FUCHS LUBRICANST (I) P.LTD, MUMBAI V. DCIT CIR 6(2), MUMBAI

ITA 6339/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75854 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 14-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: JIGNA TALATI
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Avoidance of tax
• Section: 10B; 92

Judgement Text

M/S FUCHS LUBRICANTS (INDIA) PVT. 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6339/MUM/2011 ASSESSMENT YEAR.2005506 M/S FUCHS LUBRICANTS (INDIA) PVT. LTD. 02 ND FLOOR, ATUR HOUSE, 87, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. VS. DEPUTY COMMSSIONER OF INCOME TAX, CIR 6(2) ACIT , CIR 4(2), MUMBAI. PAN: AABCB0983D APPELLANT RESPONDENT A SSESSEE BY SHRI NIRAJ SETH AND MS. JIGNA TALATI RE VENUE BY SHRI AJEET KUMAR JAIN ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18.7.2011 FOR A.Y. 2005506. THE ASSESSEE IN THIS AP PEAL HAS RAISED FOLLOWING GROUNDS:5 THE GROUNDS STATED HERE UNDER ARE INDEPENDENT OF, A ND WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE LEARNED COMMISSIONER OF LNCOME TAX (APPEALS) 5 XV, MUMBAI (,CIT5A') HAS ERRED ON FACTS AND IN LAW BY ONLY ALLOWING A PARTIAL RELI EF OF RS. 4,63,110 IN THE CONTEXT OF TOTAL TRANSFER PRICING ADJUSTMENT OF RS. 35,99,339 MADE BY THE ASSESSING OFFICER I.E. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(2), MUM BAI ('AO') TO THE TOTAL INCOME OF THE APPELLANT'S TOTAL INCOME BASED ON THE PROVISION S OF SECTION 92 OF THE INCOME5TAX ACT, 1961 ('THE ACT'). DATE OF HEARING 20.02.2014 DATE OF PRONOUNCEMENT 21 - 03 - 2014 M/S FUCHS LUBRICANTS (INDIA) PVT. 2 2. THE LEARNED CIT5A HAS ERRED ON FACTS AND IN LAW BY UPHOLDING THE ORDER OF THE AO WHICH COMPLETELY DISREGARDED THE DOCUMENTATION MAINTAINED BY THE APPELLANT AS PER RULE 10D OF THE INCOME TAX RULES, 1962 ('THE RULES '). 3. THE LEARNED CIT5A ERRED ON FACTS AND IN LAW IN NOT ALLOWING ADJUSTMENTS ON ACCOUNT OF UNDER UTILIZATION OF CAPACITY BY THE APPELLANT AS W ARRANTED UNDER RULE 1 OB( 1)( E) OF THE RULES FOR COMPUTING THE ARM'S LENGTH PRICE. 4. THE LEARNED CIT5A HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO BY DISREGARDING THE FACT THAT VALUE OF IMPORT OF RAW M ATERIALS BY THE APPELLANT HAD ALREADY BEEN EXAMINED BY THE CUSTOMS AUTHORITIES (I.E. ANOT HER DEPARTMENT OF MINISTRY OF FINANCE, GOVERNMENT OF INDIA) AND FOUND THE PRICE T O BE LOWER THAN ARM'S LENGTH (SIGNIFIED BY 1 PERCENT LOADING IMPOSED BY THEM). 5. THE LEARNED CIT5A HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE AO BY REJECTING THE USE OF MULTIPLE YEAR DATA AS PERMITTE D UNDER THE PROVISIONS OF RULE 10D(4) OF THE RULES AS ELABORATED IN THE TRANSFER PRICING STUDY REPORT. 