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ITA 309/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1536 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Bad and doubtful debts

Judgement Text

ITA.309/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T(TP).A NO.309/BANG/2015 (ASSESSMENT YEAR : 2010-11) INDIGRA EXPORTS P. LTD, 46, 2 ND FLOOR, CC VILLA, EJIPURA MAIN ROAD, VIVEKNAGAR POST, BANGALORE 560095 .. APPELLANT PAN : AAACI3513M V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(4), BANGALORE .. RESPONDENT I.T(TP).A NO.193/BANG/2015 (ASSESSMENT YEAR : 2010-11) (BY THE REVENUE) ASSESSEE BY : SHRI. C. J. BRITO, CA REVENUE BY : SHRI. SANJAY KUMAR, CIT-III HEARD ON : 13.10.2015 PRONOUNCED ON : 10.11.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE ASSESSEE AND REVENU E RESPECTIVELY AGAINST AN ASSESSMENT ORDER DT.25.02.2014 PASSED PU RSUANT TO DIRECTIONS OF DRP U/S.144C OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT). ITA.309/BANG/2015 PAGE - 2 02. APPEAL OF THE REVENUE IS TAKEN UP FIRST FOR DIS POSAL. REVENUE HAS TAKEN ALTOGETHER EIGHT GROUNDS OF WHICH GROUNDS 1, 7 AND 8 ARE GENERAL NEEDING NO SPECIFIC ADJUDICATION. THERE IS NO GROU ND 3 IN THE APPEAL FORM. 03. VIDE ITS GROUNDS 2 TO 4, REVENUE IS AGGRIEVED O N THE DIRECTIONS GIVEN BY THE DRP ON THE WORKING CAPITAL ADJUSTMENT TO BE MADE WHILE WORKING OUT THE PROFIT LEVEL INDICATOR (PLI). 04. FACTS APROPOS ARE THAT THE ASSESSEE, A SUBSIDIA RY OF ONE BRACHOT HERMANT N. V. A, BELGIUM, WAS IN THE BUSINESS OF M ANUFACTURING AND EXPORTING CUT AND POLISHED GRANITE SLABS. ITS INTE RNATIONAL TRANSACTIONS WITH AE WERE ON ACCOUNT OF EXPORT OF GRANITE SLABS AND T HE REVENUE EARNED THEREFROM WAS RS.15,55,02,752/-. FOR JUSTIFYING TH E PRICES CHARGED FOR EXPORTS TO ITS AE, ASSESSEE HAD CARRIED OUT A TP ST UDY USING CAPITALINE DATA BASE. FROM SUCH DATABASE ITSELF ASSESSEE HAD SELEC TED 14 COMPARABLE COMPANIES. WHILE WORKING OUT THE PLI OF THE COMPAR ABLE COMPANIES, ASSESSEE HAD MADE A WORKING CAPITAL ADJUSTMENT. AS PER THE ASSESSEE, IT WAS CARRYING NO DEBTORS AND THE EXPORTS MADE TO THE AES WERE ALL ON ADVANCE PAYMENTS RECEIVED FROM THEM. THUS TO BRING COMPATIBILITY OF THE COMPARABLES ON PAR WITH THAT OF THE ASSESSEE, ASSES SEE SOUGHT AND MADE A WORKING CAPITAL ADJUSTMENT. HOWEVER, TPO WAS OF TH E OPINION THAT CLAIM FOR ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL WAS NO T ALLOWABLE SINCE SUCH ITA.309/BANG/2015 PAGE - 3 ADJUSTMENTS, IF CARRIED OUT, WOULD GIVE A PLACE OF DOMINANCE TO THE FINANCIAL ACTIVITIES RATHER THAN THE OPERATING BUSI NESS ACTIVITIES. 05. AGGRIEVED ON NOT CONSIDERING A WORKING CAPITAL ADJUSTMENT FOR WORKING OUT THE AVERAGE PLI OF THE COMPARABLES, ASS ESSEE PREFERRED AN APPLICATION BEFORE THE DRP. DRP AGREED WITH THE CO NTENTIONS OF THE ASSESSEE AND DIRECTED THE AO TO COMPUTE THE MEAN OF THE WORKING CAPITAL ADJUSTMENT FOR THE SELECTED COMPARABLES AND ALLOW A PPROPRIATE ADJUSTMENT. 