Geissel India Pvt. Ltd., Pune V. JCIT (OSD), Circle - 1(2),

ITA 1775/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1845 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Corroborative evidences
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1775/PN/2013 $& ' !(' / ASSESSMENT YEAR : 2009-10 GEISEL INDIA PVT. LTD., GAT NO. 1102, MUTHA ROAD, PIRANGUT, TAL.-MULSHI, PUNE 412115 PAN : AAACG7841G ....... / APPELLANT )& / V/S. JT. COMMISSIONER OF INCOME TAX (OSD), CIRCLE 1(2), PUNE / RESPONDENT ASSESSEE BY : SHRI MEHUL SHAH REVENUE BY : SHRI S.K. RASTOGI / DATE OF HEARING : 10-03-2016 / DATE OF PRONOUNCEMENT : 09-05-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 31 -07-2013 FOR THE ASSESSMENT YEAR 2009-10. 2 ITA NO. 1775/PN/2013, A.Y. 2009-10 2. THE FACTS OF THE CASE AS EMANATING FROM THE RECORDS ARE: THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRAD ING AND EXPORT OF ELECTRICAL WIRING ACCESSORIES, CABLE GLANDS, ETC. TH E ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YE AR ON 25-09-2009 DECLARING LOSS OF `(-) 1,06,18,488/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTIC E U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS ISSUED TO THE ASSESSEE ON 29-09-2010. DURING THE PER IOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD E NTERED INTO THE FOLLOWING TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) : SR. NO. DESCRIPTION OF TRANSACTIONS AMOUNT (RS.) 1 IMPORT OF TRADED OR FINISHED GOODS 22,35,769 2 EXPORT OF TRADED OR FINISHED GOODS 3,19,22,673 3 RECEIPT OF COMMISSION 17,69,140 3. TO BENCHMARKING THE ARMS LENGTH PRICE (ALP) OF ABOV E INTERNATIONAL TRANSACTIONS WITH THE AES, THE ASSESSEE APP LIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPR OPRIATE METHOD. THE OPERATING PROFIT TO THE TOTAL COST WAS TAKE N AS THE PROFIT LEVEL INDICATOR (PLI). THE PLI WAS ARRIVED AT 9.4% AFTER ADJUSTMENT FOR CAPACITY UTILIZATION AND BURNING LOSS. THE ASSESSEE SELECTE D 7 COMPANIES AS COMPARABLES AND ARITHMETIC MEAN OF THE COMP ARABLES WERE ARRIVED AT 6.78%. THE ASSESSEE APPLIED THE TURNOVE R FILTER FOR REJECTING THE COMPARABLES HAVING TURNOVER OF LESS THAN ` 1 CRORE AND MORE THAN ` 500 CRORES. THE ASSESSEE ALSO REJECTED THE COMPANIES WITH ABNORMAL PLI I.E. PLI LESS THAN MINUS 25% AND IN EXCESS OF 50%. THE ASSESSEE USED MULTIPLE YEAR DATA I.E. DATA FOR 3 FINANCIAL YEA RS FOR 3 ITA NO. 1775/PN/2013, A.Y. 2009-10 COMPUTING THE AVERAGE MARGIN OF COMPARABLES. THE ASSESS ING OFFICER REJECTED THE TP STUDY OF THE ASSESSEE BY INTER ALIA OBJ ECTING TO MULTIPLE YEAR DATA ADOPTED BY THE ASSESSEE IN RESPECT OF COMP ARABLES AND ADJUSTMENT MADE TOWARDS CAPACITY UTILIZATION AND BURNING LOSS. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-2011, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUG NED ORDER UPHELD THE FINDINGS OF ASSESSING OFFICER AND DISMISSED T HE APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN APPEAL ASS AILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 1. THE LEARNED CIT(APPEALS) - IT/TP, PUNE ERRED IN LA W AND ON FACTS IN SUSTAINING THE ADDITION OF RS. 1,51,18,036/- MADE BY THE LEARNED AO & TPO TO THE TOTAL INCOME OF THE APPELLANT BY DISTURB ING THE TRANSACTION PRICE OF THE INTERNATIONAL TRANSACTIONS WITH THE AS SOCIATED ENTERPRISE (AE) UNDER THE TNM METHOD. 2. THE LEARNED CIT(APPEALS) - IT/TP, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LEARNED AO & TPO IN NO T ALLOWING THE ADJUSTMENT IN PROFIT LEVEL INDICATOR (PLI) OF THE A PPELLANT BY CARVING OUT FIXED OVERHEADS PERTAINING TO UNDERUTILIZATION OF T HE CAPACITY. 3. THE LEARNED CIT(APPEALS) - IT/TP ERRED IN LAW AND O N FACTS IN NOT TESTING THE CORRECTNESS OF THE TRANSACTION PRICE OF THE INT ERNATIONAL TRANSACTIONS ON ALTERNATE METHODS I.E. CUP AND CPM. 4. THE APPELLANT CRAVES, LEAVE TO ADD I MODIFY I DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 5. SHRI MEHUL SHAH APPEARING ON BEHALF OF THE ASSESSEE SU BMITTED THAT THE ASSESSMENT YEAR UNDER APPEAL WAS THE FIRST YE AR WHEN THE 4 ITA NO. 1775/PN/2013, A.Y. 2009-10 GERMAN GROUP HAD ACQUIRED THE CONTROL OVER THE MANAGE MENT AND SHARES OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAD INCREASED ITS MANUFACTURING CAPACITY BY INSTALLING 23 MACHINES. HOWEVE R, DURING THE RELEVANT PERIOD ONLY 3-4 MACHINES WERE OPERATING. T HUS, THE OUTPUT CAPACITY OF THE UNIT WAS UNDERUTILIZED. THE CAPACIT Y UTILIZATION WAS ABOUT 10% OF THE INSTALLED CAPACITY. THE ASSESSEE H AD MADE ADJUSTMENT IN RESPECT OF LOW CAPACITY UTILIZATION. THE ASS ESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HAVE REJECTED CA PACITY UTILIZATION ADJUSTMENT IN AN ARBITRARY MANNER. THE ASSESS ING OFFICER HAS ERRED IN HOLDING THAT THERE IS NO CONCEPT OF LOW CAPA CITY UTILIZATION ADJUSTMENT. THE LD. AR FURTHER SUBMITTED THAT THE COMMI SSIONER OF INCOME TAX (APPEALS) HAS GIVEN A WRONG FINDING OF FACT THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO SUBSTANTIATE LO W CAPACITY UTILIZATION. THE LD. AR CONTENDED THAT THE ASSESSEE AT T HE TIME OF ASSESSMENT PROCEEDINGS AND THEREAFTER BEFORE THE COMMI SSIONER OF INCOME TAX (APPEALS) HAD FURNISHED THE DETAILS OF TOTAL PRO DUCTION CAPACITY AND THE DETAILS OF MACHINES UTILIZED DURING THE PER IOD UNDER APPEAL. THE LD. AR REFERRED TO REPLY TO SHOW CAUSE NOTIC E DATED 20-12-2011 AT PAGES 51 TO 54 OF THE PAPER BOOK, TO SH OW THAT THE ASSESSEE HAD GIVEN THE DETAILS OF UNDERUTILIZATION OF CAPACIT Y. DUE TO UNDERUTILIZATION OF CAPACITY AND NON-ABSORPTION OF OVERHEAD S THE ASSESSEE SUFFERED HUGE LOSSES. THE LD. AR SUBMITTED THAT A PERUSAL OF THE ASSESSMENT ORDER PARA 6.4 WOULD SHOW THAT THE ASS ESSING OFFICER HAS NOTED THE FACT THAT DETAILS OF CAPACITY UTILIZATION ARE PLACED BEFORE HIM. AS SUCH THE CONTENTIONS OF THE REVENUE THAT THE D ETAILS OF CAPACITY UTILIZATION WERE NOT FURNISHED BY THE ASSESSEE AR E SELF- CONTRADICTORY. BEFORE THE FIRST APPELLATE AUTHORITY THE A SSESSEE HAS PLACED ON RECORD A COPY OF APPROVED VALUER CERTIFICATE W HEREIN ACTUAL 5 ITA NO. 1775/PN/2013, A.Y. 2009-10 CAPACITY UTILIZATION OF THE ASSESSEE WAS STATED. SINCE, THE ASSESSEE HAD OBTAINED VALUERS REPORT AFTER THE CONCLUSION OF THE ASSE SSMENT PROCEEDINGS THE ASSESSEE HAD FILED THE SAME AT THE TIME OF FIRST APPELLATE PROCEEDINGS AS ADDITIONAL EVIDENCE. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) PREFERRED NOT TO GRAN T ADJUSTMENT OF CAPACITY UTILIZATION AND DID NOT DELIBERATE ON THIS ISSUE. THE LD. AR FURTHER SUBMITTED THAT IN SO FAR AS OBSERVATION S OF THE ASSESSING OFFICER THAT LOW CAPACITY UTILIZATION ADJUSTMENT IS NOT PERMISSIBLE, THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON TH E DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TASTY BITE EATABLES LIMITED VS. ACIT IN ITA NO. 1682/PN/2011 FOR THE ASSESSME NT YEAR 2007-08 DECIDED ON 10-06-2015 AND IN THE CASE OF ARIST ON THERMO INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX REPORTED AS 147 ITD 388 (PUNE). 6. THE LD. AR MADE AN ALTERNATE PRAYER TO ADOPT ALTERNA TE METHODS I.E. CUP AND CPM FOR BENCHMARKING THE TRANSACTIONS. THE LD . AR SUBMITTED THAT SIMILAR PRAYER WAS MADE BEFORE THE COMMI SSIONER OF INCOME TAX (APPEALS). HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) REMAINED SILENT ON THE ALTERNATE SUBMISSIONS MADE BY THE ASSESSEE. 7. AU CONTRAIRE SHRI S.K. RASTOGI REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) AND PRAYED FOR DISMISSING THE APPEAL OF THE ASSES SEE. THE LD. DR SUBMITTED THAT THE ASSESSEE HAD NOT FURNISHED ANY S PECIFIC DETAILS EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE COMMISSION ER OF INCOME TAX (APPEALS) IN SUPPORT OF HIS CLAIM FOR LOW UTILIZATION. THE 6 ITA NO. 1775/PN/2013, A.Y. 2009-10 ASSESSEE HAD WORKED OUT HIS PLI OF 9.4% AFTER CAPACITY U TILIZATION AND BURNING COST ADJUSTMENT. WHEREAS, THE AVERAGE PLI OF C OMPARABLES IS ARRIVED AT 6.78% AFTER ADOPTING MULTIYEAR DATA. THE ASSE SSING OFFICER HAS RIGHTLY REFUSED TO ACCEPT MULTIYEAR DATA AND ADJUS TMENT IN RESPECT OF CAPACITY UTILIZATION AND BURNING COST. THE ASSESSEE HA S CLAIMED LOW CAPACITY UTILIZATION ADJUSTMENT ON THE GROUND THAT NEW MACHINES WERE PURCHASED WHICH WERE NOT UTILIZED FULLY. IT IS NOT THE CAS E OF FIRST YEAR OR SECOND YEAR OF THE OPERATION. THE ASSESSEE HAS TIME AND AGAIN SUBMITTED THAT ONLY 3-4 MACHINES WERE OPERATING DURING THE RELEVANT PERIOD, WHEREAS, A PERUSAL OF CERTIFICATE ISSUED BY THE CHAR TERED ENGINEER/APPROVED VALUER DATED 28-05-2013 AT PAGE 60 OF THE PAPER BOOK WOULD SHOW THAT OUT OF 23 MACHINES INSTALLED, 10 MACH INES WERE IN OPERATION AND 13 MACHINES WERE LYING IDLE. THE CERTIFICAT E HAS BEEN PLACED ON RECORD BY THE ASSESSEE THUS, THE DOCUMENTS PLACED ON RECORD BY THE ASSESSEE ARE CONTRARY TO THE SUBMISSIONS. TO C OUNTER SUBMISSIONS OF THE ASSESSEE WITH REGARD TO LOW CAPACITY U TILIZATION THE LD. DR PLACED RELIANCE ON THE DECISION OF DELHI BENCH OF THE T RIBUNAL IN THE CASE OF HAWORTH (INDIA) (P.) LTD. VS. DEPUTY COMMISSION ER OF INCOME TAX REPORTED AS 131 ITD 215 (DELHI) AND IN THE CA SE OF GEODIS OVERSEAS (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX RE PORTED AS 14 ITR (T) 325 (DELHI). THE LD. DR FURTHER SUBMITTED THAT IN SO FAR AS THE ALTERNATE PRAYER OF ASSESSEE TO ADOPT ALTERNATE ME THODS VIZ. CUP OR CPM FOR BENCHMARKING THE TRANSACTIONS, THE ASSESSEE ITSE LF IN THE TP STUDY REPORT HAS GIVEN THE REASONS AS TO WHY CUP IS NOT APPLICABLE . 8. THE LD. AR CONTROVERTING THE SUBMISSIONS MADE BY THE LD. DR SUBMITTED THAT THE ASSESSMENT YEAR UNDER APPEAL IS TH E FIRST YEAR WHEN THE GERMAN COMPANY HAD TAKEN OVER THE CONTROL OF THE ASSESSEE. THE 7 ITA NO. 1775/PN/2013, A.Y. 2009-10 LD. AR SUBMITTED THAT THE FINDINGS GIVEN BY THE APPROVED V ALUER WITH RESPECT TO CAPACITY UTILIZATION MAY BE ADOPTED. THE LD. AR FURTHER CONTENDED THAT THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF HAWORTH (INDIA) (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOM E TAX (SUPRA) WAS CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CA SE OF ARISTON THERMO INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOM E TAX (SUPRA). THE TRIBUNAL AFTER CONSIDERING THE SAME HAS OBSE RVED THAT THE DECISION IN THE CASE OF HAWORTH (INDIA) (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA) DOES NOT HELP THE REVE NUE, AND THE RELIANCE BY THE COMMISSIONER OF INCOME TAX (DR) IS MISPLACED. 9. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE. THE ASSESSEE IN APPEAL HAS PRIMARILY ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN REJECTING THE LOW C APACITY UTILIZATION ADJUSTMENT. A PERUSAL OF RECORDS REVEALS THAT THE ASSESSEE HAD INSTALLED 23 MACHINES. A CERTIFICATE FROM THE APPROVED VALUER AT PAGE 60 OF THE PAPER BOOK SHOWS THAT OUT OF 23 MACHINE S INSTALLED, ONLY 10 MACHINES IN USE WHEREAS 13 MACHINES WERE COMPLE TELY IDLE DURING THE PERIOD. THE LD. AR OF THE ASSESSEE STATED AT THE BAR THAT INSTALLED AND ACTUAL PRODUCTION CAPACITY OF THE PLANT AS ST ATED IN THE CERTIFICATE ISSUED BY CHARTERED ENGINEER/ APPROVED VALUER MAY BE ADOPTED. 10. IN SO FAR AS THE ISSUE OF ALLOWABILITY OF ADJUSTMENT IN RESPECT OF LOW CAPACITY UTILIZATION IS CONCERNED, IT IS NO MORE RES-INTEG RA THAT ADJUSTMENT FOR LOW CAPACITY UTILIZATION CAN BE GRANTED SUB JECT TO 8 ITA NO. 1775/PN/2013, A.Y. 2009-10 CREDIBLE EVIDENCE PRODUCED BY THE ASSESSEE IN THAT REGA RD. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF TASTY BITE EATABLES L IMITED VS. ACIT (SUPRA) WHILE GRANTING THE BENEFIT OF LOW CAPACITY UTILIZAT ION ADJUSTMENT HAS CONSIDERED VARIOUS DECISIONS OF THE TRIBU NAL AND RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR GRATING BENEFIT OF LOW CAPACITY UTILIZATION. THE RELEVANT EXTRACT OF THE OR DER OF TRIBUNAL IS AS UNDER: 33. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF CAPACIT Y UNDER UTILISATION IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT CAPACITY UTILISATION OF THE ASSESSEE WORKS OUT TO 1 5% WHEREAS CAPACITY UTILISATION OF THE COMPARABLE COMPANY WAS 53%. THER EFORE, THE DIFFERENCE BETWEEN THE TWO IS SIGNIFICANT AND MATERIAL TO IMPA CT THE PROFIT MARGIN OF THE ASSESSEE AND THE COMPARABLE COMPANYS ABILITY T O ABSORB THE FIXED OVERHEADS LIKE DEPRECIATION, SALARY AND WAGES, POWE R, REPAIR ETC. IS LESS WHERE CAPACITY UTILISATION IS LOW AND THIS WOULD LE AD TO INCREASED COST AND LOWER PROFIT. 