2. GROUND NO. 1 AND 2 ARE GENERAL IN NATURE AND DEP ENDENT UPON THE FINDING OF THE OTHER SPECIFIC GROUNDS, THEREFORE, N O SPECIFIC FINDING IS REQUIRED IN RESPECT OF GROUND NO. 1 AND 2. 3. GROUND NO. 3 IS REGARDING ADJUSTMENT ON ACCOUNT OF UNDER UTILIZATION OF CAPACITY AS PER RULE 10B(1)(E) OF THE INCOME TA X RULES. 3.1 THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF TH E FUCKHS PETROLUBE AG, GERMANY (FUCHS AG) AND IS ENGAGED IN MANUFACTUR ING AND DISTRIBUTION OF LUBRICANTS. THE ASSESSEE HAS VARIOUS INTERNATION AL TRANSACTIONS WITH ITS AE, HOWEVER THE CONTROVERSY BEFORE US IS ONLY WITH RESPECT TO THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIAL FROM ITS AE. THE TPO NOTED THAT AS PER THE SEGMENTAL ANALYSIS NET OPERAT ING MARGIN IN THE MANUFACTURING SEGMENT OF THE ASSESSEE IS 511.95%. T HE ASSESSEE HAS BENCH MARKED ITS OPERATING MARGIN BY FOLLOWING TNMM METHOD. THOUGH THE ASSESSEE HAS ADOPTED THE MULTIPLE YEAR DATA AND HAS BENCH MARKED ITS M/S FUCHS LUBRICANTS (INDIA) PVT. 3 INTERNATIONAL TRANSACTION BY WORKING OUT THE NET OP ERATING MEAN MARGIN AT 5.29%. THE ASSESSEE CONTENDED BEFORE THE TPO THAT T HE COMPANY BEING A NEW COMPANY HAD VERY HIGH OVER HEAD COST, THEREFORE , THE PROPER PROFIT LEVEL INDICATOR (PLI) WOULD THE GROSS PROFIT MARGIN RATHER THAN THE OPERATING MARGIN. THE ASSESSEE WORKED OUT ITS OWN G ROSS PROFIT MARGIN AT 27.26% AND PROCEEDED TO COMPARE IT WITH THE GROSS P ROFIT OF 12 COMPARABLE COMPANIES MEAN MARGIN AT 21.72%. THE TPO DID NOT ACCEPT THE ASSESSEES CONTENTION REGARDING GROSS PROFIT MA RGIN AS A PLI AS WELL AS THE MULTIPLE YEAR DATA USED BY THE ASSESEE AND ACC ORDINGLY DETERMINED THE ARMS LENGTH PRICE (ALP) ON THE BASIS OF OPERAT ING MARGIN BY ADOPTING TNMM AS THE MOST APPROPRIATE METHOD AT 5.29%. THE T PO TOOK THE NET OPERATING MARGIN OF THE ASSESSEE IN THE MANUFACTURI NG SEGMENT AT 0.37% AND ACCORDINGLY MADE AN ADJUSTMENT OF RS. 35,99,339 /5 3.2 ON APPEAL, CIT(A) HAS ALLOWED THE ASSESSEE A PA RTIAL RELIEF OF RS. 4,63,110/5. 3.3 BEFORE US, THE LD AR OF THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS NOT DEALT WITH THIS ISSUE OF ADJUSTMENT IN RESPECT OF DIFFERENCE IN CAPACITY UTILIZATION DESPITE SPECIFIC ISSUE RAISED BY THE AS SESSEE. HE HAS FURTHER CONTENDED THAT EVEN OTHERWISE THE TPO HAS MADE THE ADJUSTMENT IN RESPECT OF TOTAL TURNOVER OF THE ASSESSEE INSTEAD O F THE TURNOVER WITH THE AE IN THE SEGMENT OF MANUFACTURING, THEREFORE, THE ADJUSTMENT MADE BY THE TPO IS NOT SUSTAINABLE IN VIEW OF THE VARIOUS D ECISIONS OF THIS TRIBUNAL ON THIS POINT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF GENISYS INTEGRATING M/S FUCHS LUBRICANTS (INDIA) PVT. 4 SYSTEMS (INDIA) (P.) LTD VS. DCIT (20 TAXMANN.COM71 5). THE LD. AR HAS THEN RELIED UPON THE DECISION OF MUMBAI