TaxTMI 
TaxTMI 
2023 (7) TMI 170
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....onsider the facts of the case, including the submissions made by the Appellant and the evidences produced with reference to the transactions reported in Form No. 3CEB filed by the Appellant. GROUND NO. 2: Capacity utilization and extraordinary expenses adjustment 2.1 The learned AO/DRP erred in not appreciating the adjustment carried out by the Appellant for unutilized capacity of Appellant vis-avis comparable companies. 2.2 The learned AO/DRP erred in holding that the capacity utilization adjustment has to be carried out on the margin of the comparable companies instead of Appellant. 2.3 The AO/TPO/DRP erred in not allowing the extraordinary costs, in respect of repairs & maintenance, store and power & electricity expenses, incurred by the Appellant due to shutdown of the plant while computing the operating. Net Cost Plus ("NCP") mark-up earned by the Appellant. 2.4 The AO/TPO/DRP erred in computing the correct operating NCP mark-up of the Appellant. GROUND NO. 3: Direction of the DRP not followed by AO/TPO 3.1 The learned AO/TPO erred in not following the DRP direction in respect of allowing tolling expense amounting ....
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....ontention of the Appellant with respect to the use of relevant year data as against use of multiple year data for benchmarking the international transaction of the Appellant. GROUND NO. 7: Disallowance of contribution to gratuity fund 7.1 The learned AO erred by disallowing contribution of Rs. 11,04,588/- made by the appellant to "Baroda Textile Effects Private Limited Employees Gratuity Assurance Scheme". GROUND NO. 8: General 8.1 The learned AO erred in initiating Penalty Proceeding u/s 271(l)(c) read with Explanation 7 of the Act. 8.2 The Appellant craves leave to add, alter, amend and/or substitute all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 8.3 The AO erred in not following the directions issued by the DRP u/s 144C(5) of the Act by making an adjustment of Rs. 38,41,90,287/- 8.4 Each one of the above grounds of appeal is without prejudice to the above." 3. Ground No. 1 of assessee's appeal is general in nature and does not require any specific adjudication. 4. Ground No. 2: Capacity utilization and extra-ordinary expenses adjustment 5. Ground Nos. 2.1 and 2.2 of ass....
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....in the management, one of its plant remained non operational throughout the year and (he assessee's capacity utilization was as low as 58% only. We find it strange that the TPO has rejected many comparables for having a change in the management or in the production process during the year or for having a failed product. But similar facts in the assessee's own case were not considered significant. Considering the various case laws cited by the assessee and as per the TP provisions capacity utilization is required in the assessee's case, The TPO's view that if an accurate .adjustment is not possible, the claim should be rejected in totality is not a reasonable interpretation of law. The TPO himself has mentioned that TP is not a science. Logically capacity adjustment being part of TP also cannot be science, The TPO should not have applied a liberal approach in proposing the overall adjustment but ask for a very strict compliance in allowing capacity utilization. 9 We think that an adjustment can be worked out in the assessee's case by adjusting the margin of each of the comparable selected by the TPO. This can be done by simply assuming that for example i....
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..... The primary argument of the counsel for the assessee is that when the plant was shut down due to change in management, even though the assessee did not have to bear variable expenses, it was under obligation to incur fixed cost to maintain these plants. These costs included repair and maintenance expenses since pursuant to acquisition of BTE by Huntsman Group, the assessee had to undertake huge repairs and maintenance expenses for rendering the plants functional. Further, the assessee had to bear power and electricity expenses to maintain the plants so that they would be in working conditions once the same would be operative. We observe that the Hon'ble DRP has been reasonable in its approach while allowing the capacity utilization adjustment to the assessee on account of one of the plant being non-operational and the assessee was operating at only 58% of its full capacity. Further, the DRP also allowed the assessee to make adjustment with respect to toll manufacturing charges on the ground that these charges were paid as extra-ordinary costs. Further, regarding excess power and electricity expenses, the TPO observed that the assessee in its calculation has not provided a bifurca....
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..... In view of the categorical directions made by the Hon'ble DRP, we direct that toll manufacturing charges be excluded from operating costs for the purpose of benchmarking, as per directions of Hon'ble DRP 19. In the result, ground no. 3.1 of assessee's appeal is allowed. 20. Ground Nos. 3.2 and 4 of assessee's appeal 21. Before us, the counsel for the assessee submitted that ground no. 3.2 of the assessee's appeal (the ld. A.O./TPO erred in not following direction of DRP while classifying various expenses as fixed or comparable in allowing the capacity utilization adjustment calculation of the comparable companies) and ground no. 4.1, 4.2 and 4.4 are similar and the ld. A.O./TPO has erred in facts and in law in not giving effect to DRP order holding that the assessee is entitled to capacity utilization adjustment. The counsel for the assessee drew our attention to paras 8-9 of the order passed by Hon'ble DRP, wherein a specific direction was given by Hon'ble DRP to give adjustment towards lesser capacity utilization. The counsel for the assessee drew our attention to page 1 of paper book dated 22-04-2021 and submitted that while following the directions of DRP, the DCIT h....
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....nsfer pricing adjustment should be restricted only in respect of turnover of assessee-company relating to international transactions, sale of resins to its associated enterprises, and same should not be done in relation to all transactions. In the case of Bekaert Industries (P.) Ltd. [2022] 136 taxmann.com 355 (Pune - Trib.), the Pune ITAT held that Transfer pricing addition should be restricted only qua international transaction and not entity level transactions. 26. In view of the judicial precedents highlighted above, ground no. 5 of assessee's appeal is allowed. 27. The counsel for the assessee submitted that we shall not be pressing ground no. 6 of assessee's appeal and accordingly, ground no. 6 of assessee's appeal is dismissed as not pressed. 28. Ground No. 7 : disallowance of contribution to gratuity fund. 29. The brief facts relating to this ground of appeal are that the Assessing Officer disallowed contribution of Rs. 11,04,588/- made by the assessee to " Baroda Textile Effects Pvt. Ltd. Employees Gratuity Assurance Scheme" (Gratuity Scheme). In appeal, the DRP upheld the disallowance on the ground that the aforesaid fund was not granted approval during the ye....