06. NOW BEFORE US, LD. DR STRONGLY ASSAILING THIS D IRECTION OF THE DRP SUBMITTED THAT THE COMPARABLES SELECTED BY THE ASSE SSEE WHICH REMAINED IN THE LIST AFTER GIVING DIRECTIONS OF THE DRP WERE WO RKED IN A BUSINESS ENVIRONMENT WHICH WAS ON PAR WITH THAT OF THE ASSES SEE. AS PER THE LD. DR ASSESSEE COULD NOT SHOW THAT THE COMPARABLES WERE C ARRYING ANY HUGE INVENTORY OR WERE HAVING HUGE DEBTORS. IN THE ABSE NCE OF CREDIBLE DATA, AS PER THE LD. DR THERE WAS NO WAY ANY WORKING CAPITAL ADJUSTMENT COULD BE CONSIDERED WHILE WORKING OUT THE AVERAGE PLI OF THE COMPARABLES. 07. PER CONTRA, LD. AR SUPPORTED THE ORDERS OF DRP. 08. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. REVENUE HAS NOT DISPUTED THE AVERMENT OF THE ASSESS EE THAT IT WAS CARRYING NO DEBTORS AND ITS SUPPLIES TO THE AES WERE ALWAYS FUNDED BY THEM THROUGH ADVANCES. EFFECTIVELY WHAT IT WOULD MEAN WAS THAT ASSESSEE DID NOT NEED ITA.309/BANG/2015 PAGE - 4 ANY WORKING CAPITAL LOAN AT ALL AND WAS RELYING ON ITS OWN RESOURCES. THIS DEFINITELY GAVE AN ADVANTAGE TO THE ASSESSEE. RULE 10B(3) OF THE ACT IS REPRODUCED HERE UNDER : (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF- (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TR ANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST C HARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE O PEN MARKET ; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. HENCE TO BRING THE UNCONTROLLED TRANSACTION COMPARA BLE TO THE TRANSACTIONS OF AN ASSESSEE, IT IS REQUIRED TO ELIMINATE THE MA TERIAL DIFFERENCES WHICH ARE LIKELY TO AFFECT THE PRICE OR COST OR PROFITS ARISI NG FROM THE TRANSACTIONS. ASSESSEE HAD GIVEN A DETAILED WORKING CAPITAL STUDY OF THE TWELVE COMPARABLES SELECTED BY IT AND WORKED-OUT THE AVERA GE WORKING CAPITAL AND THE RATIO OF THE AVERAGE WORKING CAPITAL TO SALES O F SUCH COMPARABLES. THERE IS NO CASE FOR THE REVENUE THAT THE COMPARABL ES CONSIDERED WERE NOT CARRYING DEBTORS, INVENTORIES AND CREDITORS. WHEN ASSESSEE WAS NOT HAVING ANY DEBTORS AND WAS ENTIRELY FUNDED BY ADVANCE RECE IVED FROM AE ABROAD AGAINST SUPPLIES, THEN IN ORDER TO BRING PARITY BET WEEN THE RESULTS OF THE SELECTED COMPARABLES AND THAT OF THE ASSESSEE IT IS ESSENTIAL THAT ADJUSTMENT FOR THE WORKING CAPITAL IS MADE ON THE RESULTS OF S UCH COMPARABLES. ONLY ITA.309/BANG/2015 PAGE - 5 THEN CAN THE UNCONTROLLED TRANSACTION BECOME COMPAR ABLE TO THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. IN SUC H A SITUATION WE ARE OF THE VIEW THAT DRP WAS CORRECT IN GIVING THE DIRECTION T O THE AO TO CARRY OUT THE NECESSARY WORKING CAPITAL ADJUSTMENT IN WORKING OUT THE AVERAGE PLI OF THE COMPARABLES. WE DO NOT FIND ANY REASON TO INTERFER E WITH THE ORDER OF THE DRP. GROUNDS 2 TO 4 OF THE REVENUE STAND DISMISSED . 