TaxTMI 
TaxTMI 
2026 (6) TMI 1439
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....ear (AY) 2011-12. The grounds of appeal raised by the assessee are as under: "The grounds of appeal listed below are without prejudice to one another. 1. General • The order passed by the Ld. TPO and to the extent confirmed by Ld. CIT(A) under Section 250 the Act to the extent prejudicial to the Appellant is erroneous, bad in law, and contrary to the facts and circumstances of the case 2. Downward adjustment in Transfer Pricing 2.1 Selection of Comparables not in line with TP provisions • The Ld. TPO erred in law and facts by not selecting comparables in accordance with the provisions of the Act. • The Ld. TPO erred in facts and law in not sharing the search strategi....
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....e, although the same is available from the financial statements of • The Ld. CIT(A) has erred in law and facts in not allowing a working capital adjustment, despite the data being clearly evident that there is substantial difference in the working capital of the Appellant and Comparable Companies." 2. The assessee is a private limited company and engaged in the business of manufacturing of head and rear lighting for the automotive OEM customers. The assessee is also engaged in sale of tools and provision of design and development services to its automotive OEM customers and such services are provided through sub contracting to its AEs and third parties. The assessee filed a return of income for AY 2011-12 on 30.11.2011 decla....
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.... CIT(A). Before the CIT(A), the assessee contended only those issues pertaining to the TP adjustments and the CIT(A) partly allowed the same. The assessee is in appeal against the order of the CIT(A) before the Tribunal. 3. The Ld. Authorized Representative (AR) of the assessee during the course of hearing presented arguments pertaining to the grounds regarding economic adjustments towards capacity utilization and working capital adjustments only. The Ld. AR further submitted that the rest of the grounds are not pressed and hence they are dismissed as not pressed. 4. At the outset, the Ld. AR drew our attention to the below findings of the TPO with regard to the working capital adjustment: "12.2 The calculations submitted by ....
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....ue." 5. The Ld. AR accordingly submitted that the reason for not allowing the working capital adjustment is that the workings submitted by the assessee are not matching with the financial statements. The Ld. AR in this regard drew our attention to the below workings of working capital adjustment carried out by the assessee to submit that TPO's observations are not correct and that the TPO did not verify the details - 6. With regard to capacity utilization, the Ld. AR submitted that the ground for not allowing the adjustment is that the assessee has not provided any documentary basis for the assumption taken into account for arriving at the adjustment. The Ld. AR drew our attention to the financial statements of the assessee as ext....
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.... comparables was computed at (-) 2.39%. Accordingly the assessee in the TPSR has stated that the transactions are at Arm's Length. The assessee for the purpose of bench marking has made certain economic adjustments towards Working Capital adjustment, Freight and capacity utilization. The TPO denied the same mainly for the reason that the data used by the assessee are not verifiable. We further notice that the TPO has denied the adjustment towards capacity utilisation also stating that the assessee has not substantiated the adjustment with documentary evidences and workings. With regard to denial of economic adjustments as above we notice that the coordinate bench, under similar facts in assessee's own case for AY 2021-22 [(2026) 182....
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....ut hereinabove." 10. When we apply the ratio as laid down in the above case, there is merit in the contention that the TPO ought not to have denied the working capital adjustment stating that the data used is not verifiable when the TPO has other options to call for details and consider the claim of the assessee. There is also merit in the submission that when the financials of the assessee evidence the under utilisation of capacity, the TPO should not have denied the adjustments for want of evidence. Further non-granting of economic adjustments when the assessee is able to demonstrate that the same has effect on the margins is not in accordance with Rule 10B(e) of the Income Tax Rules 1962. Therefore we restore the impugned issues back ....