9911796707
TMI Blog2015 (12) TMI 1464X X X X Extracts X X X X X X X X Extracts X X X X ..... ium, was in the business of manufacturing and exporting cut and polished granite slabs. Its international transactions with AE were on account of export of granite slabs and the revenue earned therefrom was Rs. 15,55,02,752/-. For justifying the prices charged for exports to its AE, assessee had carried out a TP study using capitaline data base. From such database itself assessee had selected 14 comparable companies. While working out the PLI of the comparable companies, assessee had made a working capital adjustment. As per the assessee, it was carrying no debtors and the exports made to the AEs were all on advance payments received from them. Thus to bring compatibility of the comparables on par with that of the assessee, assessee sought and made a working capital adjustment. However, TPO was of the opinion that claim for adjustment on account of working capital was not allowable since such adjustments, if carried out, would give a place of dominance to the financial activities rather than the operating business activities. 05. Aggrieved on not considering a working capital adjustment for working out the average PLI of the comparables, assessee preferred an application before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE abroad against supplies, then in order to bring parity between the results of the selected comparables and that of the assessee it is essential that adjustment for the working capital is made on the results of such comparables. Only then can the uncontrolled transaction become comparable to the international transactions of the assessee. In such a situation we are of the view that DRP was correct in giving the direction to the AO to carry out the necessary working capital adjustment in working out the average PLI of the comparables. We do not find any reason to interfere with the order of the DRP. Grounds 2 to 4 of the Revenue stand dismissed. 09. Vide its grounds 5 and 6, grievance raised by the Revenue is that DRP held the exchange loss / gain as operating in nature for working out the PLI of the assessee. As per the Revenue, DRP did not verify whether there was any nexus between foreign exchange loss / gain with the business activity of the assessee. 10. Financial results of the assessee showed that its earnings from export on granite slabs to AE were Rs. 15,55,02,752/-. In our opinion, given this fact situation, foreign exchange gain / loss could have been considered as n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. Grounds 5 and 6 of the Revenue stand dismissed. 11. Now we take up appeal of the assessee. Assessee in its appeal has taken four grounds of which ground 4 is general needing no adjudication. 12. Vide its ground 1 and 2 assessee is aggrieved that adjustment sought by it for under utilisation of rated capacity was not allowed while comparing its results with that of the comparables selected for the TP study. 13. Facts apropos are that assessee had in its TP documentation worked out its PLI as under : (Rs.in crores) Sales 15.71 Less : Operating Cost 18.41 Operating Profit -2.70 Add : Depreciation 3.30 0.60 Less : Depreciation allowed (10%) 0.32 Adjusted operating profit 0.28 PLI (adj OP/Total Sales) 1.78% 14. Assessee had in the above work-out added back the actual depreciation charged and deducted only 10% of such depreciation for arriving at the PLI. Because of this adjustment, operating loss of 2.70% became positive operating profit of 1.78%. For restricting the depreciation to 10% of the actual debit in the profit and loss account, argument of the assessee was that there was huge under utilisation of the installed capacity. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trend existed in the case of Neelkanth Rock Minerals Ltd and Ceeta Industries Ltd which were in the list of selected comparables. Or in other words as per the DRP the reasons for under utilisation shown by assessee was adverse business environment, and this remained same for all similarly placed companies in this line of business. 17. Now before us, the Ld. AR strongly assailing the orders of authorities below submitted that its turnover had fell from Rs. 36.51 crores to 15.7 crores when compared to the preceding year. When the assessee was operating in a lower capacity it had to absorb the fixed cost on a lesser production. Ld. AR submitted that Rule 10B(3) required adjustment for differences that could materially affect the net profit margin. Capacity under utilisation, according to him, was an important factum affecting the net margin in the open market. Ld. AR submitted that adjustments for differences, when it could be carried out with reasonable accuracy had to be done before attempting a comparison. Reliance was placed on the coordinate bench in the case of Genysis Integrating Systems India P. Ltd v. DCIT [64 DTR 225]. 18. Per contra, Ld. DR strongly supported the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
