M/s. Shindengen India Private Limited, Bengaluru V. Deputy Commissioner Of Income Tax, Circle- 6(1)(2), Bangalore

ITA 2514/BANG/2019

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The case involves M/s. Shindengen India Pvt. Ltd., a subsidiary of Shindengen Electric Manufacturing Co. Ltd., Japan, which appealed against the final order of assessment passed by the Deputy Commissioner of Income Tax, Circle \\u2013 6(1)(1), Bangalore. The assessment included significant transfer pricing adjustments and disallowances related to depreciation on new additions to building and machinery. The Tribunal examined various grounds of appeal, including the selection of comparable companies for transfer pricing, the exclusion of certain companies, and the adjustments for capacity utilization and working capital. The Tribunal's decision involved a detailed analysis of the comparability of companies and the appropriateness of the adjustments made by the TPO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124495 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 11-12-2019
• Other Referred Cases: Ocap Chassis Parts P. Ltd. VS. ACIT, Brintons Carpets Asia (P.) Ltd. v Deputy CIT Circle 1(1), Pune, CIT, Pune v. Keihin Fie (P.) Ltd., Keihin FLE (P.) Ltd. v. Asst. CIT Circle-9, Pune, Alfa Laval (I) Ltd. v. Dy CIT, Pune, Affinity Express India Pvt. Ltd. vs. DCIT, M/s. Bobst India Private Limited Vs. DCIT, Goldman Sachs (India) Securities Pvt. Ltd. vs. ACIT, Chryscapital Investment Advisors (India) (P.) Ltd. Vs. DCIT, Mentor Graphics (Noida) (P.) Ltd. vs. CIT, Cummins Turbo Technologies Limited Vs. DDIT (International Taxation), M/s Kiara Jewellery P.Ltd. vs. ACIT, Tokai Rika Minda India (P) Ltd vs DCIT, IKA India vs. ACIT, Mando India Steering Systems Private Limited vs Assistant Commissioner of Income Tax, Biesse Manufacturing Company Limited, GE Intelligent Platform Private Limited, Genisys Integrating Systems (India) Pvt. Ltd, Capegemini India Pvt. Ltd., Demang Cranes & Components (India) Pvt Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Set aside
• Section: 32; 271(1)(c); 92C; 143(3); 133(6); 10B; 143(2); 192; 113; 2(A); 13; 22; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE-PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER IT(TP)A No. 2514/Bang/2019 Assessment Year : 2015-16 M/s. Shindengen India Pvt. Ltd., Plot no. 283/2, Bommasandra, Jigani Link Road, Jigani Industrial Area, Anekal Taluk, Bengaluru – 560 105. PAN: AARCS8947E Vs. The Deputy Commissioner of Income Tax, Circle – 6(1)(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Smt. Shashi M Kapila, Advocate Revenue by : Ms. Neera Malhotra, CIT-DR Date of Hearing : 14-02-2023 Date of Pronouncement : 28-02-2023 ORDER PER PADMAVATHY S, ACCOUNTANT MEMBER Present appeal is against the final order of assessment passed by the DCIT, Circle – 6(1)(1), Bangalore u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act (the Act) dated 17.10.2019 for A.Y. 2015-16. 2. The assessee raised the following grounds of appeal: “The grounds stated here below are independent of, and without prejudice to one another: 1. On the facts and in the circumstances of the case, the Ld. TPO/DRP has grossly erred in making adjustment of Rs. 7,05,68,803 to the international Page 2 IT(TP)A No. 2514/Bang/2019 transaction pertaining to manufacturing segment i.e. purchase of raw material and consumables u/s 92CA of the Act. The Ld. TPO/AO erred on facts and in law:- 2. (a) Selecting well established companies like Auto Ignition Limited, Chheda Electricals & Electronics Private Ltd. & Naina Semiconductors Ltd., unlike the assessee company, which is a start-up company. (b) In excluding the following companies, which are companies otherwise functionally comparable, from the list of comparable companies: i) Hind Rectifiers Ltd. ii) Continental Device India Private Limited iii) Incap Limited. (c) In not making working capital adjustment. (e) In disallowing reasonable adjustment for capacity utilization by the assessee company and comparable companies. (f) In Computing Operating Cost of the Assessee Company at Rs. 625,060,582 instead of actual cost of Rs. 623,698,587. (g) In incorrectly computing the operating profit margins of comparable companies. Corporate Grounds: 3. Disallowing the additions/ purchases made during the impugned year towards Building, Plant & Machinery totalling to INR 18,08,66,916/- and thus disallowing depreciation allowance u/s 32 thereon. 4. Without prejudice to the above ground, the disallowance of depreciation allowance on building and plant & machinery is computed incorrectly. 5. The impugned order passed in violation of the principles of natural justice, equity and fair play. 6. On the facts and in the circumstances of the case, and in law, the Ld AO erred in initiating the penalty proceedings under Section 271(1)(c) of the Act. 7. The Ld AO erred in not allowing set off of current year losses and brought forward losses amounting to Rs. 4,98,73,540 and Rs. 4,59,11,799 aggregating to Rs. 9,57,85,339 Page 3 IT(TP)A No. 2514/Bang/2019 The Appellant craves leave to amend, alter or add fresh grounds of appeal during the course of proceeding.” 3. The assessee is a wholly owned subsidiary of Shindengen Electric Manufacturing Co. Ltd., Japan. The assessee was incorporated in the year 2012 to carry on the business of trading of power system products. The assessee started manufacturing of electrical components for two wheelers during the financial year 2014-15. The assessee filed the return of income for AY 2015-16 on 26.11.2015 declaring a loss of Rs.3,71,27,462/-. The case was selected for scrutiny under CASS and notice u/s. 143(2) was duly served on the assessee. Since the assessee had international transactions, a reference was made to the transfer pricing officer for determination of arm’s length price with respect to the international transactions. The TPO made an adjustment of Rs.7,11,01,797/- to the arm’s length price in respect of manufacturing segment of the assessee. The Assessing officer passed the draft assessment order incorporating the TP adjustment. The AO also made an adhoc disallowance on purchase / addition to the building and plant and machinery and the depreciation on the same to the tune of Rs.5,59,09,574/- and Rs.65,29,500/- respectively. Aggrieved the assessee filed its objections before the DRP. The DRP with respect to TP adjustment directed the TPO to exclude one comparable viz., M/s. Comstar Automotive Technologies Pvt. Ltd. from the final list of comparables and accordingly, the TP adjustment was reduced to Rs.7,05,68,803/-. With respect to depreciation, based on various evidences submitted by the assessee, the DRP directed the AO to recompute the disallowance due to which the disallowance of depreciation was enhanced to Rs.10,51,78,519/-. The assessee is in appeal before the Tribunal against the final order of assessment passed pursuant to the directions of the DRP. Page 4 IT(TP)A No. 2514/Bang/2019 4. TP adjustment: 4.1 During the year, the assessee had the following