TMI Blog2023 (2) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the ALP of the international transaction in the manufacturing activity. Capacity utilization adjustment - TPO in the application of the external TNMM chose certain external comparables and determined the arm s length margin at 5.11% as against the assessee s OP to OC under the AE segment - HELD THAT:- In principle, there can be no hindrance in granting capacity utilization adjustment, if all the necessary particulars are made available by the assessee. In the extant case, the assessee s contention for granting the capacity utilization adjustment in the profit margin of the comparables has remained to be given effect to notwithstanding the fact that the TPO agreed for its grant and the ld. CIT(A) not going into its nuances for having allowed relief by upholding the application of the internal TNMM. As we have overturned the impugned order in applying the internal TNMM and directed to apply the external TNMM, the assessee s claim for capacity utilization adjustment will reoccur and require adjudication. We, therefore, set-aside the impugned order on this score and send the matter to the file of the AO/TPO for recomputing the ALP of the Manufacturing activity afres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dke For the Revenue : Shri J.P. Chandraker ORDER PER R.S.SYAL, VP : These two cross appeals - one by the assessee and the other by the Revenue; and a Cross Objection by the assessee arise out of the order passed by the CIT(A) on 31-03-2011 in relation to the assessment year 2015-16. 2. The assessee s appeal as well as cross objection are time barred by 79 days and 89 days respectively. The assessee had filed condonation petitions explaining the reasons. We are satisfied with the reasons so stated. No serious objection was taken by the ld. DR. Ergo, the delay in presenting the appeal as well as the cross objection by the assessee is condoned. 3. Briefly stated, the facts of the case are that the assessee is an outbound Multi National company engaged in manufacturing and trading of Pharma packaging products. A return was filed declaring loss of Rs.240.29 crore, which was revised to loss of Rs.43.50 crore. Such return was accompanied by Form No.3CEB containing details of certain international transactions. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price (ALP) of the international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT(A) echoed the application of the TNMM but internal TNMM. The assessee is not aggrieved by non-adoption of the CUP as the most appropriate method. Thus, the employment of the TNMM as the most appropriate method is impliedly approved. The core of controversy is on the application of internal or external TNMM, that is, whether the internal or external comparables should be considered for determining the ALP under this method? 5.2. There can be no doubt that ordinarily the internal TNMM gets precedence over the external TNMM because it takes care of differences between the material factors, conditions and features of products of the assessee vis-a-vis of comparables and dispenses with the need to make adjustments for bringing such varying factors, conditions and features at a common pedestal. Howbeit, the essential requirement for resorting to the internal TNMM is that no differences, having bearing on the operating profits, should persist in factors, conditions and features in the sale of products made by the assessee to its AEs and non-AEs. If not capable of quantification, such material differences thwart the applicability of the internal TNMM. 5.3. Here is a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld. CIT(A), who found merit in the contention but did not delve into it for having granted necessary relief by applying the internal TNMM. 6.2. In principle, there can be no hindrance in granting capacity utilization adjustment, if all the necessary particulars are made available by the assessee. In the extant case, the assessee s contention for granting the capacity utilization adjustment in the profit margin of the comparables has remained to be given effect to notwithstanding the fact that the TPO agreed for its grant and the ld. CIT(A) not going into its nuances for having allowed relief by upholding the application of the internal TNMM. As we have overturned the impugned order in applying the internal TNMM and directed to apply the external TNMM, the assessee s claim for capacity utilization adjustment will reoccur and require adjudication. We, therefore, set-aside the impugned order on this score and send the matter to the file of the AO/TPO for recomputing the ALP of the Manufacturing activity afresh in above terms. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. 7. The ground raised by the Revenue urging to apply the externa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own case for the A.Yrs. 2013-14 and 2014-15. The lead order was passed for the A.Y. 2014-15 in ITA No.1693/PUN/2018 holding that guarantee fee should be charged at 0.5%, which should be further increased by any expenditure actually incurred by the assessee in furnishing the guarantee. This order was followed for the A.Y. 2013-14 as well. Both the sides are in agreement that the facts and circumstances of the respective grounds for the instant year are similar. We, therefore, set-aside the impugned order and remit the matter to the file of the AO/TPO for computing the ALP of the transaction under consideration by firstly, ascertaining the amount of expenditure actually incurred by the assessee in furnishing the seven loan guarantees and two performance guarantees; and thereafter adding 0.5% as guarantee fee. The impugned order holding that the transactions of performance guarantee should be excluded is also hereby overturned as this issue has also been decided in the Tribunal order against the assessee. Another important factor which requires consideration is that the TPO allowed credit of Rs.2.43 crore against the gross amount of guarantee fee determined by him at Rs.26. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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