09. VIDE ITS GROUNDS 5 AND 6, GRIEVANCE RAISED BY T HE REVENUE IS THAT DRP HELD THE EXCHANGE LOSS / GAIN AS OPERATING IN N ATURE FOR WORKING OUT THE PLI OF THE ASSESSEE. AS PER THE REVENUE, DRP D ID NOT VERIFY WHETHER THERE WAS ANY NEXUS BETWEEN FOREIGN EXCHANGE LOSS / GAIN WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. 10. FINANCIAL RESULTS OF THE ASSESSEE SHOWED THAT I TS EARNINGS FROM EXPORT ON GRANITE SLABS TO AE WERE RS.15,55,02,752/-. IN OUR OPINION, GIVEN THIS FACT SITUATION, FOREIGN EXCHANGE GAIN / LOSS COULD HAVE BEEN CONSIDERED AS NON-OPERATIONAL ONLY IF THE AO COULD SHOW THAT SUCH GAINS / LOSS CAME OUT OF HEDGING AND TRANSACTIONS WHICH WERE INDEPENDENT OF THE BUSINESS REVENUE EARNING TRANSACTION OF THE ASSESSEE. THE P REPONDERANCE OF PROBABILITY WILL ALWAYS WEIGH IN FAVOUR OF THE ASSE SSEE WHEN ITS REVENUES ARE ONLY FROM EXPORTS. IN SUCH A SITUATION WE CANN OT TAKE A PRESUMPTION THAT FOREIGN EXCHANGE GAIN / LOSS WERE NOT HAVING A NY NEXUS TO THE ITA.309/BANG/2015 PAGE - 6 OPERATIONS OF THE ASSESSEE. COORDINATE BENCH IN TH E CASE OF TRIOLOGY E- BUSINESS SOFTWARE INDIA P. LTD V. DCIT [[(2013) 140 ITD 540] HAD HELD AS UNDER AT PARA 79 OF ITS ORDER (B) TREATING FOREIGN EXCHANGE GAIN OR LOSS AND PROVISION FOR BAD DEBTS AS NON-OPERATING IN NATURE AND FRINGE BEN EFIT TAX AS PART OF OPERATING COST: AS FAR AS FOREIGN EXCHANGE GAIN/LOSS BEING CONSIDER ED AS NOT FORMING PART OF THE OPERATING COST, THE REASONING O F THE REVENUE IS THAT SUCH LOSS OR GAIN CANNOT BE SAID TO BE ONE REA LIZED FROM INTERNATIONAL TRANSACTION THOUGH THEY MAY FORM PART OF THE GAIN/LOSS OF THE ENTERPRISE AND THEREFORE THEY SHOU LD BE EXCLUDED WHILE DETERMINING OPERATING COST. ON THE ABOVE ISS UE WE FIND THAT THE BANGALORE BENCH OF ITAT IN THE CASE OF SAP LABS INDIA (P) LTD. VS. ACIT (2011) 44 SOT 156 (BANG.) HAS TAK EN THE VIEW THAT FOREIGN EXCHANGE FLUCTUATION GAINS ARE REQUIRE D TO BE ADDED TO OPERATING REVENUE. FOLLOWING THE SAME, TH E AO IS DIRECTED TO ACCEPT THE CLAIM OF THE ASSESSEE IN THI S REGARD. AS FAR AS PROVISION FOR BAD DEBTS ARE CONCERNED, THE TPO H AS ACCEPTED THAT THE SAME WOULD BE PART OF OPERATING EXPENSES P ROVIDED THE SAME IS INCURRED EVERY YEAR FOR AT LEAST THREE YEAR S AND THE MANNER IN WHICH PROVISION IS MADE IS CONSISTENT. T HE ASSESSEE IN REPLY TO THE QUERY OF THE TPO ON THE ABOVE ASPECT H AS NOT FURNISHED ANY DETAILS. WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE AFFORDED OPPORTUNITY TO EXPLAIN ITS POSIT ION ON THE ABOVE AND THE AO IS DIRECTED TO CONSIDER THE SAME I N ACCORDANCE WITH LAW. AS FAR AS FRINGE BENEFIT TAX (FBT) IS CO NCERNED, THE SAME WAS NOT CONSIDERED BY THE TPO AS PART OF OPERA TING COST IN THE CASE OF COMPARABLES AND THEREFORE THE SAME SHOU LD ALSO NOT BE CONSIDERED AS PART OF OPERATING COST OF THE ASSE SSEE. WE HOLD ACCORDINGLY AND DIRECT THE AO TO COMPUTE THE OPERAT ING COST OF THE ASSESSEE. ITA.309/BANG/2015 PAGE - 7 ACCORDINGLY WE ARE OF THE OPINION THAT DRP WAS JUST IFIED IN DIRECTING THE AO / TPO TO CONSIDER FOREIGN EXCHANGE GAIN / LOSS A S OPERATIONAL IN NATURE. GROUNDS 5 AND 6 OF THE REVENUE STAND DISMISSED. 