international transactions. Particulars Received/ Receivable Paid/ Payable Method Purchase of raw materials - 6176,88,233/- TNMM Purchase of consumables - 65,75,973/- TNMM Purchase of stock in trade - 4851,87,275/- RPM Capital assets - 366,00,912/- TNMM Technical assistance Agreement - 80,28,464/- TNMM Technical assistance Fees - 34,06,055/- TNMM Reimbursement of expenses 196,41,038/- 3,43,066/- CUP 4.2 The assessee has adopted transaction net margin method as the most appropriate method and Operating Profit by operating Oncome is considering as the profit level indicator. The margin of the assessee in the manufacturing segment is as computed below. Particulars Manufacturing Segment Revenue From Operations 56,36,73,992/- Operating Income 59,22,15,934/- Operating Expenses 62,50,60,582/- Operating profit -3,28,44,648/- GP/Sales 20.45% OP/OR -5.55% 4.3 The assessee has chosen the following comparables and accordingly concluded that the price charged is at arms length. S. No. Name of company OP/Sales 1. Hind Rectifiers -14.54 2. Ruttonsha International Rectifier Ltd. -4.91 3. Ador Powertron Ltd. -2.84 4. Continental Device India Private Ltd. 0.82 5. Incap Ltd. 0.10 6. India Nippon Electricals Ltd. 5.68 Average -2.61 4.4 The TPO did not accept the filters applied by the assessee and proceeded to apply modified filters to choose the following final list of comparables. Page 5 IT(TP)A No. 2514/Bang/2019 Sl. No. Company's Name (M/s) Wt. OP/OR (%) 1 Ador Powertron Ltd. 3.13 2 Auto Ignition Ltd. 6.27 3 Chheda Electricals & Electronics Pvt. Ltd. 6.30 4 Ruttonsha International Rectifier Ltd. 6.46 5 India Nippon Electricals Ltd. 7.64 6 Naina Semiconductors Ltd. 9.11 7 Comstar Automotive Technologies Pvt. Ltd. 12.57 35th Percentile 6.30 Median 6.46 65th Percentile 7.64 4.5 Therefore the TPO arrived at the TP adjustment in the manufacturing segment as below. Manufacturing Segment Particulars Formula Amount (INR) Taxpayer's operating revenue OR 59,22,15,934/- Taxpayer's operating cost OC 62,50,60,582/- Taxpayer's operating profit OP -3,28,44,648/- Taxpayer's PLI PLI=OP/OR -5.55% 35th Percentile Margin of comparable set 6.30 Adjustment Required (if PLI< 35th Percentile) Yes Median Margin of comparable set M 6.46 Arm's Length Cost N = (100- M)*OR/100 55,39,58,785/- Operating Cost OC 62,50,60,582/- Excess cost being adjustment OC - N 7,11,01,797/- 4.6 Aggrieved the assessee raised objections before the DRP. The DRP did not accept the contentions of the assessee with respect to the TPO not allowing the working capital adjustment and the adjustment made towards capacity utilisation. With regard to comparables, the DRP directed the TPO to exclude one of the comparables i.e. M/s. Comstar Automotive Technologies Pvt. Ltd. The TPO adjustment was accordingly reworked at Rs.7,05,68,803/-. Page 6 IT(TP)A No. 2514/Bang/2019 5. Ground no. 1 and 5 are general in nature and Ground No. 6 and 7 are consequential. Hence these grounds do not warrant a separate adjudication. 6. Vide ground no. 2(a) the assessee is seeking exclusion of Auto Ignition Limited, Chheda Electricals & Electronics Private Ltd. and Naina Semiconductors Ltd. 7. Auto Ignition Ltd. 7.1 The TPO did not accept the exclusion of this company for the reason that the assessee could not substantiate that brand value affects the profit margin. The TPO also held that the assessee has not raised any object with regard to the functional dissimilarity of the company. The DRP upheld the order of the TPO by stating that TNMM is robust enough to cater to variations such as capacity utilisation and that the assessee is not correct in seeking exclusion on the ground that the company has been in operation since 1971 and that cannot be compared with assessee who is in the first year of operation. 7.2 Before us, the Ld.AR submitted that Auto Ignition is a well-established company incorporated in 1971 and is in the business of manufacturing of auto electrical parts, which includes starter line motor and alternator,. The ld AR submitted that the company is manufacturing multiple products unlike assessee which is into two wheeler electrical components. It is also submitted that the company has Research & Development Dept. which have Admitted benefits derived as result of the said R & D (Pg. 2335/Vol-VI), whereas the assessee does not have any R&D activities and its attendant benefits. The ld AR brought to our attention that Auto Ignition has export earning, whereas assessee has no export earnings and operates only in the India, its primary sales being to Page 7 IT(TP)A No. 2514/Bang/2019 Hero Honda. (Pg.2325/Vol-VI). The ld AR relied on the following decisions in this regard - i. Ocap Chassis Parts P. Ltd. VS. ACIT 120201 113 Taxmann.com 278 (Del. Trib) ii. Brintons Carpets Asia (P.) Ltd. v Deputy CIT Circle 1(1), Pune [2011] 12 taxmann.com 148 (Pune) iii. CIT, Pune v. Keihin Fie (P.) Ltd. [2018] 93 taxmann.com 75 (Bombay) iv. Keihin FLE (P.) Ltd. v. Asst. CIT Circle-9, Pune [2015] 57 taxmann.com 287 (Pune - Trib.)(Only Head note) v. Alfa Laval (I) Ltd. v. Dy CIT, Pune. [2014] 46 taxmann.com 394 (Pune -Trib.) 7.3 It is further submitted that Auto Ignition has Intangible assets and the assessee has no intangible assets. Auto Ignition manufactures multiple items and has a long established business in diverse geographies & areas whereas assessee is only restricted items manufacturer who has just started business operations and this is its first year of operation. 7.4 The ld DR submitted that the issue of functional dissimilarity has not been contented earlier by the assessee. The ld DR also submitted that though the assessee has started the manufacturing activity in the year under consideration it has been in business for last 3 years and therefore exclusion on the basis of new establishment has been rightly denied. 7.5 We heard the rival submissions and perused the material on record. We notice from the perusal of records that the company supplies both types of components to original equipment manufacturers (OEM) as well as aftermarket components and it also manufactures Solenoid Switch, Dynamos, Voltage Regulators Ignition Coil, Stator. (Pg. 2402/Vol-VI). We notice that the assessee on the other hand is in the business of manufacturing electrical components for two wheelers such as like capacitor, Discharge Igniter CDI & Regular rectifiers. We further notice that Auto Ignition is having both export as well domestic Page 8 IT(TP)A No. 2514/Bang/2019 turnover whereas in assessee’s case there is only domestic sales in the manufacturing segment. Auto Ignition is having intangible assets which are verifiable from the notes on fixed assets, copy of which is placed at pages 2351 of the paper book and is also into R&D activities unlike the assessee. In view of all these i.e., diversified business, export sale, incurring of expenditure on R&D activities and presence of intangibles, we are of the considered opinion that Auto Ignition cannot be considered as a comparable company. We, therefore, direct the A.O./TPO to exclude Auto Ignition from the list of comparables 8. Chheda Electricals & Electronics Private Ltd. 8.1 The TPO did not accept the exclusion of this company for the reason that the assessee could not substantiate that brand value affects the profit margin. The TPO also held that the assessee has not raised any object with regard to the functional dissimilarity of the company and that the company is functionally comparable. The DRP upheld the order of the TPO by stating that the assessee is not correct in seeking exclusion on the ground that the company has been in operation for a long time which does not mean that the company has better capacity utilisation than the assessee who is in the first year of operation. 