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TMI Blog2017 (4) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the assessee-company failed to demonstrate under-utilisation of the capacity in assessee’s own case and also not falling below average rate of under-utilization in the industry. In the circumstances, we remand the matter back to the file of the AO/TPO to adjudicate this issue in accordance with law after due opportunity to the assessee company. Direction of the DRP directing income from administrative services as part of operating revenue - Held that:- To examine the correctness of the findings of the TPO, we examined the Annual Report and it is noticed by us from Schedule 13 to the P&L Account that the above amount has been shown as 'Administrative expenses recovered' which clearly indicates that the administrative expenses recovered are nothing but the reimbursement of the expenses incurred by the assessee for the above company and therefore, if such income is excluded from the operating revenue, corresponding expenses have to be excluded from the operating cost. We are in agreement with the submission of the assessee that the administrative expenses recovered to be considered as operating revenue, considering the fact that the TPO has not reduced corresponding expenses fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted TNMM adopted by the assessee-company but rejected TP study report. While doing so, TPO applied the following filters: i. Using current data alone ii. The TPO rejected the assessee's claim for adjustment to its own operating margin towards extraordinary and nonrecurring expenses which resulted in loss to the company. The TPO also held that profit adjustment can be made only to net profit margin of the comparable companies and not to margins of tested party. The TPO did not provide any adjustment to working capital between assessee and comparable entity. The TPO rejected Megatech Control Ltd. on the ground that the company incurred abnormal losses during the financial year. By adopting the above, the TPO selected the following companies as comparables: Name of the company Average margin Amtech Electronics (India) Ltd., 4.66% Chemtrols Industries Ltd. 4.00% PMA Controls India Ltd. 5.66% The TPO computed average margin of the comparables finally selected at 4.77% . On the said basis, the TPO computed TP adjustment: 4. The Assessing Officer (AO) passed draft assessment order dated 28/02/2014 and the same was served on the assessee. After receipt of draft assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable data at the time of complying with the transfer pricing documentation requirements; 5.The learned AO/ TPO and the learned DRP have erred, in law and in facts, by not appreciating the adjustments for extraordinary expenses and non-recurring expenses made by the Appellant to the operating cost} revenue base like high manufacturing cost. high personnel cost, execution of low margin and high impart sentent "'t while computing the operating margin of the Company; 6. The learned AO,' TPO and the learned DAP have erred, in law and in facts, by incorrectly rejecting comparable companies while determining operating margin of the comparable companies; 7. Without prejudice to the directions Of the Hon'ble DRP on the use Of Company-wide operating margins, the learned AO/ TPO has erred, in law and in facts, by not considering the segmental information provided by the Appellant and computing the company-wide operating margin i.e. considering the operations in different segments of the company as a whole; Grounds relating to corporate tax matters 8. The learned AO has erred in denying set-off of the brought forward Business Loss and Unabsorbed Depreciation of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of expanding business. It was submitted that these expenses were incurred keeping in view anticipated expenses of operation of the company in future and directly relatable to manufacturing activity of the company. According to the assessee-company the following expenses are required to be excluded while computing the operating margins of the company: After hearing rival submissions and perusing material on record, now the law is quite settled to the extent that once there is unutilized capacity or men power, such underutilization impacts margin and therefore, the adjustment should be made while computing the ALP. But the onus lies on the assessee to establish there is under-utilization of the capacity and under-utilization is more than average underutilization in the industry. If the underutilization is more than average underutilization of the industry then necessary adjustment is required to be made to the margin of computing ALP. But in the present case, the assesseecompany failed to demonstrate under-utilisation of the capacity in assessee's own case and also not falling below average rate of underutilization in the industry. In the circumstances, we remand the matter ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as part of operating revenue. The revenue raised the following grounds of appeal: 1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances Of the case, the Dispute Resolution Panel erred in directing the TPO/AO to exclude the income Of ₹ 2,33,97,997 received as Administrative Services, even when this is attributable to income from other sources which is not attributable to the business and cannot be considered as operating revenue. 3. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. 4. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. The finding of the DPO is as follows: Having heard the objection, we perused the order of the TPO and it is noticed by us from paragraph 9.1.4 of the TPO's order that the TPO has not addressed the issue raised by the assessee, but simply observed that the nature of income is from other sources which is attributable to business but not derived from operating ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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