34. WE FIND SOME FORCE IN THE ABOVE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. FIAT INDIA LTD. VS. ACIT VIDE ITA NO.1848/MUM/2009 ORDER DATED 30-04- 2010 FOR A.Y. 2004-05 AT PARA 8 OF THE ORDER HAS OB SERVED AS UNDER : 8. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE ID. CIT(A) IN ALLOWING THE ADJUSTMENTS MADE BY THE ASSE SSEE TO WORK OUT ITS OPERATING MARGIN FOR COMPARING THE SAME WITH THE PR OFIT MARGIN OF COMPARABLE CASES. IT IS OBSERVED IN THIS CONTEXT TH AT A DETAILED SUBMISSION WAS MADE ON BEHALF OF THE ASSESSEE BEFOR E THE ID. CIT(A) EXPLAINING EACH AND EVERY ADJUSTMENT SOUGHT TO BE M ADE BY IT. THE GIST OF THE SAID SUBMISSION HAS ALREADY BEEN EXTRACTED B Y US IN THE FOREGOING PORTION OF THIS ORDER AND A PERUSAL OF THE SAME SHO WS THAT EACH AND EVERY ADJUSTMENT MADE BY THE ASSESSEE COMPANY WAS D ULY EXPLAINED BY IT BY FURNISHING THE RELEVANT FACTS AND FIGURES AS WELL AS BY PRODUCING THE SUPPORTING EVIDENCE WHEREVER REQUIRED. AS RIGHT LY HELD BY THE LD. CIT(A), THE SAID SUBMISSION MADE BY THE ASSESSEE IS SUFFICIENT TO DEMONSTRATE THAT THERE WAS A MATERIAL DIFFERENCE IN THE FACTS OF THE ASSESSEE'S CASE AND THAT OF THE COMPARABLE CASES IN TERMS OF CAPACITY UTILIZATION AS WELL AS IN OTHER TERMS. APPROPRIATE ADJUSTMENTS THUS WERE REQUIRED TO BE MADE TO ELIMINATE SUCH DIFFERENCES A ND AFTER HAVING CONSIDERED THE RELEVANT TRANSFER PRICING GUIDELINES AS WELL AS TRANSFER 9 ITA NO. 1775/PN/2013, A.Y. 2009-10 PRICING REGULATIONS, IT WAS HELD BY THE LD. CIT(A) THAT VARIOUS ADJUSTMENTS MADE BY THE ASSESSEE WERE REASONABLE AN D ACCURATE. HE ALSO HELD THAT THE SAID MATERIAL DIFFERENCE WERE AR BITRARILY IGNORED BY THE TPO WHILE DISALLOWING THE ASSESSEE'S CLAIM SUCH FOR ADJUSTMENTS AND THERE BEING NO PROPER REASONS ASSIGNED BY HIM FOR I GNORING THE SAID DIFFERENCE, THE TRANSFER PRICING EXERCISE DONE BY H IM IN THE REPORT WAS ENTIRELY FUTILE. AT THE TIME OF HEARING BEFORE US, THE ID. D.R. HAS NOT BEEN ABLE TO RAISE ANY MATERIAL CONTENTION TO REBUT/CONT ROVERT THE OBSERVATIONS/FINDING RECORDED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER TO ARRIVE AT THE SAID CONCLUSION. HE HAS SIMPLY RELIED ON THE REPORT OF THE TRANSFER PRICING OFFICER IN SUPPORT OF THE REVENUE' S CASE. HOWEVER, AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE FRO M THE COPIES OF RELEVANT REPORTS, THE TPO HIMSELF HAS ALLOWED SIMIL AR ADJUSTMENTS MADE BY THE ASSESSEE IN THE IMMEDIATELY PROCEEDING YEARS I.E. A.Y. 2002-03, 2003-04 AS WELL AS IN THE IMMEDIATELY SUCCEEDING YE ARS I.E. 2005-06 AND 2006-07 WHEREIN THE FACTS INVOLVED WERE SIMILAR TO THAT OF THE YEAR UNDER CONSIDERATION I.E. A.Y. 2004-05. WE, THEREFOR E, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) HOLDING THAT T HE ADJUSTMENTS MADE BY THE ASSESSEE IN TNMM ANALYSIS WERE REASONABLE AN D ACCURATE AND AS REFLECTED IN THE SAID ANALYSIS, INTERNATIONAL TR ANSACTIONS MADE BY THE ASSESSEE COMPANY WITH ITS ASSOCIATED CONCERNS DURIN G THE YEAR UNDER CONSIDERATION WERE AT ARMS LENGTH REQUIRING NO ADJU STMENT/ADDITION ON THIS ISSUE. THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS THEREFORE UPHELD DISMISSING GROUND NO. 2 OF REVENUE'S APPEAL. (UNDERLINE GIVEN BY US) 35. WE FIND FOLLOWING THE ABOVE DECISION THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF ARISTON THERMO INDIA LTD. (SUPRA) HA S ALSO AGREED IN PRINCIPLE THE ADJUSTMENT ON ACCOUNT OF LOW CAPACITY UTILISATION AND HIGH FIXED OPERATING COST BY OBSERVING AS UNDER : 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE POINT SOUGHT TO BE MADE OUT BY THE ASSESSEE IS THAT THIS BEING THE FIRST YEAR OF OPERATIONS, IT HAS NOT ACHIEVED AN OPTIMUM LEVEL OF CAPACITY UTILIZATION AND THE SALES ARE ALSO ON A LOWER SIDE. MOREOVER, I T HAS INCURRED CERTAIN START-UP COSTS AND THE FIXED OPERATING COSTS HAVE A LSO NOT BEING ABSORBED DUE TO LOW CAPACITY UTILIZATION. IN THE ABSENCE OF OPTIMUM UTILIZATION OF ITS PRODUCTION CAPACITY, IT HAS SUFFERED OPERATING LOSSES DURING THE YEAR. ON THE OTHER HAND, THE NET PROFIT MARGIN OF THE ASS ESSEE HAS BEEN BENCHMARKED AGAINST COMPARABLES CASES, WHO ARE ESTA BLISHED ENTITIES AND HAVE STARTED BUSINESSES MANY YEARS AGO. IN OUR CONSIDERED OPINION, THE CASE MADE OUT BY THE ASSESSEE IS BASED ON ECONO MIC AND COMMERCIAL REASONS. THE ASSESSEE IS A UNIT WHICH HAS BEEN SET- UP DURING THE YEAR AND ITS CAPACITY UTILIZATION IS ONLY 21%, WHICH HAS RESULTED IN LOSSES, 10 ITA NO. 1775/PN/2013, A.Y. 2009-10 WHILE ITS PROFIT MARGINS HAVE BEEN COMPARED WITH EN TITIES ESTABLISHED OVER THE YEARS. OSTENSIBLY, SUCH A COMPARABILITY AN ALYSIS DOES NOT PROVIDE A LEVEL PLAYING FIELD. IN OUR VIEW, THE AFO RESAID FACTOR IS REQUIRED TO BE ADJUSTED SO AS TO FACILITATE A MEANINGFUL COM PARABILITY ANALYSIS BETWEEN THE INTERNATIONAL TRANSACTIONS OF THE ASSES SEE AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. 11. HOWEVER, AS PER THE REVENUE, SUCH AN ADJUSTMENT TO THE PROFIT MARGIN OF THE ASSESSEE IS NOT PERMISSIBLE HAVING RE GARD TO THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. THE METHOD ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTION IS THE T NM METHOD AND RULE 10B(1)(E) OF THE RULES PRESCRIBES THE MANNER IN WHI CH THE SAME IS TO BE APPLIED. AS PER THE REVENUE, IN SUB-CLAUSE (III) AD JUSTMENTS TO THE NET PROFIT MARGIN ARE PERMISSIBLE BUT IT IS ONLY IN REL ATION TO THE NET PROFIT MARGINS OF THE COMPARABLE UNCONTROLLED TRANSACTIONS AND NOT WITH RESPECT TO THE MARGIN OF THE TESTED PARTY AND THUS THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. IN OUR CONSIDERED OPINI ON, IN SUB-CLAUSE (I) THE NET PROFIT MARGIN REALIZED BY A TESTED PARTY FR OM AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE ASCERTAINED HAVING RE GARD TO THE RELEVANT BASE. IN SUBCLAUSE (II) THE NET PROFIT MARGIN REALI ZED BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON IS TO BE ASCERTAINED HAVING REGARD TO THE SAME