8.2 The ld AR submitted that the Chheda Electricals is a well established company and is availing benefit u/s.80IC for having manufacturing operation at Notified Industrial estate situated at Roorkee in the state of Uttarakhand. The ld AR submitted that the assessee on the other hand has newly started the manufacturing activity and does not avail any tax benefits. 8.3 The ld DR relied on the order of the lower authorities Page 9 IT(TP)A No. 2514/Bang/2019 8.4 We heard both the parties. The main grounds on which the assessee is seeking exclusion of this company are capacity utilisation and Chheda claiming tax deduction u/s.80IC. The adjustment towards capacity utilisation has been contended as a separate issue by the assessee and hence the exclusion of this cannot be sought on this ground. Further the company enjoying the tax deduction u/s.80IC in our view is not a criteria for seeking exclusion. Further we notice that Chedda is functionally similar to the assessee. We, therefore, uphold inclusion of Chheda Electricals in the list of comparables. 9. Naina Semiconductors Ltd. 9.1 The TPO did not accept the exclusion of this company for the reason that the assessee could not substantiate that brand value affects the profit margin. The TPO also held that the assessee has not raised any object with regard to the functional dissimilarity of the company and that the company is functionally comparable. The DRP rejected the fact that Naina Semiconductor although a very old since 1988 company is having high capacity utilization, when compared to the assessee. 9.2 The ld AR submitted that – (a) Functional dis-similarity -Naina Semiconductor is a manufacturer of several electronic components. (Pg.2662/Vol-VI). The company is manufacturing of Diodes, Thyristors, Triacs, Auto Diodes, Power Modules, Axial Lead Diodes, Bridge Rectifiers and Power Stacks/ Assemblies (Pg.2650/Vol-VI & Website) which are used in various types of automobiles. (b) Naina is an old Established company. It was established in year 1988 i.e 25 years it has been working at its optimum capacity. Whereas the assessee has just begun its manufacturing operations in year 2014-15 at a capacity of 40.96% and not at full capacity. (page 725 of Vol-V) (c) Naina has Export earning. During the year the total foreign exchange earned was Rs. 1,35,23,685 (Pg. 2662/Vol-VI). Whereas assessee has only domestic earnings. Page 10 IT(TP)A No. 2514/Bang/2019 (d) Naina has R & D activities. (page 2623/Vol-VI) It manufactures components for production of semiconductors for all automobiles. R& D activities admittedly result in greater benefits. Whereas assessee is only manufacturing components utilized in two wheelers, and its sales were primarily to Hero Honda. Hence this is not a proper comparable.. 9.3 We heard the rival submissions and perused the material on record. We notice from the perusal of records that the company is manufacturing several electronic components such as Diodes, Thyristors, Triacs, Auto Diodes, Power Modules, Axial Lead Diodes, Bridge Rectifiers and Power Stacks/ Assemblies that are used in various types of automobiles. We notice that the assessee on the other hand is in the business of manufacturing electrical components for two wheelers such as like capacitor, Discharge Igniter CDI & Regular rectifiers. We further notice that Naina is having both export as well domestic turnover whereas in assessee’s case there is only domestic sales in the manufacturing segment. Naina is into R&D activities unlike the assessee. In view of all these i.e., diversified business, export sale, and incurring of expenditure on R&D activities, we are of the considered opinion that Naina cannot be considered as a comparable company. We, therefore, direct the A.O./TPO to exclude Naina from the list of comparables 10. Ground no. 2(b) is with regard to inclusion of Hind Rectifiers Ltd., Continental Device India Private Limited and Incap Limited. 11. Hind Rectifiers Ltd. 11.1 The TPO rejected on the ground of persistent losses for two years instead of three years. The DRP upheld all the exclusion of filter on the same reasons as given by TPO. The ld AR submitted that the settled position in law is that where a company has earned profit in any year out of three years, it cannot be termed Page 11 IT(TP)A No. 2514/Bang/2019 as persistent loss making company, hence cannot be excluded as comparable. Hind Rectifiers has earned profit in F.Y. 2012-13 as per the below calculation sheet filed before TPO, which the TPO or DRP have not questioned (Pg. 552- /Vo1411). Financial Year Profit/(Loss) before tax (in RS. Crores) Paper Book Ref. F.Y. 2014-15 -5.91 1906/Vol-V F.Y. 2013-14 -7.06 1830/Vol-V F.Y. 2012-13 11.11 1770/Vol-V 11.2 The ld AR relied on the following decisions in this regard (i) Imsofer Manufacturing India (P.) Ltd. v. Deputy Commissioner of Income- tax, Circle-11(1), New Delhi [2020] 121 taxmann.com 209 (Delhi - Trib.) (ii) John Deere India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle- 11(1), Pune [2017] 77 taxmann.com 7 (Pune - Trib.) (iii) Walt Disney Co. (India) (P.) Ltd. v. Deputy Commissioner of Income-tax- 7(3),Mumbai [2017] 81 taxmann.com 321 (Mumbai - Trib.) 11.3 We heard the rival submissions and perused the material on record.We notice that the Hon’ble Tribunal Pune Bench in the case of Affinity Express India Pvt. Ltd. in ITA No.107/PN/2012 dated 9.3.2016 has held as follows:- “13.2 The contention of the assessee is that the said companies cannot be rejected merely on the ground that in a particular year, the companies have incurred losses. We find merit in the contention of the ld. AR of the assessee. A comparable can be rejected only if it is a consistent loss making company and the consistent loss making company is one which sustains losses in the three consecutive financial years. The Pune Bench of the Tribunal in the case of M/s. Bobst India Private Limited Vs. DCIT (supra) has held as under: “5.4 Further, we find in the case of Goldman Sachs (India) Securities Pvt. Ltd. vs. ACIT, which has been decided by ITAT, Mumbai ‘K’ Bench, wherein the TPO rejected Capital Trust as comparable Page 12 IT(TP)A No. 2514/Bang/2019 because of two out of last three years taken into consideration. Capital Trust was in the red and not because the nature of business had any variance with that of the assessee. The Tribunal