BENCH OF TR IBUNAL IN THE CASE OF DCIT VS. PETRO ARALDITE (P) LTD. (145 ITD 185) AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT ADJUSTMENT IN RESPECT OF DIF FERENCE IN CAPACITY UTILIZATION IS REQUIRED TO BE MADE. HE HAS FURTHER CONTENDED THAT IT IS PRACTICALLY IMPOSSIBLE TO FIND OUT THE FIXED OVERHE AD OF THE COMPARABLES FOR MAKING ADJUSTMENT, THEREFORE, THE ADJUSTMENT SHOULD BE PERMITTED IN THE OPERATING MARGIN OF THE ASSESSEE. THE LD. AR HAS FI LED A DETAILED CHART SHOWING ADJUSTMENT IN THE MARGINS OF THE COMPARABLE S ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION AND SUBMITTED TH AT IF THE ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION IS AL LOWED THEN THE MEAN OPERATING MARGIN OF THE COMPARABLE COMES BELOW 5% A ND, THEREFORE, NO ADJUSTMENT IS REQUIRED BECAUSE THE ALP AFTER THE AD JUSTMENT IS WITHIN THE TOLERANCE RANGE OF +/55% OF THE ASSESSEES MARGIN. THE LD AR HAS GIVEN THE CALCULATION BASED ON THE DIFFERENCE BETWEEN THE RATIO OF ASSESSEES DEPRECIATION TO SALES VIS55VIS COMPARABLES AS WELL AS THE DIFFERENCE IN THE RATIO OF DEPRECIATION TO TOTAL COST VIS55VIS COMPA RABLES. 3.4 ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THA T IN THE CASE OF PETRO ARALDITE LTD., THE TRIBUNAL HAS CONSIDERED TH IS ASPECT AND FINALLY ARRIVED AT THE CONCLUSION THAT THE ADJUSTMENT ON AC COUNT OF DIFFERENCE IN CAPACITY UTILIZATION HAS TO BE MADE IN THE RATIO OF DEPRECIATION TO THE OPERATING COST SO THAT IT WILL ELIMINATE THE EFFECT OF DIFFERENCE IN PROFIT MARGIN OR DIFFERENCE IN THE LEVEL OF STOCK OF FINIS HED GOODS OF THE TESTED PARTY AND COMPARABLES. M/S FUCHS LUBRICANTS (INDIA) PVT. 5 3.5 AS REGARDS THE ADJUSTMENT ONLY IN RESPECT OF A ES TURNOVER, THE LD. DR HAS NOT ADVANCED ANY ARGUMENT EXCEPT TO SUPPORT THE ORDER OF THE TPO 3.6 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT SO FAR AS THE ISSUE OF TP A DJUSTMENT HAS TO BE MADE ONLY IN RESPECT OF THE TURNOVER WITH THE AE, I S CONCERNED, THERE ARE SERIES OF DECISION OF THIS TRIBUNAL ON THIS POINT. IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) (P) LTD, THE BANGALORE BENCH OF THIS TRIBUNAL AFTER CONSIDERING THE VARIOUS DECISIONS ON THIS ISS UE HAS DECIDED THIS ISSUE IN PARA 5.6 TO 6.1 AS UNDER:5 5.6 AGGRIEVED BY THIS ORDER OF THE DRP AND THE CON SEQUENTIAL ASSESSMENT MADE BY THE AO THE ASSESSEE HAS FILED THIS APPEAL AND HAS RAISE D THE FOLLOWING POINTS; 1. RESTRICT TP ADJUSTMENTS TO AE TRANSACTIONS ONLY:5 THE TRANSACTIONS WITH AE ONLY ARE INTERNATIONAL ,0 TRANSACTIONS AND IT IS ONLY WITH REFERENCE TO THESE TRANSACTIONS THAT IT COULD BE ALLEGED THAT THE, PRICES ARE MANIPULATED T O RESULT IN A FLIGHT OF PROFIT FROM INDIA AND IT IS ONLY SUCH FLIGHT OF PROFITS THAT NE EDS CORRECTION. IN