11. NOW WE TAKE UP APPEAL OF THE ASSESSEE. ASSESSE E IN ITS APPEAL HAS TAKEN FOUR GROUNDS OF WHICH GROUND 4 IS GENERAL NEE DING NO ADJUDICATION. 12. VIDE ITS GROUND 1 AND 2 ASSESSEE IS AGGRIEVED T HAT ADJUSTMENT SOUGHT BY IT FOR UNDER UTILISATION OF RATED CAPACITY WAS N OT ALLOWED WHILE COMPARING ITS RESULTS WITH THAT OF THE COMPARABLES SELECTED FOR THE TP STUDY. 13. FACTS APROPOS ARE THAT ASSESSEE HAD IN ITS TP D OCUMENTATION WORKED OUT ITS PLI AS UNDER : 14. ASSESSEE HAD IN THE ABOVE WORK-OUT ADDED BACK T HE ACTUAL DEPRECIATION CHARGED AND DEDUCTED ONLY 10% OF SUCH DEPRECIATION FOR ARRIVING AT THE PLI. BECAUSE OF THIS ADJUSTMENT, O PERATING LOSS OF 2.70% ITA.309/BANG/2015 PAGE - 8 BECAME POSITIVE OPERATING PROFIT OF 1.78%. FOR RES TRICTING THE DEPRECIATION TO 10% OF THE ACTUAL DEBIT IN THE PROFIT AND LOSS A CCOUNT, ARGUMENT OF THE ASSESSEE WAS THAT THERE WAS HUGE UNDER UTILISATION OF THE INSTALLED CAPACITY. ACCORDING TO THE ASSESSEE, DEPRECIATION ON FIXED AS SETS THAT WAS TO BE CONSIDERED WHILE WORKING OUT THE OPERATING PROFIT S HOULD ONLY BE IN PROPORTION TO THE ACTUAL UTILISATION OF THE INSTALL ED CAPACITY. ASSESSEE POINTED OUT THAT ITS TURNOVER HAD GONE DOWN BY 60% COMPARED TO THAT OF THE PRECEDING YEAR AND ONLY 10% OF THE INSTALLED CAPACI TY WAS USED. 15. TPO REQUIRED THE ASSESSEE TO GIVE DETAILS OF IT S CLAIM OF UNDER UTILISATION OF CAPACITY. TO THIS ASSESSEE STATED T HAT ECONOMIC SLOW-DOWN, FREQUENT POWER DISRUPTIONS, SPIRALLING COST OF THE RAW MATERIAL ALL RESULTED IN LOWER UTILISATION OF THE CAPACITY, LEADING TO U NDER ABSORPTION OF FIXED COSTS. AS PER THE ASSESSEE, ITS CAPACITY UTILISATI ON FOR THE RELEVANT PREVIOUS YEAR WAS ONLY ABOUT 28,336 SQ.MTS OF GRANITE BLOCKS THOUGH IT INSTALLED CAPACITY FOR 2,88,000 SQ.MTS. HOWEVER TPO WAS NOT IMPRESSED. ACCORDING TO HIM, THE REASONS FOR UNDER UTILISATION STATED BY THE ASSESSEE APPLIED EQUALLY FOR ITS COMPETITORS ALSO. COMPARAB LES ALSO SUFFERED FROM THE SAME BUSINESS NEGATIVITIES. AS PER THE TPO FOR THE PREVIOUS YEAR RELEVANT TO A. Y. 2009-10 ASSESSEE HAD CLAIMED FULL DEPRECIATION, BUT STILL IT HAD SUBSTANTIAL OPERATING PROFIT. THUS, AS PER THE TPO, ASSESSEE WAS NOT ITA.309/BANG/2015 PAGE - 9 ABLE TO SUBSTANTIATE ITS CLAIM FOR ADJUSTMENT OF DE PRECIATION WHILE WORKING OUT ITS PLI. THOUGH THE ASSESSEE TRIED TO ELABORAT E ON ITS OBJECTIONS STATING THAT IT DID NOT OWN ANY GRANITE QUARRY OF ITS OWN B UT WAS DEPENDENT ON THIRD PARTY SUPPLIES AND DIFFICULTIES FACED DUE TO GOVER NMENT RESTRICTIONS ON MINING, TPO WAS OF