TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 70
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....und 4 is general needing no adjudication. 12. Vide its ground 1 and 2 assessee is aggrieved that adjustment sought by it for under utilization of rated capacity was not allowed while comparing its results with that of the comparables selected for the TP study. 13. Facts apropos are that assessee had in its TP documentation worked out its PLI as under: (Rs. in crores) Sales 15.71 Less: Operating Cost 18.41 Operating Profit -2.70 Add: Depreciation 3.30 0.60 Less: Depreciation allowed (10%) 0.32 Adjusted operating profit 0.28 PLI (adj OP/Total Sales) 1.78% 14. Assessee had in the above work-out added back the actual Depreciation charged and deducted only 10% of such Depreciation for arriving at the PLI. Because of this adjustment, operation loss of 2.70% became positive operating profit of 1.78%. For restricting the Depreciation to 10% of the actual debit in the profit and loss account, argument of the assessee was that there was huge under utilization of the installed capacity. According to the assessee, Depreciation on fixed assets that was to be considered while working out the ope....
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....selected comparables. Or in other words as per the DRP the reasons for under utilization shown by assessee was adverse business environment, and this remained same for all similarly placed companies in this line of business. 17. Now before us, the Ld. AR strongly assailing the orders of authorities below submitted that its turnover had fell from Rs. 36.51 crores to 15.7 crores when compared to the preceding year. When the assessee was operating in a lower capacity it had to absorb the fixed cost on a lesser production. Ld. AR submitted that Rule 10B(3) required adjustment for differences that could materially affect the net profit margin. Capacity under utilization, according to him, was an important factum affecting the net margin in the open market. Ld. AR submitted that adjustments for differences, when it could be carried out with reasonable accuracy had to be done before attempting a comparison. Reliance was placed on the coordinate bench in the case of Genysis Integrating Systems India P. Ltd v. DCIT [64 DTR 225]. 18. Per contra, Ld. DR Strongly supported the orders of authorities below. 19. We have perused the orders and heard the rival contentions. Case of the assesse....
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....d to be reduced while working out the adjusted average PLI. 21. Assessee has produced before us a chart according to which the average working capital adjustment that was required to be done for working out the average PLI of the comparables was (-) 2.85%. TPO had however added 2.85% to the unadjusted average PLI of the comparables. We are of the opinion that this issue also requires a fresh look by the AO/TPO. If the working capital adjustment was negative, AO/TPO should rework the adjusted PLI of the comparables after reducing the quantum of such adjustment from the average PLI of the comparables. Ordered accordingly. Ground 3 of the assessee is allowed for statistical purpose. 22. To summarise the result, appeal of the Revenue is dismissed whereas appeal of assessee is allowed for statistical purpose. Order pronounced in open Court on 10th day of November 2015." 3. The learned counsel for the Assessee, Mr. Chythanya has submitted before us that the assessee in the present case is engaged in the business of Manufacturing and Export of cut and polished Granite. During the year in question, on account of severe adverse economic conditions, the business of the assessee ....
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....sessees as well as the other comparables should be taken into account after excluding the Depreciation. He submitted that this was done to even out the differences of the different Depreciation Policies adopted by the different comparable entities and to even out the variations in the claim of Depreciation on account of different extent of capacity utilization by different comparables. 6. On the other hand, the learned counsel for the Revenue, Mr. K.V. Aravind justified and supported the impugned Order passed by the learned Tribunal. 7. We have given our earnest consideration to the submissions made at the bar by the learned counsel for the parties. 8. At the outset, we may take note of the fact that this Court has dismissed the appeals filed by the Revenue in ITA No.536/2015 c/w. ITA No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and another Vs. M/s. Softbrands India P. Ltd.,) on 25-06-2018, holding that the finding of facts arrived at by the learned Income Tax Appellate Tribunal based on the relevant material are binding on the lower Authorities as well as this Court and unless an ex-facie perversity is established in the findings of the learned Tribunal, no substantia....
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....he burden of the argument raised by the learned counsel for the Assessee is that while admitting the under-utilization of the capacity of the Assessee in this particular year, the learned Tribunal could not have computed the Operating Margins without proportionately reducing the quantum of Depreciation, only finding its justification in the case of two comparables, does not have much merit and we cannot hold the findings of the learned Tribunal to be perverse on the basis of this submission. 11. The learned Tribunal is justified in its conclusion arrived at on the premise that the Depreciation of the Fixed Assets need not be directly proportional to the utilization of Plant and Machinery or production capacity. The said premise of the Tribunal's findings is not necessarily contrary to the finding in the case of the Assessee that in this particular year, there was under- utilization of capacity in the case of the Assessee. The claim of Depreciation does not depend merely upon the extent of wear and tear of the Plant and Machinery. 12. The claim of Depreciation does not have a direct, linear or proportionate relationship with the capacity utilization. The Tribunal has rightly held ....