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of <h1>Appeal partially allowed with directions on capacity utilization and TP adjustments. Customs valuation accepted, multi-year data dismissed.</h1> <h3>M/s Fuchs Lubricants (India) Pvt. Ltd. Versus Deputy Commssioner of Income Tax, Cir 6(2) ACIT, Cir 4(2), Mumbai</h3> M/s Fuchs Lubricants (India) Pvt. Ltd. Versus Deputy Commssioner of Income Tax, Cir 6(2) ACIT, Cir 4(2), Mumbai - TMI Issues Involved:1. Partial relief of transfer pricing adjustment.2. Documentation disregarded by the AO.3. Adjustment for underutilization of capacity.4. Value of import of raw materials examined by Customs authorities.5. Use of multiple-year data versus single-year data.Issue-wise Detailed Analysis:1. Partial Relief of Transfer Pricing Adjustment:The appellant argued that the CIT-A erred by only allowing a partial relief of Rs. 4,63,110 out of the total transfer pricing adjustment of Rs. 35,99,339 made by the AO. The Tribunal noted that grounds 1 and 2 were general and dependent on the findings of the other specific grounds, thus requiring no specific finding.2. Documentation Disregarded by the AO:The appellant contended that the AO disregarded the documentation maintained as per Rule 10D of the Income Tax Rules. This issue was tied to the findings on other specific grounds and did not require a separate finding.3. Adjustment for Underutilization of Capacity:The appellant, a wholly-owned subsidiary of Fuchs Petrolube AG, Germany, engaged in manufacturing and distribution of lubricants, argued that the CIT-A failed to address the issue of adjustment for underutilization of capacity as per Rule 10B(1)(e). The TPO had determined the arm's length price (ALP) based on the operating margin using the TNMM method, rejecting the appellant's use of gross profit margin and multiple-year data. The Tribunal directed the AO/TPO to restrict the TP adjustment to transactions with the AE only, citing the Bangalore Bench's decision in Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT and the Mumbai Bench's decision in Dy. CIT v. Petro Araldite (P.) Ltd. The Tribunal also directed the AO/TPO to verify the details and allow the adjustment for capacity utilization differences, emphasizing that adjustments should be made in the comparables' margins, not the appellant's.4. Value of Import of Raw Materials Examined by Customs Authorities:The appellant argued that the value of imported raw materials, as accepted by the Customs authorities, should be regarded as the ALP. The Tribunal dismissed this ground, stating that the value accepted by Customs authorities cannot be accepted as the ALP under the Income Tax Act.5. Use of Multiple-Year Data Versus Single-Year Data:The appellant contended for the use of multiple-year data instead of single-year data. The Tribunal upheld the use of single-year data as stipulated under Rule 10B(4) r.w.r 10D(4), which mandates the use of contemporaneous information for comparing uncontrolled transactions with international transactions. The Tribunal found no abnormal or exceptional circumstances for the current year that would justify the use of multiple-year data and dismissed this ground.Conclusion:The appeal was partly allowed, with specific directions for the AO/TPO to verify and allow adjustments for capacity utilization differences and to restrict TP adjustments to transactions with the AE only. Other grounds, including the acceptance of Customs authorities' valuation and the use of multiple-year data, were dismissed.
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