THE OPINION THAT ASSESSEE COULD NOT EFFECTIVELY PROVE ANY UNDER UTILISATION. TPO AFTER STUDYING THE 14 C OMPARABLE COMPANIES SELECTED BY THE ASSESSEE CAME TO A CONCLUSION THAT THESE COMPARABLE COMPANIES WHICH WERE FACING THE SAME BUSINESS CONTI NGENCIES, HAD INCREASED THEIR SALES VOLUMES FROM THAT OF THE PREC EDING PREVIOUS YEAR. THUS AS PER THE TPO ASSESSEE COULD NOT BRING OUT A CASE FOR MAKING ANY ADJUSTMENT FOR THE DEPRECIATION WHILE WORKING OUT I TS PLI. AO / TPO THEREAFTER COMPUTED THE ADJUSTMENT REQUIRED U/S.92C A OF THE ACT, BY WORKING OUT THE PLI OF THE ASSESSEE WITHOUT MAKING ANY ADJUSTMENT FOR DEPRECIATION. 16. ASSESSEES APPLICATION BEFORE THE DRP ON THIS I SSUE ALSO DID NOT MEET WITH ANY SUCCESS. DRP NOTED THAT THOUGH THERE WAS A 57% DECREASE IN THE SALES OF THE ASSESSEE WHEN COMPARED WITH ITS SALES FOR THE PRECEDING YEAR, A SIMILAR TREND EXISTED IN THE CASE OF NEELKANTH ROCK MINERALS LTD AND CEETA INDUSTRIES LTD WHICH WERE IN THE LIST OF SELECTED C OMPARABLES. OR IN OTHER WORDS AS PER THE DRP THE REASONS FOR UNDER UTILISAT ION SHOWN BY ASSESSEE ITA.309/BANG/2015 PAGE - 10 WAS ADVERSE BUSINESS ENVIRONMENT, AND THIS REMAINED SAME FOR ALL SIMILARLY PLACED COMPANIES IN THIS LINE OF BUSINESS. 17. NOW BEFORE US, THE LD. AR STRONGLY ASSAILING TH E ORDERS OF AUTHORITIES BELOW SUBMITTED THAT ITS TURNOVER HAD F ELL FROM RS.36.51 CRORES TO 15.7 CRORES WHEN COMPARED TO THE PRECEDING YEAR. WHEN THE ASSESSEE WAS OPERATING IN A LOWER CAPACITY IT HAD TO ABSORB THE FIXED COST ON A LESSER PRODUCTION. LD. AR SUBMITTED THAT RULE 10B(3) REQU IRED ADJUSTMENT FOR DIFFERENCES THAT COULD MATERIALLY AFFECT THE NET PR OFIT MARGIN. CAPACITY UNDER UTILISATION, ACCORDING TO HIM, WAS AN IMPORTA NT FACTUM AFFECTING THE NET MARGIN IN THE OPEN MARKET. LD. AR SUBMITTED TH AT ADJUSTMENTS FOR DIFFERENCES, WHEN IT COULD BE CARRIED OUT WITH REAS ONABLE ACCURACY HAD TO BE DONE BEFORE ATTEMPTING A COMPARISON. RELIANCE W AS PLACED ON THE COORDINATE BENCH IN THE CASE OF GENYSIS INTEGRATING SYSTEMS INDIA P. LTD V. DCIT [64 DTR 225]. 18. PER CONTRA, LD. DR STRONGLY SUPPORTED THE ORDER S OF AUTHORITIES BELOW. 19. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CASE OF THE ASSESSEE IS THAT IT HAD A CAPACITY FOR PRODUCTI ON OF 1,22,233 SQ.MTS OF GRANITE BUT IT HAD ONLY PRODUCED 28,336 SQ.MT DURIN G THE YEAR. AS PER THE ASSESSEE, BECAUSE OF THIS ITS SALES WENT DOWN BY MO RE THAN 60%. THIS DOES ITA.309/BANG/2015 PAGE - 11 INDICATE UNDERUTILISATION OF CAPACITY AND ASSETS. FIXED COST REMAINING THE SAME, IRRESPECTIVE OF THE ACTUAL UTILISATION, SUCH COST HAD TO BE CHARGED TO THE PRODUCTION AND THIS IS A COSTING PRINCIPLE THAT APPLY TO ALL BUSINESS AND NOT ASSESSEE ALONE. AMONG THE COMPARABLES SELECTED , WE FIND THAT TWO COMPANIES NAMELY, NEELKANTH ROCK MINERALS LTD AND CEETA INDUSTRIES LTD ALSO HAD A TREND OF DECREASING