9911796707
TMI Blog2023 (7) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Appellant and the evidences produced with reference to the transactions reported in Form No. 3CEB filed by the Appellant. GROUND NO. 2: Capacity utilization and extraordinary expenses adjustment 2.1 The learned AO/DRP erred in not appreciating the adjustment carried out by the Appellant for unutilized capacity of Appellant vis-avis comparable companies. 2.2 The learned AO/DRP erred in holding that the capacity utilization adjustment has to be carried out on the margin of the comparable companies instead of Appellant. 2.3 The AO/TPO/DRP erred in not allowing the extraordinary costs, in respect of repairs & maintenance, store and power & electricity expenses, incurred by the Appellant due to shutdown of the plant while computing the operating. Net Cost Plus ("NCP") mark-up earned by the Appellant. 2.4 The AO/TPO/DRP erred in computing the correct operating NCP mark-up of the Appellant. GROUND NO. 3: Direction of the DRP not followed by AO/TPO 3.1 The learned AO/TPO erred in not following the DRP direction in respect of allowing tolling expense amounting Rs. 32,66,607 (Total tolling expenses less allowed by the TPO) as an abnormal/ extraordinary expense in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contribution to gratuity fund 7.1 The learned AO erred by disallowing contribution of Rs. 11,04,588/- made by the appellant to "Baroda Textile Effects Private Limited Employees Gratuity Assurance Scheme". GROUND NO. 8: General 8.1 The learned AO erred in initiating Penalty Proceeding u/s 271(l)(c) read with Explanation 7 of the Act. 8.2 The Appellant craves leave to add, alter, amend and/or substitute all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 8.3 The AO erred in not following the directions issued by the DRP u/s 144C(5) of the Act by making an adjustment of Rs. 38,41,90,287/- 8.4 Each one of the above grounds of appeal is without prejudice to the above." 3. Ground No. 1 of assessee's appeal is general in nature and does not require any specific adjudication. 4. Ground No. 2: Capacity utilization and extra-ordinary expenses adjustment 5. Ground Nos. 2.1 and 2.2 of assessee's appeal are general and do not require any specific adjudication. 6. The counsel for the assessee has submitted that he shall not be pressing ground no. 2.4 of assessee's appeal and accordingly, the same are dismissed as withdrawn. 7. Ground No. 2.3: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss during the year or for having a failed product. But similar facts in the assessee's own case were not considered significant. Considering the various case laws cited by the assessee and as per the TP provisions capacity utilization is required in the assessee's case, The TPO's view that if an accurate .adjustment is not possible, the claim should be rejected in totality is not a reasonable interpretation of law. The TPO himself has mentioned that TP is not a science. Logically capacity adjustment being part of TP also cannot be science, The TPO should not have applied a liberal approach in proposing the overall adjustment but ask for a very strict compliance in allowing capacity utilization. 9 We think that an adjustment can be worked out in the assessee's case by adjusting the margin of each of the comparable selected by the TPO. This can be done by simply assuming that for example if Aksharchem makes a profit of 161.79 cr at capacity utilization of 104.86% what would be its profit if capacity ulizalion was only 58% i.e. equivalent to the assessee. Costs such as repairs and maintenance, depreciation etc should be considered as fixed cost. Even employee cost - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses since pursuant to acquisition of BTE by Huntsman Group, the assessee had to undertake huge repairs and maintenance expenses for rendering the plants functional. Further, the assessee had to bear power and electricity expenses to maintain the plants so that they would be in working conditions once the same would be operative. We observe that the Hon'ble DRP has been reasonable in its approach while allowing the capacity utilization adjustment to the assessee on account of one of the plant being non-operational and the assessee was operating at only 58% of its full capacity. Further, the DRP also allowed the assessee to make adjustment with respect to toll manufacturing charges on the ground that these charges were paid as extra-ordinary costs. Further, regarding excess power and electricity expenses, the TPO observed that the assessee in its calculation has not provided a bifurcation of power expenses into fixed and variable costs for the earlier year as well as year under consideration. Accordingly, looking into the instant facts of the case, we are of the considered view that DRP has not erred in facts and in law in not granting adjustment towards repairs and maintenance an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Before us, the counsel for the assessee submitted that ground no. 3.2 of the assessee's appeal (the ld. A.O./TPO erred in not following direction of DRP while classifying various expenses as fixed or comparable in allowing the capacity utilization adjustment calculation of the comparable companies) and ground no. 4.1, 4.2 and 4.4 are similar and the ld. A.O./TPO has erred in facts and in law in not giving effect to DRP order holding that the assessee is entitled to capacity utilization adjustment. The counsel for the assessee drew our attention to paras 8-9 of the order passed by Hon'ble DRP, wherein a specific direction was given by Hon'ble DRP to give adjustment towards lesser capacity utilization. The counsel for the assessee drew our attention to page 1 of paper book dated 22-04-2021 and submitted that while following the directions of DRP, the DCIT has made errors in items 5 to 9 of the table at page 2 of the order passed by DCIT dated 19-02-2015. The counsel for the assessee submitted that ground no. 4.1 of assessee's appeal deals with four parties and submitted that the ld. A.O. committed arithmetical errors while giving effect to capacity utilization adjustment/not fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT held that Transfer pricing addition should be restricted only qua international transaction and not entity level transactions. 26. In view of the judicial precedents highlighted above, ground no. 5 of assessee's appeal is allowed. 27. The counsel for the assessee submitted that we shall not be pressing ground no. 6 of assessee's appeal and accordingly, ground no. 6 of assessee's appeal is dismissed as not pressed. 28. Ground No. 7 : disallowance of contribution to gratuity fund. 29. The brief facts relating to this ground of appeal are that the Assessing Officer disallowed contribution of Rs. 11,04,588/- made by the assessee to " Baroda Textile Effects Pvt. Ltd. Employees Gratuity Assurance Scheme" (Gratuity Scheme). In appeal, the DRP upheld the disallowance on the ground that the aforesaid fund was not granted approval during the year under consideration and the approval to the fund was granted in the subsequent year. Accordingly, the DRP held that the payment made towards gratuity fund which was not an approved fund created by the assessee for the exclusive benefit of the employees was not allowable in terms of section 36(1)(v) of the Act. 30. The assessee is in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault can be found with the opinion expressed by the High Court, warranting our interference." In the case of Gujarat State Co-op. Marketing Federation Ltd. [2021] 129 taxmann.com 53 (Ahmedabad - Trib.), the Ahmedabad ITAT held that where AO disallowed deduction under section 36(1)(v) to assessee company on account of payment of premium made directly to LIC towards employees gratuity fund created by it with LIC on ground that such gratuity fund was not approved, since undisputedly approval under section 2(5) was granted to gratuity fund subsequently by Commissioner, deduction was to be allowed. In the case of Prakash Software Solution (P.) Ltd. [2018] 89 taxmann.com 130 (Ahmedabad - Trib.), the Ahmedabad ITAT held that payment to a gratuity fund on a date prior to date of approval of a gratuity fund does not come in way of deduction u/s 36(1)(v) being allowed. In the case of Jaipur Thar Gramin Bank [2017] 81 taxmann.com 126 (Rajasthan), the Rajasthan High Court held that where assessee had filed application to competent authority for approving gratuity scheme and it had duly complied with conditions laid down for approval under section 36(1 )(v), Assessing Officer ought not to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