SUPPORT OF HIS CONTENTION THAT ONLY INTERNATIONAL TRANSACTIONS WIT H AE ARE TO BE CONSIDERED, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UP ON THE FOLLOWING DECISIONS 1.DY. CITV STARLITE [2010] 40 SOT 421 (MUM.) 1. IL JIN ELECTRONICS (1) (P.) LTD., V. ASSTT. CIT [2010] 36 SOT 227 (DELHI) 3. ASSTT. CIT V. T TWO INTERNATIONAL (P.) LTD., [IT APPEAL NOS. 5645 & 5646 (MUM.) OF 2009, 4.GLOBAL VANTEDGE (P.) LTD. V. DY. CIT [2010] 37 SOT 1 (DELHI) 5.DCITV. STARTEX NETWORKS (IND) (P.) LTD, 20 1 O5TII5135ITAT5DEL5TP 6.ASSTT. CIT V. WOCKHARDT LTD, [2011] 45 SOT 138 /12011] 10 TAXMANN.COM 207 (MUM.) (URO) 7.ADD!. CITV. TEJ DIAM [2010] 37 SOT 341 (MUM.) 8. ABHISHEK AUTO INDUSTRIES LTD V. DY. CIT [IT APPEAL NO. 1433 (DELHI) 2009, DATED 125 125 2010] AND 9. DY. CITV. ANKIT DIAMONDS [2011] 43 SOT 523 /[2011] 9 TAXMANN.COM 37 (MUM.) 6. BASED ON ALL THE ABOVE DECISIONS, THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRANSFER PRICING ADJUSTMENTS SHOULD BE RES TRICTED TO TRANSACTIONS WITH THE AE ONLY AND ALSO THAT OPERATING COST OF THE SOFTWARE SEGME NT REFERABLE TO AE TRANSACTIONS ONLY M/S FUCHS LUBRICANTS (INDIA) PVT. 6 SHOULD BE TAKEN INTO CONSIDERATION. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6.1 HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT SEC.92B OF THE IT ACT GIVES THE MEANING OF 'I NTERNATIONAL TRANSACTIONS' TO MEAN 'A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES EITHER OR BOTH OF WHOM ARE NON5 RESIDENT CHAPTER5X OF IT ACT RELATES TO SPECIAL PRO VISIONS RELATING TO AVOIDANCE OF TAX AND SEC.92 THEREIN RELATES TO COMPUTATION OF INCOME FRO M INTERNATIONAL TRANSACTIONS HAVING REGARD TO ALP. THUS, IT CAN BE SEEN THAT ONLY INTER NATIONAL TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES EITHER OR BOTH OF WHOM ARE N ON5 RESIDENT ARE TO BE COMPUTED HAVING REGARD TO ALP. THIS ISSUE IS ALSO COVERED BY THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. ACCORDINGLY, THE AO IS DIRECTED TO MAKE THE TRANSFER PRICING ADJUSTMENTS BY RESTRICTING THE ADJUSTMENTS TO THE TRANSACTIONS OF THE AE ONLY BY ADOPTING THE OPERATING REVENUE AND OPERATING COSTS OF THESE TRANSACTIONS ONLY. 3.7 WE DO AGREE WITH THE VIEW TAKEN BY BANGALORE BE NCH OF THIS TRIBUNAL (SUPRA) ON THIS ISSUE. ACCORDINGLY WE DIRECT THE AO /TPO TO RESTRICT THE TP ADJUSTMENT IF ANY ONLY TO THE TRANSACTIONS WITH THE AE INSTEAD OF TOTAL TURNOVER OF THE ASSESSEE. 