Idle capacity adjustment and transfer pricing verification shape the arm's length price computation in this dispute.

Idle capacity adjustment for rent and maintenance was allowed in full where the assessee substantiated underutilised work stations with month-wise and department-wise data, so the adjustment could not be capped by estimation. The transfer pricing addition was remitted for limited verification because the book adjustment already reflected in the return had not been considered in the computation. The challenge to use multiple year data was not pressed, and the objection to information gathered under section 133(6) was accepted against the assessee, leaving the transfer pricing adjustment intact only to the extent not covered by the successful objections.

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Issues: (i) whether the assessee was entitled to full idle capacity adjustment towards rent and maintenance charges while determining the arm's length price; (ii) whether the transfer pricing adjustment had to be recomputed after taking into account the book adjustment already reflected in the return of income; (iii) whether use of multiple year data and information obtained under section 133(6) could be interfered with.

Issue (i): whether the assessee was entitled to full idle capacity adjustment towards rent and maintenance charges while determining the arm's length price.

Analysis: The assessee furnished month-wise and department-wise details showing the extent of underutilised work stations and quantified the unabsorbed fixed costs. Once specific data was placed on record, the adjustment could not be restricted by estimation. The record showed that the claimed idle capacity on rent and maintenance was supported by identifiable working details and was not a matter requiring ad hoc approximation.

Conclusion: The issue was decided in favour of the assessee and full adjustment for idle capacity towards rent and maintenance charges was directed to be allowed.

Issue (ii): whether the transfer pricing adjustment had to be recomputed after taking into account the book adjustment already reflected in the return of income.

Analysis: The assessee pointed out that the income and tax computation already included a book adjustment that was not considered while working out the transfer pricing addition. Since this aspect had not been examined in the transfer pricing computation, verification of the return and computation was necessary before finalising the adjustment.

Conclusion: The issue was restored to the Transfer Pricing Officer and Assessing Officer for limited verification and was allowed for statistical purposes.

Issue (iii): whether use of multiple year data and information obtained under section 133(6) could be interfered with.

Analysis: The challenge to the use of multiple year data was not pressed on merits, and the objection to information gathered under section 133(6) was also conceded against the assessee.

Conclusion: Both issues were decided against the assessee.

Final Conclusion: The transfer pricing addition was sustained only to the extent not covered by the assessee's successful objections, and the appeal stood concluded with partial relief and one matter remitted for verification.

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