TMI Blog2022 (12) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... irect the AO/TPO to recomputed operational margins of the Appellant after excluding the one-time extra ordinary expenditure after verification of the same. Further, the AO/ TPO is also directed to grant suitable capacity under-utilization adjustment to the Appellant after necessary verification and after providing the Appellant an opportunity of being heard. Foreign Exchange Fluctuation Adjustment - We direct the Assessing Officer/TPO to provide suitable foreign exchange fluctuation adjustment after verification and after providing the Appellant opportunity of being heard. Comparable selection - Exclusion of Nitin Fiber Protection Industries Limited (NFPIL) from list of Comparables - HELD THAT:- We note that the Tribunal has, while deciding the appeal filed by the Appellant for immediately preceding Assessment Year 2012-2013 [ 2017 (4) TMI 1552 - ITAT CHENNAI] directed the AO to exclude NFPIL after coming to a conclusion that major income of NFPIL was from project related activities and therefore, could not be compared to the Appellant. In view of the aforesaid, we direct the AO to exclude NFPIL from the list of comparables. Selection of Comparables and Computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such as light fittings, switch gears and explosion control equipment (including those made from aluminum alloys used in oil gas and pharmaceuticals sectors). 3. The Appellant filed return of income on 30.11.2013 declaring Nil income under normal provisions of the Act (after setting off brought forward losses and unabsorbed depreciation), and Nil Book Profits under Section 115JB of the Act. The case of the Appellant was selected for scrutiny and a reference was made under Section 92CA of the Act was to the Transfer Pricing Officer, Chennai (TPO) for determination of Arm s Length Price (ALP) in respect of International Transactions undertaken by the Appellant with its Associated Enterprises (AEs) during the relevant previous year. 4. The TPO noted that during the Assessment Year 2013-14 the Appellant operated in two business segments namely Manufacturing Segment and Contract R D Segment with disclosed profit margins of 3.03% and 22.93%, respectively. 5. The TPO only disputed the ALP determined in respect of the international transactions pertaining to the Manufacturing Segment and related activities. The TPO accepted the Transaction Net Margin Method (TNMM) as the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved, the Appellant is in appeal before us challenging the Final Assessment Order. 9. The Learned Authorised Representative for the Appellant submitted that the Appellant had selected following comparables: Sr. No. Name of the Comparables 1. Thakaral Services (India) Limited 2. Amtech Power Limited 3. Chemtrols Industries Ltd. 4. NFPIL 5. Integra India Group Co. Ltd. Further, during the course of assessment proceedings the Appellant sought inclusion of the following two comparables: Sr. No. Name of the Comparables 1. Stelmec Ltd. 2. SGN Telecom Ltd. The Appellant also sought exclusion of NFPIL on the ground that same lacked functional comparability. 9.1. However, the TPO rejected 4 of the above comparables selected by the Appellant for the reasons specified herein under: Sr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even the Idle Capacity Adjustment was rejected by the TPO. He further submitted that while the TPO/DRP have denied Working Capital Adjustment and Foreign Exchange Fluctuation Adjustment claimed by the Appellant the same have been allowed by the Tribunal has, in the case of the Assessee for the Assessment Year 2012-13 in ITA No. 2745/MDS./2016 (decided on 19.04.2017), granted the benefit of Working Capital Adjustment and Foreign Exchange Fluctuation Adjustment to the Appellant. 9.3. He further submitted that the Tribunal had also excluded NFPIL from the list of comparables holding that the aforesaid company was mainly earning project related revenues. 9.4. As regards, denial of carry forward of unabsorbed depreciation the Ld. Authorised Representative for the Appellant submitted that the issue stands decided in the favour of the Assessee by the judgement of the Hon ble Madras Jurisdictional High Court in the case of SPEL Semi Conductor Limited [Tax Case Appeal No.2490 of 2006 / (2012) 27 Taxmann.com 242 (Madras)] 10. In response, the Learned Departmental Representative relied upon the order passed by the TPO and DRP. In addition, he submitted that the appellant had on its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP on the reason that calculation of working capital adjustment between the assessee and the comparable companies is not provided to TPO. Against this, the assessee is in appeal before us. 5. We have heard both the parties and perused the material on record. In our opinion, there is a positive working capital as seen from the balance sheet submitted by the assessee. Accordingly, we remit the issue to the file of AO to grant suitable working capital adjustments after making proper TP study. Hence, this ground is allowed for statistical purposes. In view of the above, respectfully following the above decision of the Tribunal, the issue is remanded back to the file of this Assessing Officer/TPO with the directions to grant suitable Working Capital Adjustment. Claim for Ideal Capacity Adjustment Exclusion of Extra-Ordinary Expenses 14. The DRP had rejected claim for Idle Capacity Adjustment, and Exclusion of Extraordinary Expenses made by the Appellant on the ground that no such adjustments were made in the Transfer Pricing Study, however, the same were claimed by the Appellant only during the course of assessment proceedings. We note that the Appellant had sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dverse prices fixed on the prevailing exchange rate and due to fluctuation in exchange rate, there is loss and that exchange fluctuation to be considered while determining the ALP. 9. We find force in the argument of the ld. AR. It is normal that exchange rate is subject to fluctuation due to economic conditions. While determining the ALP, one has to consider these factors, more so, our view is fortified by the decision of the Tribunal in the cases of Honda Trading Corp. India Pvt. Ltd. V. ACIT in ITA No.5297/Del/2011 for the assessment year 2007-08 and DHL Express (India) Pvt. Ltd. V. ACIT in ITA No.7360/Mum/2010 for the assessment year 2006-07. Accordingly, we direct the TPO to provide considerable exchange fluctuation adjustment while determining the ALP. Accordingly, this issue is remitted to the file of the TPO for determining the ALP after considering the above three components i.e. customs duty adjustment, air freight adjustment and foreign exchange fluctuation adjustment. In view of the above order of the Tribunal, this issue is remitted to the file of AO for considering the same afresh in the light of above Order of Tribunal. 16. Respectfully following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record as part of the paper-book. Accordingly, subject to the directions given by us hereinabove, since there are a number of factual discrepancies leading to incorrect selection/rejection of comparables and computation of margins, we deem it appropriate to remit all issues related to inclusion/exclusion of comparables and computation of the margins thereof back to the file of Assessing Officer/TPO for fresh adjudication after giving appellant opportunity of being heard. 21. In view of the paragraph 18-20 above, Ground No. 6 to 8 are partly allowed. Ground No. 9 22. Ground No. 9 is directed against rejection of claim of carry forward of unabsorbed depreciation by setting off of the unabsorbed depreciation before allowing set off of the brought forward losses while computing taxable income of the relevant previous year. 23. According to the Assessing Officer, the unabsorbed depreciation of INR 2,09,40,303/- should have been set off with the income of the relevant previous year before setting off brought forward business losses of INR 22,16,22,341/-. Since the income of the relevant previous year was sufficient to set off entire unabsorbed depreciation, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of depreciation not so set off can be set off from income from other head, if any, available for that assessment year. The language of Section 32(2) is very clear and there is hardly anything contained in Section 72(2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources. The Revenue does not deny the fact that as far as the income from other sources are concerned, there could be no set off of business loss or carried forward loss. However, what is contended by the Revenue is that Section 72(2) controls the operation of Section 32(2) to have the set off of unabsorbed depreciation against the income from other sources. We do not agree with this line of reasoning. What is spoken to under Section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation , the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under Section 32(2) is as regards set off of unabsorbed depreciation as per clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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