TMI Blog2020 (6) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment. We notice that the co-ordinate bench has given certain directions to be followed by the AO/TPO in the case of IKA India Ltd (supra). Accordingly, we set aside the order passed by AO on the impugned issue and restore the same to the file of AO/TPO with similar directions. - Appeal filed by the assessee is treated as allowed for statistical purposes. - IT(TP)A No.1610/Bang/2017 - - - Dated:- 5-6-2020 - Shri N.V Vasudevan, Vice Presidnet And Shri B.R Baskaran, Accountant Member For the Assessee : Shri T Suryanarayana, Advocate For the Revenue : Shri Pradeep Kumar, CIT (DR) ORDER PER B.R BASKARAN, ACCOUNTANT MEMBER The appeal has filed this appeal challenging the asst. order dated 24/5/2017 passed by the AO for asst. year 2013-14 u/s 143 r.w.s 144C(13) of the Act in pursuance of directions given by ld Dispute Resolution Panel (DRP). 2. Though the assessee has raised many grounds, the ld AR restricted his arguments with regard to non-granting of Capacity under utilization adjustment while determining Arms length price of international transactions. 3. The ld AR submitted that the assessee is engaged in the business of manufacture and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be made in the hands of comparable companies in the normal circumstances, yet the Bangalore Bench of Tribunal, in the case of IKA (India) Pvt. Ltd. Vs. DCIT (2018) 98 Taxmann.com 312, has taken the view that the capacity utilization adjustment could be made in the hands of tested party also. 7. The ld AR submitted that the details relating to capacity utilization of comparable companies are not available in public domain and hence the assessee was constrained to compute the adjustment towards under-utilization of capacity by presuming that the comparable companies are operating at 100% capacity level. The ld AR submitted that the TPO is empowered to collect the details of capacity utilisation from the comparable companies by issuing notices u/s 133(6) of the Act to them. The ld AR accordingly submitted that the matter may be restored to the file of the TPO to collect the details of capacity utilization of comparable companies so that the capacity under-utilization adjustment can suitably be modified, if the same is not 100% in the case of comparable companies as presumed by the assessee. He submitted that, in the case of IKA (India) Pvt. Ltd (supra), the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o certain specified factors. One such factor is conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 24. Rule 10B(3) of the Rules provide that: An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market, or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 25. As per Section 92C of the Act, ALP is required to be computed using any of the given six methods and in the manner as is prescribed in Rule 10B of the Rules. Rule 10B in turn states that the most appropriate method would be one which inter alia provides the most reliable measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controlled transaction, but must be sufficiently similar that it provides a reliable measure of an arm's length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. For purposes of this section, a material difference is one that would materially affect the measure of an arm's length result under the method being applied. 28. The Indian transfer pricing regulations, OECD Guidelines and the US transfer pricing regulations call for an adjustment to be made in case of material differences in the transactions or the enterprises being compared so as to arrive at a more reliable arm's length price! margin. While the Indian transfer pricing regulations refer to the adjustments on uncontrolled transactions, however the same has to be read with Rule 10B(3) of the Rules which clearly emphasizes the necessity and compulsion of undertaking adjustments. Hence in case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment for capacity underutilisation can be granted (iv) In the recent case of GE Intelligent Platform (P.) Ltd. (IT(TP)A No. 148fBang/2015 and 164/BangI2015) for AY. 2010-11 was held as follows: 8 ..........now the law is quite settled to the extent that once there is unutilized capacity or men power, such underutilization impacts margin and therefore, the adjustment should be made while computing the ALP .........If the underutilization is more than average underutilization of the industry then necessary adjustment is required to be made to the margin of computing ALP 29. Moreover, the above argument of the assessee for grant of capacity utilization adjustment is also supported by the following decision of Bangalore ITAT in the case of Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT[2012120 taxmann.com 7.15/53 SOT 159. Relevant extract of the decision is under:- 15.2 We agree with this contention of the counsel for the assessee. All the comparables have to be compared on similar standards and the assessee cannot be put in a disadvantageous position, when in the case of other companies adjustments for under utilization of manpower is given. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. 33. The assessee has under-utilized capacity during the subject AY and is accordingly factually and legally eligible to an adjustment for the same. Therefore, such a benefit cannot be denied to the assessee only for the reason that the data about comparable companies is not available. Requiring the assessee to produce such a data which is not available in public domain would tantamount to requiring the Appellant to perform an impossible task. The only way to get the data in the current case, would be where the TPO collates the same from the comparable companies by exercising his powers under section 133(6) of the Act. The relevant extracts of the section are as under:- (6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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