BASE. SUB-CLA USE (III) PERMITS ADJUSTMENT WITH REGARD TO THE NET PROFIT MARGIN REF ERRED TO IN SUB-CLAUSE (II) I.E. OF THE COMPARABLE UNCONTROLLED TRANSACTIO NS SO AS TO TAKE INTO ACCOUNT THE DIFFERENCE, IF ANY BETWEEN THE INTERNAT IONAL TRANSACTION OF THE TESTED PARTY AND THE COMPARABLE UNCONTROLLED TR ANSACTIONS. THE PLEA OF THE REVENUE, IN OUR VIEW, IS MISDIRECTED FOR THE REASON THAT THE NET PROFIT MARGIN OF THE TESTED PARTY REFERRED TO IN SU BCLAUSE (I) HAS NOT BEEN DEFINED IN A MANNER AS IS BEING UNDERSTOOD BY THE R EVENUE. AS PER THE REVENUE THE NET PROFIT MARGIN OF THE TESTED PARTY A S STATED IN SUB-CLAUSE (I) IS TO BE THE SAME AS REFLECTED IN THE FINANCIAL ACCOUNTS. IN PARA 8.1 OF THE ORDER OF THE TPO IT IS CANVASSED THAT THE NET P ROFIT MARGIN HAS TO BE UNDERSTOOD AS MEANING PROFIT BEFORE TAX COMPUTED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES. IN OUR CONSIDERED OPINION, T HE WHOLE OBJECTIVE OF ADOPTING THE MOST APPROPRIATE METHOD FOR THE PURPOS E OF COMPARABILITY ANALYSIS IS TO DETERMINE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IN OTHER WORDS, THE PURPOSE OF THE CO MPARABILITY ANALYSIS IS TO EXAMINE AS TO WHETHER OR NOT THE VALUES STATED F OR THE INTERNATIONAL TRANSACTIONS ARE AT AN ARMS LENGTH PRICE I.E. WHET HER THE PRICE CHARGED IS COMPARABLE TO AN UNCONTROLLED TRANSACTION OF SIM ILAR NATURE. THEREFORE, THE ADOPTION OF THE NET PROFIT MARGIN OF THE TESTED PARTY HAS TO BE MADE KEEPING IN MIND ITS OBJECTIVE, I.E. TO FACILITATE I TS COMPARISON WITH OTHER UNCONTROLLED COMPARABLE ENTITIES/TRANSACTIONS. THER EFORE, KEEPING IN MIND THE AFORESAID OBJECTIVE, THE NET PROFIT MARGIN OF THE TESTED PARTY 11 ITA NO. 1775/PN/2013, A.Y. 2009-10 DRAWN FROM ITS FINANCIAL ACCOUNTS CAN BE SUITABLY A DJUSTED TO FACILITATE ITS COMPARISON WITH OTHER UNCONTROLLED ENTITIES/TRA NSACTIONS AS PER SUB- CLAUSE (I) OF RULE 10B(1)(E) OF THE RULES ITSELF. T HE ABSENCE OF SUCH A SPECIFIC PROVISION IN RULE 10B(1)(E)(III) OF THE RU LES DOES NOT OPERATE AS A BAR, SO LONG AS THE ADJUSTMENT SOUGHT TO BE MADE IN THE PROFIT MARGIN OF THE TESTED PARTY ARE BASED ON COGENT AND SUFFICIENT REASONS AND SEEKS TO MAKE THE COMPARABILITY ANALYSIS WITH COMPARABLE UNC ONTROLLED TRANSACTIONS MORE MEANINGFUL. IN-FACT, PUNE BENCH O F THE TRIBUNAL IN THE CASE OF EGAIN COMMUNICATION (P.) LTD. (SUPRA) IN PA RA 36 OF THE ORDER OPINED THAT DEPENDING ON THE FACTS AND CIRCUMSTANCE S OF A CASE, IT MAY BE APPROPRIATE TO ADJUST THE OPERATING PROFIT OF TH E TESTED PARTY AS WELL AS OF THE COMPARABLE PARTIES. TO THE SIMILAR EFFECT IS THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S FIA T INDIA PVT. LTD. (SUPRA). IN FACT, IN THE CASE OF AMDOCS BUSINESS SE RVICES (P.) LTD. (SUPRA) WHEREIN ONE OF US WAS A MEMBER OF THE BENCH I.E. AC COUNTANT MEMBER, AN ADJUSTMENT WAS ALLOWED TO THE PROFIT MARGIN OF T HE TESTED PARTY WITH RESPECT TO THE UNDER CAPACITY UTILIZATION, THE UNIT BEING IN THE STARTUP PHASE. THE DECISION OF THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF SKODA AUTO INDIA (SUPRA) IS ALSO ON SIMILAR LINES. 12. THE LEARNED CIT(DR) HAS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HAWORTH (INDIA) P. LTD. (SUPRA) FOR THE PRO POSITION THAT ADJUSTMENT TO THE PROFIT MARGIN OF THE TESTED PARTY IS NOT PER MISSIBLE. WE HAVE PERUSED THE SAID DECISION. IN THE CASE BEFORE THE D ELHI BENCH OF THE TRIBUNAL, ASSESSEE HAD COMPUTED ITS MARGIN AFTER CL AIMING ADJUSTMENT FOR CAPACITY UTILIZATION. THE ASSESSEE HAD ADOPTED THE TNM METHOD FOR THE PURPOSE OF COMPUTING ITS ALP. THE ASSESSEE HAD CLAIMED THAT CAPACITY UTILIZATION OF COMPARABLES WAS TO THE EXTE NT OF 70%, WHICH WAS AN ASSUMPTION MADE DUE TO NON-AVAILABILITY OF THE R EQUIRED DETAILS OF THE COMPARABLE CASES. THE TPO REJECTED THE ADJUSTMENT O N THE GROUND THAT ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE FOR ASSUMIN G THE CAPACITY UTILIZATION OF THE COMPARABLES AND THE DATA BEING R ELIED UPON BY THE ASSESSEE WAS FOUND TO BE EITHER UNRELIABLE OR INCOR RECT. THE TRIBUNAL IN PARA 90 OF ITS ORDER EXAMINED THE EVIDENCE RELIED B Y THE ASSESSEE WITH REGARD TO ITS ASSUMPTION MADE TOWARDS THE CAPACITY UTILIZATION OF 70% OF THE COMPARABLE CASES. ON THE BASIS OF THE DOCUMENTS AND MATERIAL ON RECORD, THE TRIBUNAL CAME TO CONCLUDE THAT THE ASSE SSEE DID NOT FURNISH SUFFICIENT EVIDENCE WITH REGARD TO THE CAPACITY UTI LIZATION OF THE COMPARABLE CASES. THE TRIBUNAL HELD THAT ASSESSEE W AS NOT ENTITLED TO SEEK ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION BECAUSE OF ITS FAILURE TO FURNISH CREDIBLE AND ACCURATE INFORMATION IN THI S REGARD. IN CONCLUSION, THE TRIBUNAL SPECIFICALLY NOTED THAT BECAUSE OF THE AFORESAID FAILURE OF THE ASSESSEE, THE PRECEDENTS CITED BY THE ASSESSEE BY W AY OF THE DECISIONS OF THE TRIBUNAL IN M/S FIAT INDIA PVT. LTD. (SUPRA) , SKODA AUTO INDIA (P.) 12 ITA NO. 1775/PN/2013, A.Y. 2009-10 LTD. (SUPRA), EGAIN COMMUNICATION (P.) LTD. (SUPRA) AND GLOBAL VATEDGE PVT. LTD. VS. DCIT (ITA NOS, 2763 & 2764/DEL/2009) COULD NOT BE APPLIED IN THE CASE OF THE ASSESSEE. THE AFORESAID DISCUSSI ON IN THE ORDER OF THE TRIBUNAL CLEARLY SHOWS THAT THE ASSESSEE THEREIN FA ILED IN SEEKING ADJUSTMENT TO ITS PROFIT MARGINS FOR LACK OF EVIDEN CE, AND THE TRIBUNAL WAS FULLY CONSCIOUS THAT THE RELIEF WAS OTHERWISE A LLOWABLE TO THE ASSESSEE IN PRINCIPLE, BASED ON THE PRECEDENTS CITE D ABOVE. THUS, THE DECISION IN THE CASE OF HAWORTH (INDIA) P. LTD. (SU PRA) DOES NOT HELP THE REVENUE, AND THE RELIANCE BY THE CIT(DR) IS MISPLAC ED. THEREFORE, IN OUR VIEW, HAVING REGARD TO THE PRECEDENTS AND THE AFORE SAID DISCUSSION, IN THE PRESENT CASE ASSESSEE HAS TO SUCCEED IN PRINCIP LE FOR ADJUSTMENT ON ACCOUNT OF LOWER CAPACITY UTILIZATION, AND THE LOSS SUFFERED ON ACCOUNT OF UNABSORBED FIXED OPERATING COSTS INCURRED IN THE IN ITIAL YEAR. THE AFORESAID FACTORS, IN OUR VIEW, WARRANT AN APPROPRI ATE ADJUSTMENT TO THE OPERATING MARGINS OF THE ASSESSEE TO FACILITATE A M EANINGFUL COMPARISON WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. 