3.8 AS REGARDS THE ADJUSTMENT ON ACCOUNT OF DIFFERE NCE IN CAPACITY UTILIZATION AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE CASE OF DCIT VS. PETRO ARALDITE LT D (SUPRA). THE TRIBUNAL AFTER CONSIDERING THE ISSUE ELABORATELY BY ANALYZIN G ALL THE ASPECTS OF THE ISSUE HAS FINALLY CONCLUDED IN PARA 23 TO 25 AS UND ER:5 23. THE QUESTION THAT NOW ARISES IS WHAT IS THE PROPER METHOD OF MAKING ADJUSTMENT FOR DIFFERENCE IN CAPACITY UTILIZATION W ITHIN THE FRAME WORK GIVEN IN RULE LOB. AS ALREADY DISCUSSED BY US, THE DIFFER ENCE IN CAPACITY UTILIZATION AFFECTS THE PROFITABILITY MAINLY BECAUSE OF THE DIF FERENCE IN RATES AT WHICH THE FIXED OVERHEADS ARE ABSORBED OR ALLOCATED DEPENDING ON THE LEVEL OF CAPACITY UTILIZATION. THE EXAMPLE GIVEN BY US CLEARLY DEPICTS THIS POSITION. THE SAID EX5AMPLE SHOWS THAT THE ALLOCATION OF FIXED O VERHEADS AT THE CAPACITY UTILIZATION OF 50%, 60% & 80% IS 40%, 33.33% & 25% RESPECTIVELY RESULTING IN THE PROFIT MARGIN OF 10%,16.67% AND 25 %. IN OUR OPINION, IF THE FIXED OVERHEADS ALLOCATION OR ABSORPTION OF COMPARA BLE IS BROUGHT AT THE LEVEL OF THE ASSESSEE, IT WOULD NULLIFY THE EFFECT OF DIF FERENCE IN CAPACITY UTILIZATION ON THE PROFIT MARGIN. FOR EXAMPLE, IF WE TAKE THE P ROFITABILITY WORKING AT 50% M/S FUCHS LUBRICANTS (INDIA) PVT. 7 CAPACITY UTILIZATION AS THAT OF THE TESTED PARTY AND AT CAPACITY UTILIZATION OF 60% AND 80% AS THAT OF THE COM PARABLES AND ADJUST THE RATE OF ALLOCATION OF FIXED OVERHEADS OF THE COMPARABLES IN ORDER TO B RING THE SAME AT PAR (I.E. 40% OF SALES) WITH THE TESTED PARTY, THE RESULTANT POSITION WILL BE AS UNDER:5 NET PROFIT RS.L CRORE RS. 2.00 CRORES LESS ADDITIONAL ALLOCATION OF DEPRECIATION RS, 0.40 CRORES RS.1.20 CRORES BY TAKING THE RATE OF FIXED OVERHEADS AT 4096 OF SALES: NET PROFIT AFTER ADJUSTMENT RS. 0.60 CRORES RS. 0.80 CRORES PROFIT MARGIN AFTER ADJUSTMENT 10% 10% 24. THE ADJUSTMENT THUS CAN BE MADE TO THE PROFIT M ARGIN OF THE COM PARABLES BY ALLOCATING FIXED OVERHEADS AT THE SAME RATE AT WHICH FIXED OVERHEADS ARE AL5 LOCATED IN THE CASE OF THE TESTED PARTY. FOR EXAMPLE, IN THE CASE OF A COMPARABLE HAVING 80% CAPACITY UTILIZATION , THE RATE OF ALLOCATION OF DEPRECIATION IS 25% OF THE SALES AS AGAINST THE RATE OF ALLOCATION OF FIXED OVERHEADS OF 40% IN THE CASE OF THE TESTED PARTY. I F THE ADJUSTMENT IS MADE IN THE PROFIT MARGIN OF THE SAID COM PARABLES BY AL LOCATING MORE FIXED OVERHEADS AT 15% OF SALES TO BRING THE RATE OF ALLO CATION OF FIXED OVERHEADS AT PAR WITH THAT OF THE TESTED PARTY, THE PROFIT OF THE COMPARABLE WOULD BE REDUCED BY RS. 1.20 CRORES THEREBY GIVING A NET PRO FIT OF RS. 0.80 CRORES WHICH. WOULD BRING THE PROFITABILITY TO 10%, I.E. A T PAR WITH THE TESTED PARTY. SIMILARLY, IF THE ADJUSTMENT IS MADE IN THE PROFIT MARGIN OF A COMPARABLE HAVING 60% CAPACITY UTILIZATION BY ALLOCATING MORE FIXED OVERHE ADS AT 6.67% OF SALES TO BRING THE RATE OF ALLOCATION OF FIXED O VERHEADS AT PAR WITH THAT OF THE TESTED PARTY, THE PROFIT OF THE SAID COMPARABLE WOULD BE REDUCED BY RS. OAO CRORES THEREBY GIVING A NET PROFIT OF RS. 0.60 CROR ES WHICH WOULD BRING THE PROFITABILITY TO 10% I.E. AT PART WITH THE TEST ED PARTY. 