Transfer pricing idle capacity adjustment guidance: tribunal directs data collection from comparables and remands for fresh decision

Transfer pricing adjustment on idle capacity and comparable selection: tribunal found appellate findings cryptic and noted assessee filed an affidavit describing idle capacity; it held that AO/TPO may procure idle capacity data of comparables through statutory requisition and the assessee may produce industry-level idle capacity data; if the assessees idle capacity is substantially higher than the industry average, an idle capacity adjustment should be made. The matter was remitted to the appellate authority for fresh decision, with other issues left open and appeals allowed for statistical purposes.

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Issues: Whether the matter should be remanded to the learned CIT(A) for fresh adjudication on the assessee's claim for idle capacity adjustment in the transfer pricing assessment, in view of additional affidavit evidence and the cryptic nature of the CIT(A)'s earlier finding.

Analysis: The Tribunal examined the affidavit filed by the assessee containing month-wise employee deployment, details of employees engaged on international projects, and assertions of substantial idle capacity during the year under appeal. The Tribunal found that the CIT(A)'s reasoning on idle capacity (para 17) was brief and did not deal with the detailed submissions and evidence presented by the assessee. The Tribunal observed that data regarding idle capacity of comparables may be obtainable by the AO/TPO under Section 133(6) of the Income-tax Act, 1961 and that industry or comparable-specific capacity information could be placed before the CIT(A) for consideration. Given the incompleteness of the CIT(A)'s consideration and the availability of additional factual material, the Tribunal considered it appropriate to restore the issue for fresh decision rather than decide the substantive transfer pricing and comparability grounds itself.

Conclusion: The Tribunal remands the matter to the learned CIT(A) for fresh adjudication on the assessee's claim for idle capacity adjustment and leaves all other contested issues open for reconsideration by the CIT(A).

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