13. AT THE TIME OF HEARING, THE LEARNED CIT(DR) POI NTED OUT THAT TPO HAS ALSO OBSERVED THAT APPROPRIATE DETAILS IN RESPECT O F LOW UTILIZATION OF CAPACITY IN THE CASE OF COMPARABLES ETC. WERE NOT A VAILABLE. IT WAS SUBMITTED THAT THE PLEA OF THE ASSESSEE WAS REJECTE D AT THE THRESHOLD, AND THEREFORE, THE LOWER AUTHORITIES HAD NO OCCASIO N TO EXAMINE THE PLEA OF THE ASSESSEE ON MERITS. NO DOUBT, THE AFORESAID ASPECT SPRING UP ONLY AFTER THE PLEA OF THE ASSESSEE IS ACCEPTED IN PRINC IPLE AND THE SAME WAS NOT SO DONE BY THE AUTHORITIES BELOW. THE LEARNED C OUNSEL FOR THE ASSESSEE POINTED OUT TO PAGE 97 OF THE PAPER BOOK W HEREIN IS PLACED THE FINANCIAL STATEMENT OF A COMPARABLE CONCERN, M/S KH AITAN ELECTRICALS LIMITED FOR THE FINANCIAL YEAR 2005-06 TO POINT OUT THAT THE INFORMATION REGARDING THE INSTALLED CAPACITY AND ACTUAL PRODUCT ION CARRIED OUT DURING THE YEAR IS AVAILABLE, WHICH WOULD FACILITATE THE C OMPARISON AND ALSO MAKING OF AN ADJUSTMENT TO THE PROFITS MARGIN OF TH E ASSESSEE. IT WAS POINTED OUT THAT AT-LEAST FOR THE SAID COMPARABLE T HE ADJUSTMENT OUGHT TO HAVE BEEN ALLOWED BY THE LOWER AUTHORITIES. 14. IN OUR CONSIDERED OPINION, IN ORDER TO ARRIVE A T AN APPROPRIATE ADJUSTMENT, THE ENTIRE FACTUAL MATRIX IS REQUIRED T O BE EXAMINED AT THE APPROPRIATE LEVEL. THE TPO AS WELL AS THE DRP DID N OT ACCEPT THE PLEA OF THE ASSESSEE IN PRINCIPLE, WHILE THE SAME HAS BEEN ACCEPTED BY US. THEREFORE, IN ORDER TO ALLOW AN APPROPRIATE ADJUSTM ENT, NECESSARY VERIFICATION ON THE BASIS OF THE MATERIAL TO BE FUR NISHED BY THE ASSESSEE, DESERVES TO BE CARRIED OUT BY THE ASSESSING OFFICER . THEREFORE, WHILE UPHOLDING THE PLEA OF THE ASSESSEE, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ALLOW THE ASSESS EE A REASONABLE OPPORTUNITY TO MAKE SUBMISSIONS AND PRODUCE RELEVAN T MATERIAL IN 13 ITA NO. 1775/PN/2013, A.Y. 2009-10 SUPPORT OF ITS STAND AND THEREAFTER THE ASSESSING O FFICER SHALL ALLOW AN APPROPRIATE ADJUSTMENT IN THE OPERATING MARGINS OF THE ASSESSEE FOR LOW CAPACITY UTILIZATION AND HIGH FIXED OPERATING COSTS INCURRED IN THE INITIAL YEAR OF OPERATION. 36. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS CITE D (SUPRA) WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD BE GIVE N THE BENEFIT OF LOW CAPACITY UTILISATION. WE THEREFORE RESTORE THE GROU ND OF APPEAL NO.2 TO THE FILE OF THE AO/TPO WITH A DIRECTION TO CONSIDER THE APPROPRIATE ADJUSTMENT AFTER NECESSARY VERIFICATION ON THE BASI S OF MATERIAL SUPPLIED BY THE ASSESSEE. THE ASSESSING OFFICER SHALL RECOMP UTE SUCH ADJUSTMENT AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS . CLAAS INDIA PVT. LTD. IN ITA NO. 1783/DEL/2011 DECIDED ON 12-08 -2015 WHILE DEALING WITH THE ISSUE OF CAPACITY UTILIZATION ADJUSTMENT HAS HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE EMBARKING UPON THE QUEST ION OF ALLOWABILITY AND EXTENT OF CAPACITY ADJUSTMENT UNDER THE TNMM, W E WANT TO MAKE IT CLEAR THAT THE ASSESSEE REDUCED ITS OPERATING COSTS BY CONSIDERING ITS CAPACITY UTILIZATION VIS--VIS THAT OF COMPARABLES AND RESULTANTLY CLAIMED THAT ITS INCREASED PROFIT AS A RESULT OF SUCH REDUC ED OPERATING COSTS BE COMPARED WITH THAT OF THE COMPARABLES. THE TPO HAS ALSO AGREED IN PRINCIPLE WITH THE OTHERWISE AVAILABILITY OF THE CA PACITY ADJUSTMENT. THE ISSUE OF ALLOWING CAPACITY ADJUSTMENT BEFORE US CAN BE DIVIDED INTO TWO SUB-ISSUES FOR CONSIDERATION, VIZ., FIRST, WHETHER THE ADJUSTMENT SHOULD BE ALLOWED IN THE HANDS OF THE ASSESSEE AS HAS BEEN DONE BY THE AUTHORITIES BELOW OR COMPARABLES AND SECOND, HOW TO COMPUTE CAPACITY UTILIZATION ADJUSTMENT UNDER THE TNMM. WE WILL DEAL WITH THESE ASPECTS ONE BY ONE. I. CAPACITY ADJUSTMENT SHOULD BE ALLOWED IN WHOSE H ANDS? 9.1. IT HAS BEEN NOTICED ABOVE THAT THE ASSESSEE CL AIMED IDLE CAPACITY ADJUSTMENT BY REDUCING ITS OWN OPERATING COSTS. IT IS FURTHER OBSERVED THAT THE AUTHORITIES BELOW HAVE REDUCED THE AMOUNT OF ADJUSTMENT BY 14 ITA NO. 1775/PN/2013, A.Y. 2009-10 EXCLUDING CERTAIN COSTS FROM THE AMBIT OF THE COSTS QUALIFYING FOR ADJUSTMENT. HOWEVER, THE ADJUSTMENT HAS BEEN ULTIMA TELY ALLOWED FROM THE OPERATING COSTS INCURRED BY THE ASSESSEE. IN SU CH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER THE ACTION OF THE AUT HORITIES IN ALLOWING THE REDUCTION OF THE OPERATING COSTS INCURRED BY THE AS SESSEE, IS IN ACCORDANCE WITH LAW? IN ORDER TO FIND ANSWER TO THI S QUESTION, WE NEED TO REFER TO THE MANNER OF COMPUTATION OF THE ARMS LENGTH PRICE UNDER TNMM, WHICH HAS BEEN SET OUT IN RULE 10B(1)(E) AS U NDER:- (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE ; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRAN SACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN TH E ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERI ALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET ; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) ; (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION. 9.2. SUB-CLAUSE (I) IN THE PROCESS OF DETERMINATION OF THE ALP UNDER THE TNMM TALKS OF THE COMPUTATION OF NET OPERATING PROF IT MARGIN REALIZED BY THE ASSESSEE FROM AN INTERNATIONAL TRANSACTION. SUB -CLAUSE (II) IS THE COMPUTATION OF NET OPERATING PROFIT MARGIN REALIZED BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON. THIS REFERS TO DETERMINING THE OPERATING PROFIT MARGIN OF COMPARAB LES WITH THE SAME 15 ITA NO. 1775/PN/2013, A.Y. 2009-10 BASE AS THAT OF THE ASSESSEE. SUB-CLAUSE (III) PROV IDES THAT THE NET PROFIT MARGIN REALIZED BY A COMPARABLE COMPANY, DETERMINED AS PER SUB-CLAUSE (II) ABOVE, IS ADJUSTED TO TAKE INTO ACCOUNT THE D IFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPA RABLE UNCONTROLLED TRANSACTIONS, ..... WHICH COULD MATERIALLY AFFECT T HE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET. IT IS THIS ADJUSTED NET PROFIT MARGIN OF THE UNRELATED TRANSACTIONS OR OF THE COMPARABLE COMPANI ES, AS DETERMINED UNDER SUB-CLAUSE (III), WHICH IS USED FOR THE PURPO SES OF MAKING COMPARISON WITH THE NET PROFIT MARGIN REALIZED BY T HE ASSESSEE FROM ITS INTERNATIONAL TRANSACTION AS PER SUB-CLAUSE (I). 9.3. SUB-RULE (2) OF RULE 10B PROVIDES THAT THE COM PARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO CERTAIN FACTORS WHICH HAVE BEEN ENUMERATED THEREIN. RULE 10B(3) STATES THAT AN UNCONTROLLED TR ANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION, IF EITH ER THERE ARE NO DIFFERENCES BETWEEN THE TWO OR A REASONABLY ACCURA TE ADJUSTMENT CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFE RENCES. WHEN WE READ SUB-CLAUSES (II) & (III) OF RULE 10B(1)(E) IN JUXTA POSITION TO SUB-RULES (2) & (3) OF RULE 10B, THE POSITION WHICH EMERGES IS THAT THE NET OPERATING PROFIT MARGIN OF COMPARABLE COMPANIES CALLS FOR ADJUSTMENT IN SUCH A MANNER SO AS TO BRING BOTH THE INTERNATIONAL TRANSACTION A ND COMPARABLE CASES AT THE SAME PEDESTAL. IN OTHER WORDS, IF THERE ARE NO DIFFERENCES IN THESE TWO, THEN THE AVERAGE OF THE NET OPERATING PROFIT M ARGIN OF THE COMPARABLE COMPANIES BECOMES A BENCHMARK. HOWEVER, IN CASE THERE ARE SOME DIFFERENCES BETWEEN THE COMPARABLES AND TH E ASSESSEE, THEN THE EFFECT OF SUCH DIFFERENCES SHOULD BE IRONED OUT BY MAKING SUITABLE ADJUSTMENT TO THE OPERATING PROFIT MARGIN OF COMPAR ABLES. THAT IS THE WAY FOR BRINGING BOTH THE TRANSACTIONS, NAMELY, THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS, ON THE SAME PLATFORM FOR MAKING A MEANINGFUL AND EFFECTIVE COMP ARISON. THE ABOVE ANALYSIS OVERTLY TRANSPIRES THAT THE LAW PROVIDES F OR ADJUSTING THE PROFIT MARGIN OF COMPARABLES ON ACCOUNT OF THE MATERIAL DI FFERENCES BETWEEN THE INTERNATIONAL TRANSACTION OF THE ASSESSEE AND C OMPARABLE UNCONTROLLED TRANSACTIONS. IT IS NOT THE OTHER WAY AROUND TO ADJUST THE PROFIT MARGIN OF THE ASSESSEE. IN OTHER WORDS, THE NET OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE FROM ITS INTERNATIO NAL TRANSACTION IS TO BE COMPUTED AS SUCH, WITHOUT ADJUSTING IT ON ACCOUN T OF DIFFERENCES WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE ADJUS TMENT, IF ANY, IS REQUIRED TO BE MADE ONLY IN THE PROFIT MARGINS OF T HE COMPARABLES. 16 ITA NO. 1775/PN/2013, A.Y. 2009-10 9.4. REVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE AUTHORITIES BELOW HAVE ADJUSTED THE OPERATING COSTS OF THE ASSE SSEE IN ALLOWING THE CAPACITY ADJUSTMENT. AS AGAINST THAT, THE CORRECT C OURSE OF ACTION PROVIDED UNDER THE LAW IS TO ADJUST THE OPERATING C OSTS OF THE COMPARABLE AND THEIR RESULTANT OPERATING PROFIT. THERE IS HARD LY NEED TO ACCENTUATE THAT THERE CAN BE NO ESTOPPEL AGAINST THE LAW. ONCE THE LAW ENJOINS FOR DOING A PARTICULAR THING IN A PARTICULAR MANNER ALO NE, IT IS NOT OPEN TO ANYONE TO ADOPT A CONTRARY OR DIFFERENT APPROACH. A S THE AUTHORITIES BELOW HAVE ADOPTED A COURSE OF ACTION IN ALLOWING A DJUSTMENT, WHICH IS NOT IN CONSONANCE WITH LAW, WE CANNOT APPROVE THE S AME. THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO TH E FILE OF THE TPO/AO FOR GIVING EFFECT TO THE AMOUNT OF IDLE CAPACITY ADJUST MENT IN THE OPERATING PROFIT OF THE COMPARABLES AND NOT THE ASSESSEE. II. HOW TO COMPUTE CAPACITY UTILIZATION ADJUSTMENT UNDER TNMM: - 10.1. UNDER THE TNMM, THE ALP OF AN INTERNATIONAL T RANSACTION IS DETERMINED BY COMPUTING AND COMPARING THE PERCENTAG E OF OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE WITH THAT OF THE COMPARABLES. WE HAVE NOTICED ABOVE THAT THE DIFFERENCE IN THE CAPAC ITY UTILIZATIONS IS AN IMPORTANT FACTOR, WHICH NEEDS TO BE ADJUSTED. NO ME CHANISM HAS BEEN GIVEN UNDER THE ACT OR THE RULES FOR COMPUTING THE AMOUNT OF CAPACITY UTILIZATION ADJUSTMENT. 10.2. ON AN OVERALL UNDERSTANDING, WE FEEL THAT UND ER THE TNMM, THE FIRST STEP IN GRANTING CAPACITY UTILIZATION ADJUSTM ENT IS TO ASCERTAIN THE PERCENTAGE OF CAPACITY UTILIZATION BY THE ASSESSEE AND COMPARABLES. THERE CAN BE NO DIFFICULTY IN WORKING OUT THESE PER CENTAGES. THE SECOND STEP IS TO GIVE EFFECT (POSITIVE OR NEGATIVE) TO TH E DIFFERENCE IN THE PERCENTAGE OF CAPACITY UTILIZATIONS OF THE ASSESSEE VIS--VIS COMPARABLES, ONE BY ONE, IN THE OPERATING PROFIT OF COMPARABLES BY ADJUSTING THEIR RESPECTIVE OPERATING COSTS. OPERATING COSTS CAN BE EITHER FIXED OR VARIABLE OR SEMI-VARIABLE. ONE NEEDS TO SPLIT SEMI-VARIABLE COSTS INTO THE FIXED PART AND VARIABLE PART. IN SO FAR AS THE VARIABLE COSTS AND THE VARIABLE PART OF THE SEMI-VARIABLE COSTS ARE CONCERNED, THESE REMAIN UNAFFECTED DUE TO ANY UNDER OR OVER UTILIZATION OF CAPACITY. ACCORDIN GLY, SUCH VARIABLE OPERATING COSTS REMAIN UNCHANGED. THE ADJUSTMENT IS CALLED FOR ONLY IN RESPECT OF THE FIXED OPERATING COSTS AND FIXED PART OF SEMI-VARIABLE COSTS. SUCH COSTS ARE SCALED UP OR DOWN BY CONSIDERING THE PERCENTAGE OF CAPACITY UTILIZATION BY THE ASSESSEE AND SUCH COMPA RABLE. IT CAN BE 17 ITA NO. 1775/PN/2013, A.Y. 2009-10 ILLUSTRATED WITH THE HELP OF A SIMPLE EXAMPLE. SUPP OSE THE FIXED COSTS INCURRED BY A COMPARABLE (SAY, A) ARE RS. 100 AND I T HAS CAPACITY UTILIZATION OF 50% AS AGAINST THE CAPACITY UTILIZAT ION OF 25% BY THE ASSESSEE. THE ABOVE PERCENTAGES SHOW THAT THE ASSES SEE HAS INCURRED FULL FIXED COSTS WITH 25% OF THE UTILIZATION OF ITS CAPACITY, AS AGAINST A INCURRING FULL FIXED COSTS WITH 50% OF ITS CAPACITY UTILIZATION. THIS DIVULGES THAT THE ASSESSEE HAS INCURRED RELATIVELY MORE FIXE D COSTS AND A HAS INCURRED LOWER COSTS. IN ORDER TO MAKE AN EFFECTIVE COMPARISON, THERE ARISES A NEED TO OBLITERATE THE EFFECT OF THIS DIFF ERENCE IN CAPACITY UTILIZATIONS. IT CAN BE DONE BY PROPORTIONATELY SCA LING UP THE FIXED COSTS INCURRED BY A SO AS TO MAKE IT FULLY COMPARABLE WIT H THE ASSESSEE. THIS WE CAN DO BY INCREASING THE FIXED COSTS OF A TO RS. 200 (RS.100 INTO 50/25) AS AGAINST THE ACTUALLY INCURRED FIXED COSTS BY IT AT RS.100. WHEN WE COMPUTE OPERATING PROFIT OF A BY SUBSTITUTING TH E FIXED COSTS AT RS.200 WITH THE ACTUALLY INCURRED AT RS.100, IT WOULD MEAN THAT THE FIXED COSTS INCURRED BY THE ASSESSEE AND A ARE AT THE SAME CAPA CITY UTILIZATION. THERE CAN BE CONVERSE SITUATION AS WELL. SUPPOSE TH E FIXED COSTS INCURRED BY A COMPARABLE (SAY, B) ARE RS. 100 AND IT HAS CAP ACITY UTILIZATION OF 25% AS AGAINST THE CAPACITY UTILIZATION OF 50% BY T HE ASSESSEE. THE ABOVE PERCENTAGES SHOW THAT THE ASSESSEE HAS INCURR ED FULL FIXED COSTS AT 50% OF THE UTILIZATION OF ITS CAPACITY, AS AGAIN ST B INCURRING FULL FIXED COSTS AT 25% OF THE CAPACITY UTILIZATION. THIS DECI PHERS THAT THE ASSESSEE HAS INCURRED RELATIVELY LOWER FIXED COSTS AND B HAS INCURRED HIGHER COSTS. THIS DIFFERENCE IN CAPACITY UTILIZATIONS CAN BE ELI MINATED BY PROPORTIONATELY SCALING DOWN THE FIXED COSTS INCURR ED BY B SO AS TO MAKE IT FULLY COMPARABLE. THIS WE CAN DO BY REDUCING THE FIXED COSTS OF B TO RS. 50 (RS.100 INTO 25/50) AS AGAINST THE ACTUALLY INCU RRED FIXED COST BY IT AT RS.100. WHEN WE COMPUTE OPERATING PROFIT OF B BY SU BSTITUTING THE FIXED COSTS AT RS.50 WITH THE ACTUALLY INCURRED AT RS.100 , IT WOULD MEAN THAT THE FIXED COSTS INCURRED BY THE ASSESSEE AND B ARE AT THE SAME CAPACITY UTILIZATION LEVEL. 10.3. TURNING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT BOTH THE TPO AS WELL AS THE LD. CIT(A) HAVE PROCEEDED ON A WRONG PREMISE NOT ONLY BY ALLOWING CAPACITY UTILIZATION ADJUSTMENT IN THE ASS ESSEES PROFIT, WHICH IS CONTRARY TO THE LEGAL POSITION AS DISCUSSED ABOVE, BUT ALSO BY CONSIDERING ALL THE COMPARABLES AS ONE UNIT WITH THE AVERAGE PE RCENTAGE OF THEIR RESPECTIVE CAPACITY UTILIZATIONS. IT IS FURTHER OBS ERVED THAT IN THE CALCULATION OF SUCH CAPACITY UTILIZATION ADJUSTMENT , THE LD. CIT(A) HAS CONSIDERED FOUR COMPANIES AS COMPARABLE, WHICH VIEW HAS BEEN 18 ITA NO. 1775/PN/2013, A.Y. 2009-10 MODIFIED BY US SUPRA INASMUCH AS WE HAVE HELD THAT M/S EICHER MOTORS AND M/S. FORCE MOTORS ARE INCOMPARABLE. NATURALLY, THEY WOULD ALSO GO OUT OF RECKONING IN THE COMPUTATION OF IDLE CAPACIT Y UTILIZATION ADJUSTMENT. IN THE ABSENCE OF THE AVAILABILITY OF F INANCIALS OF ALL THE COMPARABLE COMPANIES, IT IS NOT POSSIBLE AT OUR END TO WORK OUT THE AMOUNT OF CAPACITY ADJUSTMENT IN THE MANNER DISCUSS ED ABOVE. ERGO, WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE TPO/AO TO WORK OUT THE AMOUNT OF CAPACITY UTILIZATION ADJUSTMENT AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 12. IN THE CASE OF ARISTON THERMO INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA), THE CO-ORDINATE BENCH WHILE DELIBERATING ON THE ISSUE OF CAPACITY UTILIZATION HAS HELD AS UNDER: 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE POINT SOUGHT TO BE MADE OUT BY THE ASSESSEE IS THAT THIS BEING THE FIRST YEAR OF OPERATIONS, IT HAS NOT ACHIEVED AN OPTIMUM LEVEL OF CAPACITY UTILIZATION AND THE SALES ARE ALSO ON A LOWER SIDE. MOREOVER, I T HAS INCURRED CERTAIN START-UP COSTS AND THE FIXED OPERATING COSTS HAVE A LSO NOT BEING ABSORBED DUE TO LOW CAPACITY UTILIZATION. IN THE ABSENCE OF OPTIMUM UTILIZATION OF ITS PRODUCTION CAPACITY, IT HAS SUFFERED OPERATING LOSS ES DURING THE YEAR. ON THE OTHER HAND, THE NET PROFIT MARGIN OF THE ASSESS EE HAS BEEN BENCHMARKED AGAINST COMPARABLES CASES, WHO ARE ESTA BLISHED ENTITIES AND HAVE STARTED BUSINESSES MANY YEARS AGO. IN OUR CONSIDERED OPINION, THE CASE MADE OUT BY THE ASSESSEE IS BASED ON ECONO MIC AND COMMERCIAL REASONS. THE ASSESSEE IS A UNIT WHICH HAS BEEN SET- UP DURING THE YEAR AND ITS CAPACITY UTILIZATION IS ONLY 21%, WHICH HAS RESULTED IN LOSSES, WHILE ITS PROFIT MARGINS HAVE BEEN COMPARED WITH EN TITIES ESTABLISHED OVER THE YEARS. OSTENSIBLY, SUCH A COMPARABILITY AN ALYSIS DOES NOT PROVIDE A LEVEL PLAYING FIELD. IN OUR VIEW, THE AFO RESAID FACTOR IS REQUIRED TO BE ADJUSTED SO AS TO FACILITATE A MEANINGFUL COM PARABILITY ANALYSIS BETWEEN THE INTERNATIONAL TRANSACTIONS OF THE ASSES SEE AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. 11. HOWEVER, AS PER THE REVENUE, SUCH AN ADJUSTMENT TO THE PROFIT MARGIN OF THE ASSESSEE IS NOT PERMISSIBLE HAVING RE GARD TO THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. THE METHOD ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTION IS THE T NM METHOD AND RULE 19 ITA NO. 1775/PN/2013, A.Y. 2009-10 10B(1)(E) OF THE RULES PRESCRIBES THE MANNER IN WHI CH THE SAME IS TO BE APPLIED. AS PER THE REVENUE, IN SUB-CLAUSE (III) AD JUSTMENTS TO THE NET PROFIT MARGIN ARE PERMISSIBLE BUT IT IS ONLY IN REL ATION TO THE NET PROFIT MARGINS OF THE COMPARABLE UNCONTROLLED TRANSACTIONS AND NOT WITH RESPECT TO THE MARGIN OF THE TESTED PARTY AND THUS THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. IN OUR CONSIDERED OPINI ON, IN SUB-CLAUSE (I) THE NET PROFIT MARGIN REALIZED BY A TESTED PARTY FR OM AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE ASCERTAINED HAVING RE GARD TO THE RELEVANT BASE. IN SUB-CLAUSE (II) THE NET PROFIT MARGIN REAL IZED BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON IS TO BE ASCERTAINED HAVING REGARD TO THE SAME BASE. SUB-CLA USE (III) PERMITS ADJUSTMENT WITH REGARD TO THE NET PROFIT MARGIN REF ERRED TO IN SUB-CLAUSE (II) I.E. OF THE COMPARABLE UNCONTROLLED TRANSACTIO NS SO AS TO TAKE INTO ACCOUNT THE DIFFERENCE, IF ANY BETWEEN THE INTERNAT IONAL TRANSACTION OF THE TESTED PARTY AND THE COMPARABLE UNCONTROLLED TRANSA CTIONS. THE PLEA OF THE REVENUE, IN OUR VIEW, IS MISDIRECTED FOR THE RE ASON THAT THE NET PROFIT MARGIN OF THE TESTED PARTY REFERRED TO IN SUB-CLAUS E (I) HAS NOT BEEN DEFINED IN A MANNER AS IS BEING UNDERSTOOD BY THE R EVENUE. AS PER THE REVENUE THE NET PROFIT MARGIN OF THE TESTED PARTY A S STATED IN SUB-CLAUSE (I) IS TO BE THE SAME AS REFLECTED IN THE FINANCIAL ACCOUNTS. IN PARA 8.1 OF THE ORDER OF THE TPO IT IS CANVASSED THAT THE NET P ROFIT MARGIN HAS TO BE UNDERSTOOD AS MEANING PROFIT BEFORE TAX COMPUTED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES. IN OUR CONSIDERED OPINION, T HE WHOLE OBJECTIVE OF ADOPTING THE MOST APPROPRIATE METHOD FOR THE PURPOS E OF COMPARABILITY ANALYSIS IS TO DETERMINE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IN OTHER WORDS, THE PURPOSE OF THE CO MPARABILITY ANALYSIS IS TO EXAMINE AS TO WHETHER OR NOT THE VALUES STATED F OR THE INTERNATIONAL TRANSACTIONS ARE AT AN ARMS LENGTH PRICE I.E. WHET HER THE PRICE CHARGED IS COMPARABLE TO AN UNCONTROLLED TRANSACTION OF SIMILA R NATURE. THEREFORE, THE ADOPTION OF THE NET PROFIT MARGIN OF THE TESTED PARTY HAS TO BE MADE KEEPING IN MIND