25. HAVING HELD THAT THE ADJUSTMENT ON ACCOUNT OF D IFFERENCE IN CAPACITY UTILIZATION IS REQUIRED T BE MADE AND HAVING EXPLAIN ED WITH ILLUSTRATION THAT THE SAME CAN APPROPRIATELY BE MADE BY ABSORBING OR ALLOCATING FIXED OVERHEADS SUCH AS DEPRECIATION ON SALES OF THE COMP ARABLE AT THE SAME RATE AS THAT OF THE TESTED PARTY, WE ARE OF THE VIEW THA T SUCH ABSORPTION OR ALLOCATIONS OF FIXED OVERHEADS ON OPERATING COST IN STEAD OF SALES WOULD BE MORE APPROPRIATE AS THE SAME WILL ELIMINATE THE EFF ECT OF DIFFERENCE IN PROFIT MARGIN OR DIFFERENCE IN LEVEL OF STOCK OF FINISHED GOODS, IF ANY, OF THE TESTED PARTY AND COMPARABLES. 3.9 THUS IT IS CLEAR THAT THE ADJUSTMENT AS PER RUL E 10B IS PERMISSIBLE ONLY IN THE MARGINS OF THE COMPARABLES AND NOT IN T HE MARGINS OF THE ASSESSEE. FURTHER IT WAS FOUND THAT AN APPROPRIATE ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION IS REQUIRED T O BE MADE BY CONSIDERING THE DEPRECIATION BEING THE FIXED OVERHEAD ON OPERAT ING COST INSTEAD OF SALES OF THE COMPARABLES. THE ASSESSEE HAS FURNISHE D THE DETAILED CHART OF M/S FUCHS LUBRICANTS (INDIA) PVT. 8 CALCULATION OF THE ADJUSTMENT AND FINALLY SUMMARIZE D THE MEAN MARGIN OF THE COMPARABLES AFTER THE ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION ARRIVED AT 4.68% IN COMPARISON TO THE A SSESSEES OWN OPERATING PROFIT MARGIN AT .37%. THE DETAILES SUMMARIZED BY T HE ASSESSEE ARE AS UNDER:5 F UCH S L UBRI C AN T S (I N D I A) PRIVAT E L I MITED ASS ESSME N T YE A R 2005 - 06 A PPEAL O. 6639 1M UM / 20 11 CALC ULATION OF 5 PERCENT RANGE - C O RRECTE D MARGIN AMOUNT PARTICULARS (IN INR) SA L ES A 66 , 44 8 , 000 AE - COS T B 1 2 ,861,553 NO N AE C O S T C 5 3 , 338 , 447 TO T A L C O S T D = B + C 66 , 200 , 000 OP E R A TI N G P R OFIT E = A -D 2 48 , 000 OP E R A TIN G PROFIT MARGIN F = D I A 0 . 37 % A RM 'S L E N G T H OP E R A TIN G P R OFIT MAR G IN OF COMP A RAB L E S BEFO RE CA P A CI TY U TI L IZ A TIO N A D J U S TM E NT G 5 . 79 % R EV I SE D A RM'S LENGTH OPERATING PROFIT MARG IN OF COMPARABLES AF T E R C APACIT Y UTILIZATION ADJUSTMENT H 4 . 68% A RM 'S L E N G T H OPE R AT IN G PR OF IT J = A * H 3, 109 , 766 A RM ' S L E N GT H TO T A L COST J =A -J 63 , 3 38 , 2 34 VA RI A TI O N BET WE EN REV I S E D ARM' S L ENGTH AE COST AN D ACTAUL AE C OS T K = D-J 2 , 86 1, 766 5 % OF R E VI S ED AE C O ST L = D * 5 % 3 ,3 10 , 000 A DJUSTMENT (SINCE L IS HIGHER THAN K, CO N S I DE RIN G 5% RANGE , N O T ADJUSTME N T IS REQ U IRED) NIL M/S FUCHS LUBRICANTS (INDIA) PVT. 9 3.10 IN VIEW OF THE FACT THAT THE AUTHORITIES BELOW HAVE OUTRIGHTLY DENIED THE ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION, WE DIRECT THE AO/TPO TO VERIFY THESE DETAILS AND ALLOW THE A DJUSTMENT ON ACCOUNT OF DIFFERENCE IN CAPACITY UTILIZATION AS PER OUR OBSER VATION IF THE ADJUSTED MEAN MARGIN OF THE COMPARABLES IS WITHIN THE TOLERA NCE RANGE OF +/55% TO THE ASSESSEES OPERATING PROFIT MARGIN THEN IN VIEW OF THE PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT NO TP ADJUSTME NT IS REQUIRED. 4. GROUND NO. 4 IS REGARDING THE ACCEPTANCE OF THE VALUE OF IMPORT OF RAW MATERIAL BY THE CUSTOM AUTHORITIES SHOULD BE RE GARDED AS ARMS LENGTH PRICE(ALP). 4.1 WE HAVE HEARD THE LD AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE VALUE OF IMPORT OF RAW MATERIAL ACCEPTED BY THE CUSTOM AUTHORITIES CANNOT BE ACCEPTED AS ARMS LENGTH PRICE AS PER THE PROVISIONS OF INCOME TAX ACT, THEREFORE, WE DO NOT FIND ANY SUBSTANCE OR MERIT IN THIS GROUND O F THE ASSESSEES APPEAL AND THE SAME IS DISMISSED. 5. GROUND NO. 5 IS REGARDING USE OF MULTIPLE YEAR D ATA OR SINGLE YEAR DATA. 5.1 WE HAVE HEARD THE LD AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. IN ORDER TO DETERMINE THE ALP IN RELATION TO INTERNATIONAL TRANSACTIONS IT HAS BE TO BE COMPARED WITH UNCONTROLLED AND UN5RELATED TRANSACTIONS BY USING DATA RELATING TO T HE FINANCIAL YEAR IN WHICH M/S FUCHS LUBRICANTS (INDIA) PVT. 10 THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO . THE USE OF CURRENT YEAR DATA HAS BEEN CLEARLY STIPULATED UNDER RULE 10B(4) R.W.R 10D(4) WHICH SAYS THAT CONTEMPORANEOUS INFORMATION AND DOCUMENT SHOUL D BE CONSIDERED AS FAR AS POSSIBLE FOR THE PURPOSE OF COMPARING THE UN CONTROLLED TRANSACTIONS WITH THE INTERNATIONAL TRANSACTION. THOUGH AN EXCEP TION IS PROVIDED UNDER THE PROVISO TO RULE 10B(4), IN CASE THE CURRENT YEA R DATA DOES NOT GIVE THE TRUE PICTURE OF THE AFFAIRS AND THE RESULT OF THE C OMPARABLES COULD HAVE THE INFLUENCE BY USING ONLY ONE YEAR DATA. THEREFORE, F OR USING THE MULTIPLE YEAR DATA THERE SHOULD BE EXISTENCE OF ABNORMAL OR EXCEPTIONAL CIRCUMSTANCES/FACTS FOR THE CURRENT YEAR WHICH COUL D HAVE AN INFLUENCE ON THE RESULT ON THE DETERMINATION OF TRANSFER PRICING . IN THE CASE IN HAND NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT ANY SUCH ABNORMAL OR EXCEPTIONAL CIRCUMSTANCES OR FACTS EXIST FOR CURREN T YEAR WHICH COULD HAVE ANY INFLUENCE ON THE RESULTS AS WELL AS DETERMINATI ON OF TRANSFER PRICING. ACCORDINGLY WE DO NOT FIND ANY SUBSTANCE OR MERIT I N THIS GROUND OF THE ASSESSEES APPEAL, HENCE DISMISSED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /03/ 2014 SD/- SD/- (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 21/03/2014 SKS SR. P.S M/S FUCHS LUBRICANTS (INDIA) PVT. 11 COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI