TaxTMI 
TaxTMI 
2019 (5) TMI 319
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....that the arithmetic mean of the profit margin of the comparable was at 13.41% only. However, the assessee offered the amount lower than that, on the basis of its actual income to the profit margin. The TPO rejected it and in the report brought all the transactions to tax, including those not offered in the ALP stating as follows:- "7.1 The assessee has submitted revenue projections showing that if the capacity of the assessee had been utilized as per industry norms it would have earned 24% margin on costs. The crucial question is not whether the capacity was utilized but whether the under utilization was due to the market conditions or due to the control exercised by the Associated Enterprises. At a theoretical level, it can be argued tha....
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....rders given by the AE to assessee; and therefore, assessee should have been remunerated for idle capacity utilisation by the AE; and assessee should have been allowed to operate in an independent manner and it did not had any option to optimise its return on capital and cost by obtaining third party contracts. Such a reasoning for making the TP adjustment without carrying out independent analysis with comparable uncontrolled transactions cannot be sustained. Ld. TPO instead of benchmarking the transaction under the prescribed method and FAR analysis with uncontrolled transactions has proceeded with the hypothesis that if the full capacity of the assessee had been utilised it would have earned 24% margin on the cost and therefore, it is pres....
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....is amount of adjustment. In any case the manner in which arm's length price has been determined and TP adjustment has been made by the TPO, same is unsustainable in law and consequently there cannot be any question of furnishing of inaccurate particulars of income or any concealment of income. Further there is no finding or observation by the AO that the loss margin of 13.23% has been found to be incorrect. Simply because adjustment has been made on certain hypothesis that AE should have remunerated idle capacity utilisation and assessee was not allowed to carry out any contract with the third party in the open market and therefore, it should have earned more margin cannot be the basis for levy of penalty u/s 27(1)(c). Hence under these fac....