looked into the business segment of Capital Trust and found that in the foreign consultancy segment with which the Bench was concerned in the year 2004-05, it had operative profit / operative cost at 27.25%. Since the nature of services rendered by comparable were exactly on similar lines as that of the assessee, though, during the year, it was in the loss could not be disqualified as nonlegitimate comparable. The Tribunal drew strength from Brigade Global services (supra) for reaching this conclusion and held that the assessee had rightly taken Capital Trust as valid comparable and the Revenue authorities have erred in excluding the same. A similar view has been taken by ITAT, Mumbai ‘K’ Bench in the case of Temasek Holdings Advisors vs. DCIT. In sum and substance, all the above cases is that the company making persistent loss for past 3 years is not good comparable. According to us, when loss making company has been selected for comparison in TP study for necessary, which is profit making one, there is a need for more attention qua the conditions prescribed in clause (a) to (d) of Rule 10B(2) of IT Rules, 1962 for an ultimate judgment of comparability of impugned transaction . So, the persistent loss making means continuous loss making for more than 3 years but in the case before us i.e. Stovec has earned a margin of 2.39% in comparable segment in F.Y. 2003-04. Hence, it could not be considered as loss making, so the same should be excluded for computing operative margin of comparable companies for arriving at ALP in relation to international transactions pertaining to EOU operations. The Assessing Officer is directed accordingly.” 14. The contention of the Revenue is that results of the aforesaid two comparable entities are on the extreme negative side. Therefore, they should not be considered. The Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. Vs. DCIT (supra) after considering various decisions of the Tribunal and the judgment of division bench of the Hon'ble Delhi High Court in the case of CIT Vs. Mentor Graphics (Noida) (P.) Ltd. reported as 354 ITR 586 concluded as under: “44. a. The mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an enquiry under Rule 108(3) ought to be carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable.” Page 13 IT(TP)A No. 2514/Bang/2019 15. In the case of Cummins Turbo Technologies Limited Vs. DDIT (International Taxation) (supra) the Co-ordinate Bench of the Tribunal observed that where the assessee has taken super loss making companies in the list of comparables. The burden is on the TPO to prove that such comparable companies are consistent loss making companies. The relevant extract of the findings of Tribunal are as under: “14. We find that in respect of the selection of the comparables, the Tribunal has taken the consistent stand that as the super profit companies should not be included, the same way, super loss making companies should also be excluded. Though we agree with the TPO that some of the comparables for the purpose of PLI adopted by the assessee are showing the loss, but the burden is on the TPO to prove where those companies are consistently loss making companies. Moreover, except unsupported reasoning, no data has been brought on record by the TPO for excluding the comparables selected by the assessee in the Transfer Pricing study report. We, therefore, find no justification to the adjustment made u/s.92CA(3) of the Act. We accordingly delete the same. In the result, relevant grounds are allowed.” 16. Thus, in view of the fact that the comparables F I Sofex Limited and Fortune Informatics Limited although were having loss in the year of comparison but whether they were consistent loss making companies has not been ascertained by the TPO before rejecting the same. A company is said to be bad comparable if it is a consistent loss making entity. Accordingly, we are of the opinion that this issue needs a revisit to the Assessing Officer. The Assessing Officer after considering the submissions of the assessee and documents on record shall decide the issue afresh in the light of the decisions discussed above. Accordingly, this ground of appeal of the assessee is allowed for statistical purpose.” 11.4 In the given case, we notice that the comparable company has earned profits in FY 2012-13 and therefore following the ratio laid down in Affinity Express India P Ltd (supra), we hold that these companies should be included for the purpose of comparability and computation of ALP. 12. Incap Limited. 12.1 The TPO rejected the comparable on the ground that the same did not appear in search undertaken by TPO. The DRP upheld the TPO's order on the same grounds. The ld AR submitted that the company is functionally Page 14 IT(TP)A No. 2514/Bang/2019 comparable since the same is engaged in business of manufacturing both AC and DC volts Aluminium Electrolytic ol-Capacitors. (Pg. 2053/Vol-VI). The ld AR submitted that since the TPO has not looked into the financials of the company and has rejected on the ground that it is not appearing in the search matrix, the matter may be remitted back with a direction to examine the financials. 12.2 We heard the DR. We notice that the coordinate bench of the tribunal in the case of Prism Network (P.) Ltd. v. ACIT [2022] 141 taxmann.com 163 (Bang. - Trib.) has considered a similar issue and remanded the issue to the TPO/AO for fresh consideration with the following observations: "18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. The TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the searchmatrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in public domain. Thus ground No. 7 is treated as allowed for statistical purposes." 12.3 We are of the view that identical directions would be just and sufficient in the present case hence the regarding inclusion of the aforesaid company as comparable company is hereby set aside to AO/TPO for fresh consideration. Page 15 IT(TP)A No. 2514/Bang/2019 13. Continental Device India Private Limited 13.1 TPO rejected this comparable company on the ground that it has brand value and R&D activities which makes the company functionally dissimilar and therefore rejected. The DRP upheld the same. 13.2 Before us the ld AR submitted that TPO/DRP contradicted its own finding in case of Auto Ignition. Ltd where the TPO rejected the claim of the assessee despite the company having comparable functional profile only on the ground that the company was doing research & development activities and had a brand value. The ld AR further submitted that since the primary ground for rejection is that Continental Device is carrying on R&D activities then for the very same reasons, Auto Ignition & Naina Semiconductor too must be excluded as comparables. 13.3 We heard the parties. In the light of our decision with respect to exclusion of Auto Ignition & Naina in the earlier part of the order, we are of the considered view that the exclusion of Continental Device should be upheld as the company is having spends on R&D and carry intangible whereas for the assessee the year under consideration is the first year of operation. 14. Ground no. 2(c) is with regard to TPO not allowing the working capital adjustment. The DRP upheld the decision of the TPO by holding that reasonable accurate adjustment is not possible as the differences in working capital requirement itself is based on various assumptions. In this regard, the Ld.AR submitted that the detailed calculation of adjusted operating profit margin of comparable companies selected by TPO was provided during the assessment proceedings. The Ld.AR further submitted that it is a settled law that working capital adjustment has to be allowed and that the coordinate bench of the Tribunal has consistently been upholding the allowability of working Page 16 IT(TP)A No. 2514/Bang/2019 capital adjustment. Accordingly, the Ld.AR prayed for direction to the TPO to recomputed the adjustment by allowing working capital adjustment. 14.1 We direct the Ld.AO/TPO to compute the working capital adjustment while computing the operating margin of the comparables following the decision of Coordinate Bench of this Tribunal in case of Huawei Technologies India P. Ltd. in IT(TP)A No.1939/Bang/2017 dated 31.10.2018, wherein, it was held as under: “10. The next grievance projected by the Assessee in its appeal is with regard to the action of the CIT(A) in not allowing any adjustment towards working capital differences. On this issue we have heard the rival submisSions. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :--- (a) to (d)............. (e)transactional net margin method, by which,— (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by 'the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable. uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); Page 17 IT(TP)A No. 2514/Bang/2019 (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the, international transaction [or the specified domestic transaction]; (f) ..... (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:— (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets . in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs. of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if - (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 1. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 2. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that wheri applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an Page 18 IT(TP)A No. 2514/Bang/2019 associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that:  None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or  Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments. 3. In Paragraph 13 to 16 of the aforesaid OECD guidelines, need for working capital adjustment has been explained as follows: "13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts. It would need to borrow money to fund the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise have available to invest. In a competitive environment, the price should therefore include an element to reflect these payment terms and compensate for the timing effect. 14. The opposite applies to higher levels of accounts payable. By carrying high accounts payable, a company is benefitting from a relatively long period to pay its suppliers. It would need to borrow less money to fund its purchases and/or benefit from an increase in the amount of cash surplus available to invest. In a competitive environment, the cost of goods sold should include an element to reflect these payment terms and compensate for the timing effect. 15. A company with high levels of inventory would similarly need to either borrow to fund the purchase, or reduce the amount of cash surplus which it is able to invest. Note that the interest sate July 2010 Page 6 might be affected by the funding structure (e.g. where the purchase of inventory is partly funded by equity) of by the risk associated with holding specific types of inventory) 16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, with an assumption that the difference should be reflected in profits. The underlying reasoning is that:  A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers)  This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to Page 19 IT(TP)A No. 2514/Bang/2019 collect money from customers — (less) the period granted to pay debts to suppliers." 14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficulty in making working capital adjustment by concluding that the following factors have to be kept in mind (i) The point in time at which the Receivables, Inventory and Payables should be compared between the tested party and the comparables, whether it should be the figures of receivables, inventory and payable at the year end or beginning of the year or average of these figures. (ii) the selection of the appropriate interest rate (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. The guidelines conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables. 15. In the present case the TPO allowed working capital adjustment accepting the calculation given s by the Assessee. The CIT(A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons: (i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year. (ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made. (vi) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (vii) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16.The CIT(A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India ITA No.2112/Mds/2011 (2013) 38 taxmann.com. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT(A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and Page 20 IT(TP)A No. 2514/Bang/2019 circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ITAT in the case of ITO Vs. E Value Serve.com (2016) 75 taxmann.com 195(Del-Trib) has held that insisting on daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that that in Transfer Pricing Anal is there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is Also no merit in the objection of the CIT(A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT(A) is also not sustainable. 17. In the light of the above discussion we are of the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at page 173 & 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of 1ule 10B(1)( e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It Page 21 IT(TP)A No. 2514/Bang/2019 is, not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT(A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: "(3) An uncontrolled transaction shall be comparable to an international transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore, the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly.” 14.2 In view of the above, we remit the issue to the file of AO/TPO to consider the working capital adjustment taking into consideration the details submitted by the assessee after allowing an opportunity of hearing to the assessee. It is ordered accordingly. 15. Ground no. 2(e) is with regard to denial of capacity utilisation. 15.1 The assessee had made an adjustment toward capacity utilisation on the ground that it is the first year of operation in the manufacturing segment. However, the TPO denied the same by stating that the capacity utilisation adjustment can only be made for comparable and not in the hands of the tested party. The DRP upheld the decision of the TPO. The Ld.AR submitted that the DRP incorrectly alleged that the assessee has not provided any documentary evidence to support of its claim. The DRP has not considered the fact that a Page 22 IT(TP)A No. 2514/Bang/2019 certificate by management of the assessee company authenticating the utilized capacity 40.96%. (Pg. 725/Vol-III)was furnished in the TP proceedings along with submission dt. 25.9.2018 before TPO(Pg. 546/Vol-III)(Para 7.1.4 Pg. 13 of order) 15.2 The assessee company, being in the first year of its manufacturing operations has huge idle capacity leading to under absorption of fixed costs. This resulted in losses /reduced the profitability for the relevant assessment year. this bring needs for making capacity adjustment as the comparable companies are well established in the market and accordingly, in the different phase of growth cycle as compared to the assessee. 15.3 The range of operating profit margins of comparable companies is computed at 6.30% 7.64% and median is arrived at 6.46%. The data regarding the year of establishment of comparable companies has been reproduced in the below table which clearly validate the necessity of capacity utilization adjustment. S. No. Company Name Operating Margins of A.Y. 2015-16 Date of Incorporation 1. Adar Powertron Ltd. 3.13% 1995 2. Auto Ignition Ltd. 6.27% 1971 3. Chedda Electrical & Electronics Pvt. Ltd. 6.30% 1995 4. Ruttonsha International Rectifier Ltd. 6.46% 1969 5. India Nippon Electrical Ltd. 7.64% 1984 6. Naina Semiconductors Ltd. 9.11% 1988 15.4 As depicted in the table above, all companies selected by TPO have well established relationship with companies manufacturing original equipment (OEM) having spent an average of more than twenty years in business. Hence, Page 23 IT(TP)A No. 2514/Bang/2019 simply comparing the operating margins of such companies with that of the assessee would not be fair. 15.5 The assessee made capacity utilization adjustment to its own operating profit margins as the data related to capacity utilization of the comparable companies is not available in public domain. Ld. TPO is of view that the capacity utilization adjustment should be made on the margins of comparables. Since relevant data is not available on public domain, there can never be adjustment on account of capacity utilization. 15.6 We heard both parties and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of Tokai Rika Minda India (P) Ltd vs DCIT (2022) 141 Taxmann.com 428 (Bang Trib) has considered the issue of adjustment towards capacity utilisation and held that - “8. Ground Nos.8, 9 & 10 are with regard to the capacity utilization adjustment. After hearing both the parties, similar issue came before this Tribunal in assessee's own case cited (supra) wherein it was held as under:- "12. On the issue of capacity adjustment, we find that the settled law is that adjustment on account of capacity utilization has to be granted. In this regard, the Tribunal in the case of IKA India has held as follows:- 22. We have heard the submissions of the assessee and the ld. DR on the issue raised by the assessee in ground No.7. We shall first see the statutory provisions relevant to the issue. Rule 10B(1)(e) of the Rules states that adjustments should be made to account for: "...the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market" 23. Rule 10B(2) of the Rules provides comparability of an international transaction with an uncontrolled transaction needs to be judged with reference to certain specified factors. One such factor is conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. Page 24 IT(TP)A No. 2514/Bang/2019 22. Rule 10B(3) of the Rules provide that: "An uncontrolled transaction shall be comparable to an international transaction if -- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 23. As per Section 92C of the Act, ALP is required to be computed using any of the given six methods and in the manner as is prescribed in Rule 10B of the Rules. Rule 10B in turn states that the most appropriate method would be one which inter alia provides the most reliable measure of ALP, and one of the important factors to be taken into account herein is the ability to make reliable and accurate adjustments. 24. The OECD Guidelines on this aspect is as follows:- Para 1.35 of the OECD Guidelines states as follows: "Where there are differences between the situations being compared that could materially affect the comparison, comparability adjustments must be made, where possible, to improve the reliability of the comparison. Therefore, in no event can unadjusted industry average returns themselves establish arm's length conditions" Para 1.36 of the OECD Guidelines states as follows: ".... material differences between the compared transactions or enterprises should be taken into account. In order to establish the degree of actual comparability and then to make appropriate adjustments to establish arm's length conditions (or a range thereof), it is necessary to compare attributes of the transactions or enterprises that would affect conditions in arm's length dealings. Attributes that may be important include the characteristics of the property or services transferred, the functions performed by the parties (taking into account assets used and risks assumed), the contractual terms, the economic circumstances of the parties, and the business strategies pursued by the parties." Further, Para 2.74 of the OECD Guidelines while laying down the comparability criteria to be adopted while applying the transaction net margin method states as follows: "..... Thus where the differences in the characteristics of the enterprises being compared have a material effect on the net margins being used, it would not be appropriate to apply the transactional net margin method without making adjustments for such differences. The extent and reliability of those adjustments will affect the relative reliability of the analysis under the transactional net margin method' (Emphasis supplied) 25. US transfer pricing Regulations on this aspect is as follows:- Page 25 IT(TP)A No. 2514/Bang/2019 In addition, the US transfer pricing regulations, u/s 482 of the Internal Revenue Code (hereinafter referred to as 'the US regulations') also support the above. Regulation 1.482-1(d)(2) of the US regulation states as follows: "In order to be considered comparable to a controlled transaction, an uncontrolled transaction need not be identical to the controlled transaction, but must be sufficiently similar that it provides a reliable measure of an arm's length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. For purposes of this section, a material difference is one that would materially affect the measure of an arm's length result under the method being applied." 26. The Indian transfer pricing regulations, OECD Guidelines and the US transfer pricing regulations call for an adjustment to be made in case of material differences in the transactions or the enterprises being compared so as to arrive at a more reliable arm's length price/ margin. While the Indian transfer pricing regulations refer to the adjustments on uncontrolled transactions, however the same has to be read with Rule10B(3) of the Rules which clearly emphasizes the necessity and compulsion of undertaking adjustments. Hence in case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then in order to read the provisions of transfer pricing regulations in harmony, the adjustments should be made on the tested party. In the following decisions it has been held that adjustment to the profit margins have to be made on account of underutilization of capacity: (i) In the case of M/s. Mando India Steering Systems Private Limited vs Assistant Commissioner of Income Tax, [I.T.A. No. 2092/Mds 12012], the Tribunal upheld the contention of the taxpayer for making a suitable adjustment on account of idle capacity for the purpose of margin computation. The relevant extract is reproduced as below: "10. We are of the considered view that underutilization of production capacity in the initial years is a vital factor which has been ignored by the authorities below while determining the ALP cost. The TPO should have made allowance for the higher overhead expenditure during the initial period of production." (ii) In the ruling of DCIT Vs Panasonic AVC Networks India Co Ltd (I.T.A. No.: 4620/De1/2011), it was held that:- "5. ..... Capacity underutilization by enterprises is certainly an important factor affecting net profit margin in the open market because lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits. Of course, the fundamental issue, so far as acceptability of such adjustments is concerted, is reasonable accuracy embedded in the mechanism for such adjustments, and as Page 26 IT(TP)A No. 2514/Bang/2019 long as such an adjustment mechanism can be found, no objection can be taken to the adjustment." (iii) In the case of Biesse Manufacturing Company Limited (IT(TP) A Nos. 97 & 493/Bang/2015) for AY 2010-11, the Tribunal held as follows: "10.4.1. We have heard the rival contentions and perused and carefully considered the submissions made and material on record; including the judicial pronouncements cited. The issue for consideration is whether adjustment for under-utilization of capacity is allowable in the case on hand and if so, the manner of computation thereof and the quantum of adjustment 10.4.5 In the above cited case of the Mumbai Tribunal i.e. Petro Araldite P. Ltd. (supra), the Tribunal has upheld the principle that adjustment for capacity under-utilization can be granted Following the decision of the ITAT, Mumbai in the case of Petro Araldite P. Ltd. (supra), we hold that any adjustment for capacity under- utilization can be granted" (iv) In the recent case of GE Intelligent Platform Private Limited (IT(TP)A No. 148/Bang/2015 and 164/Bang/2015) for AY 2010-11 was held as follows: "8 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 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" 27. Moreover, the above argument of the assessee for grant of capacity utilization adjustment is also supported by the following decision of Bangalore ITAT in the case of Genisys Integrating Systems (India) Pvt. Ltd (ITA No.1231/Bang/2010). Relevant extract of the decision is under:- "15.2 We agree with this contention of the counsel for the assessee. All the comparables have to be compared on similar standards and the assessee cannot be put in a disadvantageous position, when in the case of other companies adjustments for under utilization of manpower is given. The assessee should also be given adjustment for under utilization of its infrastructure. The AO shall consider this fact also while determining the ALP and make the TP adjustments. With these directions, the appeal of the assessee is disposed of." 28. The reliability and accuracy of adjustments would largely depend on availability of reliable and accurate data. For certain types of adjustments, relevant data for comparables may either not be available in public domain or may not be reliably determinable based on information available in public domain, whereas, it may be possible to make equally reliable and accurate adjustments on the tested party (whose data would generally be easily accessible). Page 27 IT(TP)A No. 2514/Bang/2019 29. In such a scenario, one has to resort to the provisions of Rule 10B(3)(ii) which provides for making "reasonably accurate adjustments" for eliminating any material differences between the two transactions being compared. The purpose or intent of the comparability analysis is to examine as to whether or not, the values stated for the international transactions are at ALP i.e., whether the price charges is comparable to the price charges under an uncontrolled transaction of similar nature. The regulations don't restrict or provide that the adjustments cannot be made on the results of the tested party. Therefore, keeping in mind the aforesaid objective, the net profit margin of the tested party drawn from its financial accounts can be suitably adjusted to facilitate its comparison with other uncontrolled entities/transactions as per subclause (i) of rule 10B(1)(e) of the Rules itself. The absence of specific provision in Rule 10B(1)(e)(iii) of the Rules does not impede the adjustment of the profit margin of tested party. The above view has also been upheld in the following decisions:- • Capegemini India Pvt. Ltd. (ITA No.7861/Mum/2011) • Demang Cranes & Components (India) Pvt Ltd. [49 SOT 610 (Pune)] 30. As far as data of comparable companies on capacity utilization being not available in public domain is concerned, it is practically not possible to obtain data on capacity utilization of comparable companies and consequently compute adjustment on the comparable companies, the operating cost of the tested party is adjusted for capacity utilization adjustment. 31. The assessee has under-utilized capacity during the subject AY and is accordingly factually and legally eligible to an adjustment for the same. Therefore, such a benefit cannot be denied to the assessee only for the reason that the data about comparable companies is not available. Requiring the assessee to produce such a data which is not available in public domain would tantamount to requiring the Appellant to perform an impossible task. The only way to get the data in the current case, would be where the TPO collates the same from the comparable companies by exercising his powers under section 133(6) of the Act. The relevant extracts of the section are as under:- "(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any enquiry or proceeding under this Act :" 32. In this regard, we find that the Mumbai ITAT in case of M/s Kiara Jewellery P.Ltd. (I.T.A.No.8109/Mum/2011), has directed the AO/ TPO to obtain the exact Page 28 IT(TP)A No. 2514/Bang/2019 details of capacity utilization of comparable companies, if not available in public domain. The relevant extract of the aforesaid decision is as under:- "11. Keeping in view the decision of the Tribunal in the case of Petro Araldite (P) Ltd (supra) laying down the guidelines on the issue of capacity utilization, we consider it appropriate to restore this issue relating to adjustment on account of capacity utilization in the case of assessee company to the file of AO/TPO for deciding the same afresh keeping in view the said guidelines. If the exact details of capacity utilization of the comparable companies are not available in the public domain, the AO/TPO is directed to obtain the same directly from the concerned parties and to decide this issue afresh after giving assessee an opportunity of being heard." (Emphasis Supplied) 33. Accordingly, we direct the TPO to exercise powers under section 133(6) of the Act to call for information on capacity utilization of the comparable companies such as -- • Installed Capacity, • Actual Production in Units, • Break-up of Fixed Cost and Variable Cost; • Segmental/ product wise information, if any. 34. Post obtaining the information, he is requested to provide the assessee an opportunity by sharing the details so obtained, and accordingly, grant the adjustment for capacity under-utilized. Ground No.7 is decided accordingly." 13. Accordingly, we set aside the issue to the files of the AO / TPO directing to follow the directions given in the case of IKA India (P.) Ltd. v. ACIT (supra)." 8.1. Respectfully following the above order of the Tribunal, we remit the issue to the file of AO/TPO on similar direction.” 15.7 We notice that the assessee has submitted the workings for the capacity utilisation of for the manufacturing segment (page 725 paper book volume III). Considering the details furnished and respectfully following the above decision of the coordinate bench we remit the issue back to the AO/TPO with similar directions. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. 16. Ground no. 2(f) is with regard to TPO considering the incorrect operating cost. Page 29 IT(TP)A No. 2514/Bang/2019 16.1 In this regard, the Ld.AR submitted that during the TP proceedings, the TPO has considered the operating expenses at Rs.62,50,60,582/- instead of Rs.62,36,98,587/-. Due to this, the operating profit margin of the assessee has been incorrectly taken ar (-)5.50% whereas the correct margin is at (-)5.32%. The Ld.AR submitted that the DRP gave a direction to the TPO to verify and consider the correct operating expenses. The TPO in the OGE has retained the same operating expenses for the reason that the assessee did not furnish the required details. The Ld.AR therefore prayed for a direction in this regard to the TPO. 16.2 The Ld.DR submitted that the TPO has not considered the cost for the reason that the assessee has not furnished the required details and therefore the Ld.DR supported the order of the TPO. 16.3 We heard the parties and perused the material on record. In the interest of justice to give one more opportunity to the assessee, we remit the issue to the TPO to verify and allow the correct operating expenses for the purpose of computing the operating margin of the assessee. 16.4 The TPO is directed to compute the ALP in accordance with the directions given in this order. 17. Ground no. 2(g) is with regard to incorrectly computing the operating margin of comparable companies. In the light of our decision with regard to the TP adjustment, this ground has become academic and does not warrant any separate adjudication. Page 30 IT(TP)A No. 2514/Bang/2019 18. Corporate grounds 18.1 During the year under consideration, the assessee has shown Rs.37.13 crores as additions to building and Rs.37.51 crores as additions to plant and machinery. The assessee vide its reply dated 27.12.2018, submitted copies of major invoices along with softcopy of the details. The AO however proceeded to disallow adhoc amount on the additions made which resulted in a disallowance of Rs.5,59,09,574/- and further disallowance of Rs.65,29,500/- towards depreciation on the same. Before the DRP, the assessee made detailed submissions along with additional evidences. The DRP called for a remand report based on the additional evidences. The AO after considering the details submitted had reworked the disallowance to a sum of Rs.10,51,78,519/- in the remand report. 18.2 Before us, the Ld.AR submitted that the invoices along with summary pertaining to building bifurcating depreciation on the basis of usage of asset for more than 180 days and less than 180 days was submitted before the DRP. The Ld.AR also submitted that the invoices along with summary pertaining to plant and machinery was also submitted. The Ld.AR further submitted that in the remand report, all the details submitted by the assessee have not been considered by the assessing officer and the disallowances was reworked on the ground that purchases vouchers are not enclosed or invoices are not enclosed. Therefore the Ld.AR prayed for one more opportunity to reconcile the additions with the supporting documents before the AO. 18.3 The Ld.DR did not accept the submissions of the Ld.AR by stating that the assessee has already been given enough number of opportunities to substantiate the additions and assessee is not right in requesting for one more opportunity. Page 31 IT(TP)A No. 2514/Bang/2019 18.4 We heard the parties and perused the material on record. We notice that the assessee has submitted various details in support of the additions made to building and plant & machinery. We also notice that the AO in the remand proceedings has enhanced the disallowance for the reason that invoices were not enclosed for some of the additions and also purchase vouchers were not enclosed for certain other additions. We also notice that the assessee has submitted the full details pertaining to the additions before the lower authorities (Pgs. 136-144 of Vol 4 Paper book). Given these facts, in the interest of justice, we are of the considered view that the assessee should be given one more opportunity to substantiate the claim. Accordingly, we remit the issue back to the AO with the direction to consider the various invoices / purchase vouchers submitted by the assessee. The assessee is directed to provide all the relevant details and the reconciliation to substantiate each of the additions made to building and plant and machinery and cooperate with the proceedings. It is ordered accordingly. 19. Ground no. 4 is with regard to incorrect computation of depreciation and the same has become academic in view of our directions given in Ground no. 3. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 28 th February, 2023. Sd/- Sd/- (N.V. VASUDEVAN) (PADMAVATHY S) Vice-President Accountant Member Bangalore, Dated, the 28 th February, 2023. /MS / Page 32 IT(TP)A No. 2514/Bang/2019 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore