616,120 Annexure 3 of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Class of Goods Installed Capacity (Unit Nos.) Actual Production (Unit Nos.) Value Per Unit Installed Capacity (Value) Actual Production (Value) Reference Complete Brake Systems 9,500,000 6,340,470 1357 12,887,700,744 8,601,482,099 Page No. 18 19 Point No. 14 15 of notes to accounts. Total 9,500,000 6,340,470 12,887,700,744 8,601,482,099 Capacity Utilization Ratio 66.74% 66.74% 3.) Hindustan Composites Limited Class of Goods Installed Capacity (Unit based) Actual Production (Unit based) Value Per Unit Installed Capacity (Value based) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 164.78% Summary Company Capacity Utilization ratio Allied Nippon 242.60% Brakes India 66.74% Hindustan Composites 86.29% Rane Brake Linings 164.78% Average 140.10 8. On the basis of the above, it was submitted that the learned Assessing Officer, had erred in concluding that the assessee failed to submit the production and installed capacity in same units. It was submitted before us that from the perusal of the above noted chart the capacity utilization of various comparables, is discernible as the capacity of Allied Nippon, Brakes India, Hindustan Composites and Rane Brake Lining which are reproduced hereunder: Particulars Capacity Utilization % (Refer Pg. 594 of PB Tested party 52.95% Comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d information was ascertainable and discernable from the record reproduced hereinabove but the TP Officer, has rejected the three comparables on the premises that the capacity utilization figures of production as well as of the installed capacity are not available in the same units. We are of the opinion that firstly if the TPO is rejecting three comparables on account of non availability of the capacity utilization and installed capacity in the same unit, it does not debar the TPO from using his powers under the Act. The TPO is duty bound to move a step forward and issue a notice under Section 133 to seek the information of capacity utilization of installed as well as production in the same unit which is not done by the TPO. Moreover, the TPO was under obligation in law to conduct his own TP study , if rejected the three comparable were rejected by him by bringing more comparable which are comparable with the profile of the assessee. That exercise of bring more comparables in the form of TP study had not been done by TPO and TPO had determined the ALP adjustment based on only one comparable and further notice under section 133 were not issued to the comparables for seeking t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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