ITS OBJECTIVE, I.E. TO FACILITATE I TS COMPARISON WITH OTHER UNCONTROLLED COMPARABLE ENTITIES/TRANSACTIONS. THER EFORE, KEEPING IN MIND THE AFORESAID OBJECTIVE, THE NET PROFIT MARGIN OF THE TESTED PARTY DRAWN FROM ITS FINANCIAL ACCOUNTS CAN BE SUITABLY A DJUSTED TO FACILITATE ITS COMPARISON WITH OTHER UNCONTROLLED ENTITIES/TRA NSACTIONS AS PER SUB- CLAUSE (I) OF RULE 10B(1)(E) OF THE RULES ITSELF. T HE ABSENCE OF SUCH A SPECIFIC PROVISION IN RULE 10B(1)(E)(III) OF THE RU LES DOES NOT OPERATE AS A BAR, SO LONG AS THE ADJUSTMENT SOUGHT TO BE MADE IN THE PROFIT MARGIN OF THE TESTED PARTY ARE BASED ON COGENT AND SUFFICIENT REASONS AND SEEKS TO MAKE THE COMPARABILITY ANALYSIS WITH COMPARABLE UNC ONTROLLED 20 ITA NO. 1775/PN/2013, A.Y. 2009-10 TRANSACTIONS MORE MEANINGFUL. IN-FACT, PUNE BENCH O F THE TRIBUNAL IN THE CASE OF EGAIN COMMUNICATION (P.) LTD. (SUPRA) IN PA RA 36 OF THE ORDER OPINED THAT DEPENDING ON THE FACTS AND CIRCUMSTANCE S OF A CASE, IT MAY BE APPROPRIATE TO ADJUST THE OPERATING PROFIT OF TH E TESTED PARTY AS WELL AS OF THE COMPARABLE PARTIES. TO THE SIMILAR EFFECT IS THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S FIA T INDIA PVT. LTD. (SUPRA). IN FACT, IN THE CASE OF AMDOCS BUSINESS SE RVICES (P.) LTD. (SUPRA) WHEREIN ONE OF US WAS A MEMBER OF THE BENCH I.E. AC COUNTANT MEMBER, AN ADJUSTMENT WAS ALLOWED TO THE PROFIT MARGIN OF T HE TESTED PARTY WITH RESPECT TO THE UNDER CAPACITY UTILIZATION, THE UNIT BEING IN THE START-UP PHASE. THE DECISION OF THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF SKODA AUTO INDIA (SUPRA) IS ALSO ON SIMILAR LINES. 12. THE LEARNED CIT(DR) HAS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HAWORTH (INDIA) P. LTD. (SUPRA) FOR THE PRO POSITION THAT ADJUSTMENT TO THE PROFIT MARGIN OF THE TESTED PARTY IS NOT PER MISSIBLE. WE HAVE PERUSED THE SAID DECISION. IN THE CASE BEFORE THE D ELHI BENCH OF THE TRIBUNAL, ASSESSEE HAD COMPUTED ITS MARGIN AFTER CL AIMING ADJUSTMENT FOR CAPACITY UTILIZATION. THE ASSESSEE HAD ADOPTED THE TNM METHOD FOR THE PURPOSE OF COMPUTING ITS ALP. THE ASSESSEE HAD CLAIMED THAT CAPACITY UTILIZATION OF COMPARABLES WAS TO THE EXTE NT OF 70%, WHICH WAS AN ASSUMPTION MADE DUE TO NON-AVAILABILITY OF THE R EQUIRED DETAILS OF THE COMPARABLE CASES. THE TPO REJECTED THE ADJUSTMENT O N THE GROUND THAT ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE FOR ASSUMIN G THE CAPACITY UTILIZATION OF THE COMPARABLES AND THE DATA BEING R ELIED UPON BY THE ASSESSEE WAS FOUND TO BE EITHER UNRELIABLE OR INCOR RECT. THE TRIBUNAL IN PARA 90 OF ITS ORDER EXAMINED THE EVIDENCE RELIED B Y THE ASSESSEE WITH REGARD TO ITS ASSUMPTION MADE TOWARDS THE CAPACITY UTILIZATION OF 70% OF THE COMPARABLE CASES. ON THE BASIS OF THE DOCUMENTS AND MATERIAL ON RECORD, THE TRIBUNAL CAME TO CONCLUDE THAT THE ASSE SSEE DID NOT FURNISH SUFFICIENT EVIDENCE WITH REGARD TO THE CAPACITY UTI LIZATION OF THE COMPARABLE CASES. THE TRIBUNAL HELD THAT ASSESSEE W AS NOT ENTITLED TO SEEK ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION BECAUSE OF ITS FAILURE TO FURNISH CREDIBLE AND ACCURATE INFORMATION IN THI S REGARD. IN CONCLUSION, THE TRIBUNAL SPECIFICALLY NOTED THAT BECAUSE OF THE AFORESAID FAILURE OF THE ASSESSEE, THE PRECEDENTS CITED BY THE ASSESSEE BY W AY OF THE DECISIONS OF THE TRIBUNAL IN M/S FIAT INDIA PVT. LTD. (SUPRA) , SKODA AUTO INDIA (P.) LTD. (SUPRA), EGAIN COMMUNICATION (P.) LTD. (SUPRA) AND GLOBAL VATEDGE PVT. LTD. VS. DCIT (ITA NOS, 2763 & 2764/DEL/2009) COULD NOT BE APPLIED IN THE CASE OF THE ASSESSEE. THE AFORESAID DISCUSSI ON IN THE ORDER OF THE 21 ITA NO. 1775/PN/2013, A.Y. 2009-10 TRIBUNAL CLEARLY SHOWS THAT THE ASSESSEE THEREIN FA ILED IN SEEKING ADJUSTMENT TO ITS PROFIT MARGINS FOR LACK OF EVIDEN CE, AND THE TRIBUNAL WAS FULLY CONSCIOUS THAT THE RELIEF WAS OTHERWISE A LLOWABLE TO THE ASSESSEE IN PRINCIPLE, BASED ON THE PRECEDENTS CITE D ABOVE. THUS, THE DECISION IN THE CASE OF HAWORTH (INDIA) P. LTD. (SU PRA) DOES NOT HELP THE REVENUE, AND THE RELIANCE BY THE CIT(DR) IS MISPLAC ED. THEREFORE, IN OUR VIEW, HAVING REGARD TO THE PRECEDENTS AND THE AFORE SAID DISCUSSION, IN THE PRESENT CASE ASSESSEE HAS TO SUCCEED IN PRINCIP LE FOR ADJUSTMENT ON ACCOUNT OF LOWER CAPACITY UTILIZATION, AND THE LOSS SUFFERED ON ACCOUNT OF UNABSORBED FIXED OPERATING COSTS INCURRED IN THE IN ITIAL YEAR. THE AFORESAID FACTORS, IN OUR VIEW, WARRANT AN APPROPRI ATE ADJUSTMENT TO THE OPERATING MARGINS OF THE ASSESSEE TO FACILITATE A M EANINGFUL COMPARISON WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. 13. THE DECISIONS ON WHICH THE LD. DR HAS PLACED RELIANCE A RE IN RESPECT OF CASES WHERE THE ASSESSEES HAVE FAILED TO SHO W FROM RECORDS THAT THERE WAS LOW CAPACITY UTILIZATION AND ARE THUS DISTIN GUISHABLE. IN THE PRESENT CASE WE FIND THAT THE AUTHORITIES BELOW HAVE REFUSED TO ACCEPT THE ASSERTION OF THE ASSESSEE IN RESPECT OF LOW C APACITY UTILIZATION. THUS, THE ISSUE WAS NOT PROPERLY APPRECIATED BY THE AUTHORITIES BELOW TO EXAMINE THE CAPACITY UTILIZATION PLEA I N THE RIGHT PERSPECTIVE. THUS, THE DECISIONS ON WHICH THE LD. DR HAS PLACED RELIANCE WOULD NOT SUPPORT THE CAUSE OF REVENUE. IN OUR CONSIDERED VIEW THE ISSUE NEEDS A REVISIT TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE PLEA OF ASSESSEE WITH REGARD TO LOW CAPACITY UTILIZATION. THE ASSE SSEE IS ALSO DIRECTED TO FURNISH RELEVANT DOCUMENTS IN SUPPORT OF HIS C LAIM. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AFTER CONSIDER ING THE DOCUMENTS FURNISHED BY THE ASSESSEE, IN ACCORDANCE WITH LAW. 14. SINCE, WE HAVE ACCEPTED THE PRIMARY CLAIM OF ASSESSEE IN PRINCIPLE, THE ALTERNATE PRAYER OF THE ASSESSEE WITH REGAR D TO ADOPT OF 22 ITA NO. 1775/PN/2013, A.Y. 2009-10 CUP OR CPM FOR BENCHMARKING INTERNATIONAL TRANSACTION HAS BECOME ACADEMIC AND THUS IS NOT TOUCHED UPON. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ACCEPTED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 09 TH DAY OF MAY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 09 TH MAY, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE