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TMI Blog2018 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... a proportionate reduction of the claim of Depreciation in relation to the under-utilization of its capacity. The different comparables Entities may have different Depreciation Policies, Accounting Methods and despite general economic conditions being common to all, their Profit Margins and claim of Depreciation may differ. Neither the Transfer Pricing Officer(TPO) nor the Tribunal, muchless this Court can undertake any such exercise of comparing the Operating Profit Margins down to the extent of a hair-splitting exercise. It is the broad comparison of the homogeneous comparables, which is envisaged and is done under Section 92-CA of the Act. The findings or the premise taken by the Dispute Resolution Panel (DRP) in the subsequent year does not render the findings in the previous years per se illegal or unsustainable merely because the Dispute Resolution Panel (DRP) takes a different view in the subsequent years. As already held in M/S. SOFTBRANDS INDIA P. LTD. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] this entire exercise is in the realm of fact finding exercise and unless on the face of it, the findings of the learned Tribunal or the Authorities below is found to be perverse and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpared to that of the preceding year and only 10% of the installed capacity was used. 15. TPO required the assessee to give details of its claim of under utilization of capacity. To this assessee stated that economic slow-down, frequent power disruptions, spiraling cost of the raw material all resulted in lower utilization of the capacity, leading to under absorption of fixed costs. As per the assessee, its capacity utilization for the relevant previous year was only about 28,336 sq.mts of granite blocks though it installed capacity for 2,88,000 sq.mts. However TPO was not impressed. According to him, the reasons for under utilization stated by the assessee applied equally for its competitors also. Comparables also suffered from the same business negativities. As per the TPO for the previous year relevant to A.Y.2009-10 assessee had claimed full Depreciation, but still it had substantial operating profit. Thus, as per the TPO, assessee was not able to substantiate its claim for adjustment of Depreciation while working out its PLI. Though the assessee tried to elaborate on its objections stating that it did not own any granite quarry of its own but was dependent on third party sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of this its sales went down by more than 60%. This does indicate underutilization of capacity and assets. Fixed cost remaining the same, irrespective of the actual utilization, such cost had to be charged the production and this is a costing principle that apply to all business and not assessee alone. Among the comparables selected, we find that two companies namely, Neelkanth Rock Minerals Ltd and Ceeta Industries Ltd also had a trend of decreasing sales. Reasons shown by the assessee for under utilization are that there were difficulties in procuring raw material, not owning any captive mines, and severe shortage of power. These vagaries of business are nothing but adverse environment faced by all competitors who are selected as comparables. Assessee's contention is that its fixed assets were under utilized and therefore there should be an adjustment in Depreciation. In our opinion it would only mean that wear and tear of the fixed assets were considered at a lower level than what it would have been if such assets were used without respite. Depreciation on fixed assets need not be directly proportional to utilization of machinery. Assets can get depreciated by non usage as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the manufacturing was only to the extent of 10% of the installed capacity, the Depreciation claimed by the Assessee should have been proportionately reduced to determine the Operating Profits of the Assessee Company as compared with the other comparables by the learned Transfer Pricing Officer (TPO) and in such Transfer Pricing Analysis given by the Assessee Company before the learned Transfer Pricing Officer. The learned Transfer Pricing Officer had rejected the Transfer Pricing Analysis given by the Assessee on the ground that despite such adverse economic conditions which could be presumed to be available and present for all such similarly situated Companies engaged in the business of Granite manufacture and export, six of the comparable Entities had shown increase in the turnover and therefore, there was no justification for reducing the amount of Depreciation proportionately for determining the Operating Profits of the Assessee Company. 4. The learned counsel for the Assessee further urged that when the matter was taken up to the learned Tribunal by the Assessee, the learned Tribunal while recording a finding in favour of the Assessee that there was under-utilization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reference. "Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed comparables in the year but, the reason assigned by the learned Tribunal itself in the quoted portion of the Order above cannot be said to be per se incorrect or a wrong statement of Accounting Principles. 14. The Assessee Company could not have insisted upon a proportionate reduction of the claim of Depreciation in relation to the under-utilization of its capacity. The different comparables Entities may have different Depreciation Policies, Accounting Methods and despite general economic conditions being common to all, their Profit Margins and claim of Depreciation may differ. 15. Neither the Transfer Pricing Officer(TPO) nor the Tribunal, muchless this Court can undertake any such exercise of comparing the Operating Profit Margins down to the extent of a hair-splitting exercise. It is the broad comparison of the homogeneous comparables, which is envisaged and is done under Section 92-CA of the Act. 16. We are also not impressed with the arguments raised by the learned counsel for the Assessee that since the Dispute Resolution Panel (DRP) in the subsequent year AY 2012-13 has taken a different stand which order was produced during the course of arguments for our perusal, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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