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2022 (2) TMI 811 - AT - Income TaxTP Adjustment - comparability - claim of turnover filter - HELD THAT - AO has disregarded the fact that the assessee had set up a new plant and the new plant had commenced production during the relevant assessment year. The details of the same are placed. The Tribunal in the case of IKA India (P.) Limited 2018 (10) TMI 923 - ITAT BANGALORE had held that capacity utilization adjustment shall be granted. It was further held by the Tribunal that in absence of details, adjustment can be made on the tested party also. We are of the view that the AO/TPO has to conduct fresh TP analysis. Therefore, grounds/issues raised in this appeal as regards the TP issues are restored to the files of the AO/TPO. AO/TPO is directed to restrict the TP adjustment to the international transaction. Further, the AO/TPO by following the dictum laid down by the Tribunal in the case of IKA India (P.) Limited v. ACIT (supra), shall consider the claim of the assessee as regards the capacity utilization, RPT filter, etc.
Issues:
1. Transfer Pricing Adjustment 2. Application of Turnover Filter 3. Benchmarking of Royalty 4. Adjustments towards Capacity Utilization and Project Expenses 5. Restricting the Adjustment to International Transactions 6. Inclusion of Comparable Companies 7. Depreciation on Assets Acquired on Slump Sale 8. Interest under Section 234B Transfer Pricing Adjustment: The appeal involved challenges against two orders of the Assessing Officer related to Transfer Pricing (TP) adjustments. The Tribunal considered various legal grounds raised by the assessee, including issues with the TP analysis conducted by the Transfer Pricing Officer (TPO). The TPO's application of a lower turnover filter without proper basis was deemed inappropriate, and the Dispute Resolution Panel's arbitrary change to the filter was also criticized. The Tribunal directed a fresh examination of the turnover filter issue based on a proper FAR analysis. Additionally, the TPO's application of the Related Party Transactions (RPT) filter at 5% was found to lack legal sanction, and the Tribunal ordered a new TP analysis with a 15% RPT filter. The Tribunal also emphasized that TP adjustments should be limited to international transactions only, as per legal precedents. Capacity Utilization and Other Adjustments: The assessee had claimed adjustments for capacity utilization, project expenses, and depreciation. The TPO had rejected these adjustments, citing reasons related to the tested party and the company's age. However, the Tribunal noted that the assessee had set up a new plant during the relevant year, warranting consideration for capacity utilization adjustments. Relying on past legal decisions, the Tribunal directed the AO/TPO to reevaluate these claims and make necessary adjustments accordingly. Corporate Tax Issue: Regarding the corporate tax issue, the Tribunal referred to a similar matter in the assessee's case for the assessment year 2003-2004. The Tribunal had previously remitted the issue of depreciation claim back to the AO for verification, resulting in the allowance of the claim. In line with this precedent, the Tribunal ordered a fresh examination of the depreciation claim, directing the AO to consider the Tribunal's directions for the assessment year 2003-2004 and make a prompt decision after providing a fair hearing to the assessee. Conclusion: The Tribunal allowed the appeal in IT(TP)A No. 1714/Bang/2016 for statistical purposes, while dismissing IT(TP)A No. 1364/Bang/2017 as infructuous. All issues raised in the appeals were remitted to the files of the AO/TPO for fresh examination, emphasizing the need for adherence to legal principles and precedents in conducting TP analysis and considering adjustments related to capacity utilization, RPT filters, and depreciation claims.
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