TaxTMI 
TaxTMI 
2026 (8) TMI 545
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.... by the Assessee against the Assessment Order dated 29.06.2021 passed u/s. 143(3) r.w.s. 144C r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by the Deputy Commissioner of Income Tax, Circle 2(1), Chennai (in short "AO") pertaining to Assessment Year (A.Y.) 2017-18. 2. The brief facts of the case are that the Assessee is a company engaged in the business of freight forwarding and warehousing services. The Assessee had international transactions under Freight forwarding segment and domestic transaction in warehousing segment. The Assessee had benchmarked the international transactions under Transaction Net Margin Method (TNMM) with Profit Level Indicator (PLI) as Operating Profit (OP) / Operating Revenue (OR....
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....) Chennai 16 (CIT(A) to the extent prejudicial to the Appellant is bad in law. GROUND 2 GROUND RELATING TO REFERENCE A. The learned CIT(A). has erred in confirming the action of the Lower Authorities (TPO and AO) 1. Making a reference for the determination of the Arm's Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do SO. 2. Passing the order without demonstrating that the Appellant had any motive of tax evasion. 3. Not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not ref....
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.... such companies failed various filters like: a. Unreliable Financial Statement: and b. Functionality Filter. GROUND 4 RELATED TO ADJUSTMENTS A. The learned CIT(A) has erred in confirming the action of the Lower Authorities in not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies. The lower authorities have erred in ignoring the business. commercial and industry realities and economic circumstances applicable to the Appellant vis a vis the comparable. B. The learned CIT(A). has erred in confirming the action of the Lower Authorities in not providing 17 an adjustment for underutilization of resources in the case of t....
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....s retained by the ld.CIT(A). As per the workings, the Assessee has adopted employee cost to total turnover as the ratio and arrived at average employee cost to total turnover of 4 comparable companies at 7.94% vis a vis the employee cost to total turnover of the Assessee at 18.24%. The differential between 18.24% and 7.94% i.e. 10.30% is sought to be considered as excessive and the Assessee has sought 10.30% of total revenue as quantum of adjustment to be excluded from the operating cost of the Assessee. The workings furnished by the Assessee is extracted here: Employee Cost % of Turnover - FY 2016-17 FY 2016-17 Average - Comparable Companies (CIT(A) 7.94% Appellant - Fast Forward Logistics India Pvt Ltd 18.24% Differen....
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....d as under: "6. We will take up Issue 1- Idle Capacity Adjustment: The ld.AR for the assessee submitted that underutilization of capacity is with respect to resources of a company and not specific to "manufacturing capabilities". Idle capacity is bound to exist in all industries. Depreciation, rent and salary paid are fixed costs which are bound to be better absorbed as the revenues of the company increases. She further submitted that the Assessee is in its first full-fledged year of operations and that it has taken dedicated efforts to invest in building employees with strong expertise in the industry in anticipation of projects to be undertaken in subsequent years. The Assessee has considered the wages as well for the ca....
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....asonable, nor does it identify specific comparables demonstrating superior capacity utilization justifying denial of adjustment. Hence, we allow the idle capacity adjustment. The AO/TPO shall grant this adjustment in the EPC segment in accordance with the methodology furnished and validated by the assessee." (table not extracted) 10. The aforesaid decision was rendered in the context of idle capacity adjustment but ultimately the adjustment was granted on excess employee cost, depreciation and rent. Respectfully following the ratio decendi, we conclude that appropriate adjustment ought to be granted for excess employee cost. 11. We have also perused the workings furnished by the Assessee wherein it is evident that the differential per....