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2016 (7) TMI 242 - AT - Income TaxTransfer pricing adjustments - Grant of adjustment on account of under capacity utilization - Held that - A perusal of order dated 28-10-2011 passed by TPO u/s.92CA(3) of the Act shows that the TPO has not touched upon the issue of capacity under utilization adjustment claimed by the assessee. The Commissioner of Income Tax (Appeals) in the impugned order for assessment year 2008-09 in para 2.2.4 to 2.2.5 has directed the Assessing Officer/TPO to grant the adjustment on account of the capacity under utilization on the basis of the order of TPO passed in the subsequent assessment year i.e. assessment year 2009-10. It is an undisputed fact that the benefit of under capacity utilization has been granted by the Tribunal in various cases wherever the assessee deserves or where the facts and circumstances of the case warrants so. In the present case, it is not clearly emerging from the records as to on what basis under capacity utilization adjustment is to be granted to the assessee. Therefore, we deem it appropriate to remit the file back to TPO for deciding the issue afresh by passing speaking order. The TPO shall decide the issue after considering the facts of the case, documents on record and in the light of decisions of Tribunal. The appeal of the Department for the assessment year 2008-09 is accordingly allowed for statistical purpose.
Issues:
1. Adjustment on account of under capacity utilization in assessment years 2008-09 and 2009-10. 2. Validity of the directions given by the Commissioner of Income Tax (Appeals) regarding capacity utilization. 3. Consideration of written submissions by the assessee for assessment year 2009-10. Issue 1: Adjustment on Account of Under Capacity Utilization In the case, the Tribunal examined the adjustments made by the Transfer Pricing Officer (TPO) regarding international transactions with Associated Enterprises (AE) for the assessment years 2008-09 and 2009-10. The TPO rejected the benchmarking done by the assessee and made upward adjustments in both years. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal by accepting the adjustment on account of under capacity utilization. The Tribunal found that the TPO did not address the issue of capacity underutilization in the order. Consequently, the Tribunal remitted the matter back to the TPO to decide the adjustment issue afresh based on facts, documents, and relevant precedents. Issue 2: Validity of Directions on Capacity Utilization The Department contended that the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer/TPO to apply a filter of "minimum 75% of manufacturing income" without sufficient reasons. The Department argued that without a fresh study of comparables, this revised filter could not be applied. On the other hand, the assessee supported the Commissioner's decision, citing substantial expansion programs leading to underutilization of capacity. The Tribunal noted the lack of clarity on the basis for granting under capacity utilization adjustment to the assessee. Consequently, the Tribunal allowed the Department's appeal for the assessment year 2008-09 for statistical purposes. Issue 3: Consideration of Written Submissions Regarding the assessment year 2009-10, the Tribunal found discrepancies in the consideration of written submissions by the Commissioner of Income Tax (Appeals). The Commissioner's order indicated that the assessee did not furnish written submissions on the concluding day of the hearing. However, the assessee provided evidence that written submissions were filed before the passing of the order. Upholding the principles of natural justice, the Tribunal set aside the order and remitted the matter back to the Commissioner to consider the written submissions and grant a proper opportunity for hearing to the assessee. In conclusion, the Tribunal allowed both the appeals of the Revenue and the assessee for statistical purposes, highlighting the importance of addressing capacity utilization adjustments, providing clear reasoning for directions, and ensuring the consideration of all relevant submissions in tax assessment proceedings.
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