Transfer pricing adjustment for manufacturing income affirmed where solar test losses treated as extraordinary; depreciation carryforward permitted.

The revenue's transfer pricing adjustment separating solar trial test losses from manufacturing income was rejected because the assessing officer must accept authenticated statutory accounts; the directors' note, auditor acceptance and ROC filing showed the solar activity was an extraordinary item with asset impairment, so the DRP's and ITAT's exclusion of those losses from manufacturing PLI was upheld. On set off of brought forward unabsorbed depreciation, the court applied the precedent in Petrofills and related High Court rulings, holding depreciation carryforward is allowable and therefore can be set off as recognised by those authorities.

---

---

Issues involved:
The judgment involves three substantial questions of law:
1. Whether the ITAT was justified in deleting the adjustment to manufacturing income without considering the segmental accounting and solar test lossesRs.
2. Whether the ITAT was justified in allowing set off of unabsorbed depreciation against incomes of different assessment yearsRs.
3. Whether the ITAT was right in allowing set off of unabsorbed depreciation for the period prior to the amendment in Section 32 of the ActRs.

Issue 1: Adjustment to Manufacturing Income
The appeal challenged an ITAT order for Assessment Year 2010-11 regarding Transfer Pricing adjustments. The assessee, engaged in glass trading and manufacturing, disputed the adjustments proposed by the TPO. The TPO determined a Profit Link Indicator of 25.83% and proposed a substantial adjustment in the manufacturing segment. The assessee argued that solar testing costs should be excluded from PLI computation due to being extraordinary and resulting in losses. The DRP directed to exclude these losses, considering them exceptional and not part of the regular business, a decision upheld by the ITAT. The ITAT rightly considered the authenticity of accounts, as per the principles of accounting standards.

Issue 2 and 3: Set Off of Unabsorbed Depreciation
The issue of allowing set off of unabsorbed depreciation against incomes of different assessment years was raised. Referring to relevant case laws, it was acknowledged that depreciation should be allowed to be carried forward. Consequently, the appeal was dismissed based on the precedents and legal principles cited in the judgment.

---