SALES. REASONS SHOWN BY THE ASSESSEE FOR UNDER UTILISATION ARE THAT THERE WERE DIFFICULTIES IN PROCURING RAW MATERIAL, NOT OWNING ANY CAPTIVE MINES, AND SEVERE SHORTAGE O F POWER. THESE VAGARIES OF BUSINESS ARE NOTHING BUT ADVERSE ENVIRO NMENT FACED BY ALL COMPETITORS WHO ARE SELECTED AS COMPARABLES. ASSES SEES CONTENTION IS THAT ITS FIXED ASSETS WERE UNDER UTILISED AND THEREFORE THERE SHOULD BE AN ADJUSTMENT IN DEPRECIATION. IN OUR OPINION IT WOUL D ONLY MEAN THAT WEAR AND TEAR OF THE FIXED ASSETS WERE CONSIDERED AT A L OWER LEVEL THAN WHAT IT WOULD HAVE BEEN IF SUCH ASSETS WERE USED WITHOUT RE SPITE. DEPRECIATION ON FIXED ASSETS NEED NOT BE DIRECTLY PROPORTIONAL TO U TILISATION OF MACHINERY. ASSETS CAN GET DEPRECIATED BY NON USAGE AS WELL. H ENCE ATTEMPT OF THE ASSESSEE TO HAVE A LESSER CHARGE OF DEPRECIATION WH ILE WORKING OUT ITS PLI IN THE GUISE OF UNDER UTILISATION OF CAPACITY, IN O UR OPINION, WAS NOT CORRECT. NO DOUBT, AS MENTIONED BY THE LD. AR, RULE 10B(1)(E ) REQUIRES ADJUSTMENT OF DIFFERENCES BETWEEN INTERNATIONAL TRANSACTIONS A ND THE COMPARABLE ITA.309/BANG/2015 PAGE - 12 UNCONTROLLED TRANSACTIONS WHICH WOULD MATERIALLY AF FECT THE NET MATERIAL MARGIN. HOWEVER, ASSESSEE HERE WAS UNABLE TO ESTAB LISH THAT THE COMPARABLES HAD CLAIMED DEPRECIATION AFTER CONSIDER ING THEIR CAPACITY UTILISATION. FURTHER ASSESSEE ALSO COULD NOT ESTAB LISH THE EXISTENCE OF A LINEAR RELATIONSHIP BETWEEN ITS DEPRECIATION COST A ND MACHINE UTILISATION. WE ARE THEREFORE OF THE OPINION THAT GROUND 1 AND 2 OF THE ASSESSEE DOES NOT MERIT ACCEPTANCE. SUCH GROUNDS ARE DISMISSED. 20. VIDE ITS GROUND 3 ASSESSEE IS AGGRIEVED THAT TH E AO WHILE PASSING THE ORDER WHILE GIVING EFFECT TO THE DRP DIRECTIONS MAD E AN ADDITION FOR THE WORKING CAPITAL ADJUSTMENT WHEREAS IT WAS REQUIRED TO BE REDUCED WHILE WORKING OUT THE ADJUSTED AVERAGE PLI. 21. ASSESSEE HAS PRODUCED BEFORE US A CHART ACCORDI NG TO WHICH THE AVERAGE WORKING CAPITAL ADJUSTMENT THAT WAS REQUIRE D TO BE DONE FOR WORKING OUT THE AVERAGE PLI OF THE COMPARABLES WAS (-) 2.85%. TPO HAD HOWEVER ADDED 2.85% TO THE UNADJUSTED AVERAGE PLI O F THE COMPARABLES. WE ARE OF THE OPINION THAT THIS ISSUE ALSO REQUIRES A FRESH LOOK BY THE AO / TPO. IF THE WORKING CAPITAL ADJUSTMENT WAS NEGATIV E, AO / TPO SHOULD REWORK THE ADJUSTED PLI OF THE COMPARABLES AFTER RE DUCING THE QUANTUM OF SUCH ADJUSTMENT FROM THE AVERAGE PLI OF THE COMPARA BLES. ORDERED ACCORDINGLY. GROUND 3 OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSE. ITA.309/BANG/2015 PAGE - 13 22. TO SUMMARISE THE RESULT, APPEAL OF THE REVENUE IS DISMISSED WHEREAS APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPO SE. ORDER PRONOUNCED IN OPEN COURT ON 10TH DAY OF NOVEM BER, 2015. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTA NT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR