Molex India Tooling Private Limited, Bangalore V. ACIT, Bangalore

ITA 770/BANG/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8619 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-11-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS JT
• Assessee Lawyers: P K PRASAD UMASHANKAR GAUTAM S; NISHIT BHUWALKA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NO.770/BANG/2012 ASSESSMENT YEAR : 2005-06 MOLEX INDIA TOOLING PVT. LTD., (NOW KNOWN AS MOLEX INDIA PVT. LTD.), C/O. DEOLOITTE HASKINS & SELLS, CHARTERED ACCOUNTANTS, DELOITTE CENTRE, ANCHORAGE II, 100/2, RICHMOND ROAD, BANGALORE 560 025. PAN: AAACM 6091N VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : S/SHRI P.K. PRASAD, UMASHANKAR GAUTAM, ADVOCATES & NISHIT BHUWALKA, CA RESPONDENT BY : SMT. SWAPNA DAS, JT. CIT (ITAT-2)(DR) DATE OF HEARING : 03.11.2016 DATE OF PRONOUNCEMENT : 25.01.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING CONCISE GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) / ASSESSING OFFICER / TRANSFER PRICING OFFICER ('LOWE R AUTHORITIES') IT(TP)A NO.770/BANG/2012 PAGE 2 OF 9 ERRED IN NOT CONSIDERING AND REJECTING KABRA WINDER S LTD. AND UNITED DRILLING TOOLS LTD. AS COMPARABLE COMPANIES. 2. THE LEARNED LOWER AUTHORITIES ERRED IN NOT APP RECIATING THE FACT THAT THE APPELLANT INCURRED LOSSES DUE TO THE ECONOMIC CONDITIONS AND NOT ON ACCOUNT OF INTERNATIONAL TRAN SACTIONS UNDERTAKEN BY THE APPELLANT. 3. THE LEARNED LOWER AUTHORITIES ERRED IN NOT APPR ECIATING THAT THE GROSS MARGIN OF THE APPELLANT IS IN LINE W ITH THE GROSS MARGIN OF THE COMPARABLE COMPANIES. 4. THE LEARNED LOWER AUTHORITIES ERRED IN NOT APPR ECIATING THE FACT THAT THE LOSS INCURRED BY THE APPELLANT AT NET MARGIN LEVEL WAS DUE THE UNDERUTILIZATION OF PRODUCTION CAPACITY . 5. THE LEARNED LOWER AUTHORITIES ERRED IN PROVIDIN G ADJUSTMENT ON ACCOUNT OF UNDERUTILIZATION OF PRODUC TION CAPACITY ONLY TO DEPRECIATION COST AND NOT TO ALL THE FIXED COSTS OF THE APPELLANT. 6. THE LEARNED LOWER AUTHORITIES ERRED IN NOT REST RICTING THE ADJUSTMENT PROVIDED TO THE APPELLANT TO THE INTERNA TIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS A SSOCIATED ENTERPRISES ('AES'). 7. THE LEARNED LOWER AUTHORITIES ERRED IN CONSIDER ING THE INTEREST EXPENSE AS OPERATING WHILE COMPUTING THE O PERATING COST MARK-UP OF THE APPELLANT. 8. THE LEARNED LOWER AUTHORITIES ERRED IN NOT CONS IDERING THE MULTIPLE YEAR DATA AND USING CONTEMPORANEOUS DATA W HILE PERFORMING THE ECONOMIC ANALYSIS. 9. THE LEARNED LOWER AUTHORITIES ERRED IN NOT PROV IDING THE BENEFIT OF + / - 5% AS PER THE SECTION 92(C)(2) OF THE INCOME-TAX ACT, 1961. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEN D THE AFOREMENTIONED GROUNDS OF APPEAL. IT(TP)A NO.770/BANG/2012 PAGE 3 OF 9 CONSOLIDATED ADDITIONAL GROUNDS 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) / ASSESSING OFFICER/ TRANSFER PRICING OFFICER ('LOWER AUTHORITIES') ERRED IN NOT PROVIDING AN ADJUSTMENT FOR THE DIFFER ENCES IN THE WORKING CAPITAL POSITION OF MOLEX INDIA TOOLING PRI VATE LIMITED VIS-A-VIS THAT OF THE COMPARABLE COMPANIES, WHILE D ETERMINING OF THE ARM'S LENGTH PRICE 2. THE LEARNED LOWER AUTHORITIES ERRED IN LAW AND ON FACTS IN CONSIDERING NON-COMPARABLE COMPANIES, KULKARNI POWE R TOOLS LIMITED, AS COMPARABLES WHILE DETERMINING OF THE AR M'S LENGTH PRICE. 3. THE LEARNED LOWER AUTHORITIES ERRED IN COMPUTAT ION OF OPERATING COST MARK-UP OF THE APPELLANT AND THE COM PARABLE COMPANIES. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING, FURTHER, THIS GROUND OF APPEAL IS INDEPENDENT OF THE GROUNDS OF APPEAL ALREADY FILED BY THE APPELLANT. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE ISSUE INVOLVED IN TH IS APPEAL IS WITH REGARD TO GRANT OF CAPACITY UTILIZATION ADJUSTMENT AND WORKIN G CAPITAL ADJUSTMENT. HE INVITED OUR ATTENTION THAT THE ISSUES WERE ALSO RAI SED IN ASSESSEES OWN CASE DURING THE AY 2006-07 AND THE TRIBUNAL HAS RE- EXAMINED THE ISSUE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF D CIT V. CLASS INDIA PVT. LTD. IN ITA NO.1783/DEL/2011 WHEREIN THE TRIBUNAL HAS RESTORED THE MATTER TO THE AO/TPO FOR GRANTING CAPACITY UTILIZATION ADJ USTMENT AS PER THE GUIDELINES GIVEN BY THE TRIBUNAL IN THE CASE OF D CIT V. CLASS INDIA PVT. LTD. IT(TP)A NO.770/BANG/2012 PAGE 4 OF 9 (SUPRA). THE TRIBUNAL HAS ALSO ALLOWED WORKING CAPITAL ADJ USTMENT. THE LD. COUNSEL FURTHER CONTENDED THAT IN THE LIGHT OF THE VIEW TAKEN BY THE TRIBUNAL IN THE SUCCEEDING YEAR, THE MATTER SHOULD ALSO BE RESTORED BACK TO THE AO/TPO FOR READJUDICATION OF THE ISSUE. COPY O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IS PLACED ON REC ORD AT PAGES 813 TO 829 AND THE ORDER OF THE TRIBUNAL IN THE CASE OF D CIT V. CLASS INDIA PVT. LTD. (SUPRA) IS PLACED ON RECORD AT PAGES 831 TO 855 OF THE COMP ILATION OF THE ASSESSEE. 3. THE LD. DR DID NOT DISPUTE THESE FACTS. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT SINCE THE TRIBUNAL HAS TAKEN A VIEW IN ASSESSEES OWN CASE IN THE SUCCEEDING YEAR, WE DO NOT FIND ANY JUSTIFICATION TO TAKE A CONTRARY VIEW IN THIS APPEA L. WE, HOWEVER, FOR THE SAKE OF REFERENCE EXTRACT THE RELEVANT OBSERVATIONS OF THE TRIBUNAL AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT APART FROM THE REQUEST OF THE ASSESSEE FOR INCLUSION OF T WO COMPARABLES AND EXCLUSION OF TWO COMPARABLES, THE MAIN GRIEVANC E OF THE ASSESSEE IS REGARDING NON-GRANTING OF ADJUSTMENT ON ACCOUNT OF LOWER CAPACITY UTILIZATION AND WORKING CAPITAL ADJU STMENT. IN THIS REGARD RELIANCE HAS BEEN PLACED BY THE LD. AR OF TH E ASSESSEE ON VARIOUS JUDICIAL PRONOUNCEMENTS NOTED IN THE SYNOPS IS REPRODUCED ABOVE. FOR EXCLUSION OF ELECTRONICA MACH INE TOOLS LTD., AND KULKARNI POWER TOOLS LTD., ASSESSEE POINT ED OUT THE ANNUAL REPORTS OF THESE TWO COMPANIES ON THE ISSUE REGARDING THESE TWO COMPANIES RAISED BY WAY OF FILING ADDITIO NAL GROUNDS. REGARDING INCLUSION OF TWO COMPANIES I.E M/S GUINDY MACHINE IT(TP)A NO.770/BANG/2012 PAGE 5 OF 9 TOOLS LTD., AND M/S UNITED DRILLING TOOLS LTD., IT HAS BEEN SUBMITTED BEFORE US THAT THESE COMPANIES WERE REJEC TED BECAUSE UNAVAILABILITY OF DATA, BUT SINCE THE DATA OF THESE TWO COMPANIES ARE NOW AVAILABLE IN THE ANNUAL REPORT OF THESE TWO COMPANIES, THESE TWO COMPANIES SHOULD BE CONSIDERED AS GOOD CO MPARABLES. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED OP INION THAT THE ISSUE REGARDING INCLUSION OF THESE TWO COMPANIES SH OULD GO BACK TO THE FILE OF THE TPO/ AO FOR FRESH DECISION. WE O RDER ACCORDINGLY. REGARDING THE ADJUSTMENT ON ACCOUNT OF LOWER CAPA CITY UTILIZATION AND WORKING CAPITAL ADJUSTMENT, WE FIND THAT IT IS NOTED BY THE DRP IN PARA-3.2 ON PAGE-3 OF ITS ORDER THAT THE TPO HIGHLIGHTED THE MAJOR COST SHOWN IN THE P&L ACCOUNT WAS THE DEPRECIATION WHICH IN THE CASE OF TAX PAYER WAS ABO UT 20% OF THE TOTAL COST AGAINST AN AVERAGE OF 3.5% IN THE CASE O F COMPARABLES. THEREAFTER, IT IS NOTED BY THE DRP THAT NEUTRALIZE THIS DIFFERENCE THE TPO HAS CONSIDERED PBDIT AS PLI BY FOLLOWING TH E TRIBUNAL ORDER IN THE CASE OF SECHEFENACKER MOTHERS ON LTD., VS ITO(2009-TIOL-376-ITAT-DELHI. IT IS FURTHER NOTED B Y THE DRP IN THE SAME PARA WITH REGARD TO THE CLAIM OF ASSESS EE FOR OTHER COSTS SUCH AS EMPLOYEE COST, REPAIR AND MAINTENANCE COST, OFFICE SUPPLIES, FILING FEE ETC., IT HAS BEEN OBSERVED BY THE TPO THAT THESE CASES ARE SLIGHTLY HIGHER THAN THE COMPARABLE S IN THE RATIO OF ABOUT 7 TO 6 BUT JUST BECAUSE THE COSTS WERE HIGHER , ADJUSTMENT COULD NOT BE CONSIDERED. IN THE LIGHT OF THESE FACT S, NOW WE CONSIDER THE APPLICABILITY OF VARIOUS JUDGMENTS CIT ED BY THE LD. AR OF THE ASSESSEE ON THIS ISSUE. FIRST JUDGMENT CITED IS THE TRIBUNAL ORDER RENDER ED IN THE CASE OF CIT VS CLASS INDIA PVT.LTD., IN ITA NO.1783 /DEL/2011 DATED 12-08-2015. COPY AVAILABLE ON PAGES 701 -726 OF THE PAPER BOOK, PARA NO.9.3 TO 10.2 OF THIS TRIBUNAL ORDER AV AILABLE ON PAGES 714 TO 720 OF THE PAPER BOOK ARE RELEVANT FOR THE PRESENT ISSUE IN DISPUTE HENCE, THESE PARAS ARE REPRODUCED HEREIN BELOW FOR THE SAKE OF READY REFERENCE; 9.3. SUB-RULE (2) OF RULE 10B PROVIDES THAT THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO CERTAIN FACTORS WHICH HAVE BEEN ENUMERATED THEREIN. RULE 10B(3) STATES THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN IT(TP)A NO.770/BANG/2012 PAGE 6 OF 9 INTERNATIONAL TRANSACTION, IF EITHER THERE ARE NO D IFFERENCES BETWEEN THE TWO OR A REASONABLY ACCURATE ADJUSTMEN T CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. WHEN WE READ SUB-CLAUSES(II) & (III) O F RULE 10B(1)(E) IN JUXTAPOSITION TO SUB-RULES (2) & (3) OF RULE 10B, THE POSITION WHICH EMERGES IS THAT THE NET OPE RATING PROFIT MARGIN OF COMPARABLE COMPANIES CALLS FOR ADJUSTMENT IN SUCH A MANNER SO AS TO BRING BOTH THE INTERNATIONAL TRANSACTION AND COMPARABLE CASES AT T HE SAME PEDESTAL. IN OTHER WORDS, IF THERE ARE NO DIFF ERENCES IN THESE TWO, THEN THE AVERAGE OF THE NET OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANIES BECOMES A BENCHMARK. HOWEVER, IN CASE THERE ARE SOME DIFFEREN CES BETWEEN THE COMPARABLES AND THE ASSESSEE, THEN THE EFFECT OF SUCH DIFFERENCES SHOULD BE IRONED OUT BY MAKING SUITABLE ADJUSTMENT TO THE OPERATING PROFIT MARGIN OF COMPARABLES. THAT IS THE WAY FOR BRINGING BOTH THE TRANSACTIONS, NAMELY, THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, ON THE SA ME PLATFORM FOR MAKING A MEANINGFUL AND EFFECTIVE COMPARISON. THE ABOVE ANALYSIS OVERTLY TRANSPIRES T HAT THE LAW PROVIDES FOR ADJUSTING THE PROFIT MARGIN OF COMPARABLES ON ACCOUNT OF THE MATERIAL DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION OF THE ASSESS EE AND COMPARABLE UNCONTROLLED TRANSACTIONS. IT IS NOT THE OTHER WAY AROUND TO ADJUST THE PROFIT MARGIN OF THE ASSES SEE. IN OTHER WORDS, THE NET OPERATING PROFIT MARGIN REALIZ ED BY THE ASSESSEE FROM ITS INTERNATIONAL TRANSACTION IS TO BE COMPUTED AS SUCH, WITHOUT ADJUSTING IT ON ACCOUNT O F DIFFERENCES WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE ADJUSTMENT, IF ANY, IS REQUIRED T O BE MADE ONLY IN THE PROFIT MARGINS OF THE COMPARABLES. 9.4. REVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE AUTHORITIES BELOW HAVE ADJUSTED THE OPERATING C OSTS OF THE ASSESSEE IN ALLOWING THE CAPACITY ADJUSTMENT. AS AGAINST THAT, THE CORRECT COURSE OF ACTION PROVIDED UNDER THE LAW IS TO ADJUST THE OPERATING COSTS OF THE COM PARABLE AND THEIR RESULTANT OPERATING PROFIT. THERE IS HARD LY NEED TO ACCENTUATE THAT THERE CAN BE NO ESTOPPEL AGAINST THE LAW. ONCE THE LAW ENJOINS FOR DOING A PARTICULAR TH ING IN A PARTICULAR MANNER ALONE, IT IS NOT OPEN TO ANYONE T O ADOPT A CONTRARY OR DIFFERENT APPROACH. AS THE AUTHORITIES BELOW HAVE ADOPTED A COURSE OF ACTION IN ALLOWING ADJUSTM ENT, WHICH IS NOT IN CONSONANCE WITH LAW, WE CANNOT APPR OVE THE SAME. THE IMPUGNED ORDER IS SET ASIDE AND THE M ATTER IT(TP)A NO.770/BANG/2012 PAGE 7 OF 9 IS RESTORED TO THE FILE OF THE TPO/AO FOR GIVING EFF ECT TO THE AMOUNT OF IDLE CAPACITY ADJUSTMENT IN THE OPERATING PROFIT OF THE COMPARABLES AND NOT THE ASSESSEE. II. HOW TO COMPUTE CAPACITY UTILIZATION ADJUSTMENT UNDER TNMM : - 10.1. UNDER THE TNMM, THE ALP OF AN INTERNATIONAL TRANSACTION IS DETERMINED BY COMPUTING AND COMPARIN G THE PERCENTAGE OF OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE WITH THAT OF THE COMPARABLES. WE HAVE NOTI CED ABOVE THAT THE DIFFERENCE IN THE CAPACITY UTILIZATI NS IS AN IMPORTANT FACTOR, WHICH NEEDS TO BE ADJUSTED. NO MECHANISM HAS BEEN GIVEN UNDER THE ACT OR THE RULES FOR COMPUTING THE AMOUNT OF CAPACITY UTILIZATION ADJUST MENT. 10.2. ON AN OVERALL UNDERSTANDING, WE FEEL THAT UND ER THE TNMM, THE FIRST STEP IN GRANTING CAPACITY UTILIZATI ON ADJUSTMENT IS TO ASCERTAIN THE PERCENTAGE OF CAPACI TY UTILIZATION BY THE ASSESSEE AND COMPARABLES. THERE CAN BE NO DIFFICULTY IN WORKING OUT THESE PERCENTAGES. THE SECOND STEP IS TO GIVE EFFECT (POSITIVE OR NEGATIVE) TO TH E DIFFERENCE IN THE PERCENTAGE OF CAPACITY UTILIZATIONS OF THE A SSESSEE VIS--VIS COMPARABLES, ONE BY ONE, IN THE OPERATING PROFIT OF COMPARABLES BY ADJUSTING THEIR RESPECTIVE OPERAT ING COSTS. OPERATING COSTS CAN BE EITHER FIXED OR VARIA BLE OR SEMI-VARIABLE. ONE NEEDS TO SPLIT SEMI-VARIABLE COS TS INTO THE FIXED PART AND VARIABLE PART. IN SO FAR AS THE VARIABLE COSTS AND THE VARIABLE PART OF THE SEMI-VARIABLE CO STS ARE CONCERNED, THESE REMAIN UNAFFECTED DUE TO ANY UNDER OR OVER UTILIZATION OF CAPACITY. ACCORDINGLY, SUCH VAR IABLE OPERATING COSTS REMAIN UNCHANGED. THE ADJUSTMENT IS CALLED FOR ONLY IN RESPECT OF THE FIXED OPERATING C OSTS AND FIXED PART OF SEMI-VARIABLE COSTS. SUCH COSTS ARE S CALED UP OR DOWN BY CONSIDERING THE PERCENTAGE OF CAPACITY UTILIZATION BY THE ASSESSEE AND SUCH COMPARABLE. IT CAN BE ILLUSTRATED WITH THE HELP OF A SIMPLE EXAMPLE. SUPP OSE THE FIXED COSTS INCURRED BY A COMPARABLE (SAY, A) ARE RS . 100 AND IT HAS CAPACITY UTILIZATION OF 50% AS AGAINST T HE CAPACITY UTILIZATION OF 25% BY THE ASSESSEE. THE AB OVE PERCENTAGES SHOW THAT THE ASSESSEE HAS INCURRED FUL L FIXED COSTS WITH 25% OF THE UTILIZATION OF ITS CAPACITY, AS AGAINST A INCURRING FULL FIXED COSTS WITH 50% OF ITS CAPACIT Y UTILIZATION. THIS DIVULGES THAT THE ASSESSEE HAS IN CURRED RELATIVELY MORE FIXED COSTS AND A HAS INCURRED LOWER COSTS. IN ORDER TO MAKE AN EFFECTIVE COMPARISON, THERE ARI SES A NEED TO OBLITERATE THE EFFECT OF THIS DIFFERENCE IN CAPACITY IT(TP)A NO.770/BANG/2012 PAGE 8 OF 9 UTILIZATIONS. IT CAN BE DONE BY PROPORTIONATELY SCA LING UP THE FIXED COSTS INCURRED BY A SO AS TO MAKE IT FULLY COMPARABLE WITH THE ASSESSEE. THIS WE CAN DO BY INCREASING THE FIXED COSTS OF A TO RS. 200 (RS.100 I NTO 50/25) AS AGAINST THE ACTUALLY INCURRED FIXED COSTS BY IT AT RS.100. WHEN WE COMPUTE OPERATING PROFIT OF A BY SUBSTITUTING THE FIXED COSTS AT RS.200 WITH THE ACT UALLY INCURRED AT RS.100, IT WOULD MEAN THAT THE FIXED CO STS INCURRED BY THE ASSESSEE AND A ARE AT THE SAME CAPAC ITY UTILIZATION. THERE CAN BE CONVERSE SITUATION AS WEL L. SUPPOSE THE FIXED COSTS INCURRED BY A COMPARABLE (S AY, B) ARE RS. 100 AND IT HAS CAPACITY UTILIZATION OF 25% AS AGAINST THE CAPACITY UTILIZATION OF 50% BY THE ASSE SSEE. THE ABOVE PERCENTAGES SHOW THAT THE ASSESSEE HAS INCURR ED FULL FIXED COSTS AT 50% OF THE UTILIZATION OF ITS CAPACI TY, AS AGAINST B INCURRING FULL FIXED COSTS AT 25% OF THE CAPACITY UTILIZATION. THIS DECIPHERS THAT THE ASSESSEE HAS I NCURRED RELATIVELY LOWER FIXED COSTS AND B HAS INCURRED HIG HER COSTS. THIS DIFFERENCE IN CAPACITY UTILIZATIONS CAN BE ELIMINATED BY PROPORTIONATELY SCALING DOWN THE FIXE D COSTS INCURRED BY B SO AS TO MAKE IT FULLY COMPARABLE. TH IS WE CAN DO BY REDUCING THE FIXED COSTS OF B TO RS. 50 ( RS.100 INTO 25/50) AS AGAINST THE ACTUALLY INCURRED FIXED COST BY IT AT RS.100. WHEN WE COMPUTE OPERATING PROFIT OF B BY SUBSTITUTING THE FIXED COSTS AT RS.50 WITH THE ACTU ALLY INCURRED AT RS.100, IT WOULD MEAN THAT THE FIXED CO STS INCURRED BY THE ASSESSEE AND B ARE AT THE SAME CAPA CITY UTILIZATION LEVEL. FROM THE ABOVE PARAS OF THE TRIBUNAL ORDER, IT IS SEEN THAT THE TRIBUNAL HAS GIVEN A DETAILED GUIDELINES AS TO HOW TO MAKE OR GRANT CAPACITY UTILIZATION ADJUSTMENT. HENC E, WE FEEL IT PROPER THAT THIS MATTER ALSO SHOULD GO BACK TO THE FILE OF THE AO/TPO FOR GRANTING CAPACITY UTILIZATION ADJ USTMENT AS PER THE GUIDELINES GIVEN BY THE TRIBUNAL IN THE CASE OF DCIT VS CLASS INDIA PVT.LTD., (SUPRA). IT IS ORDERE D ACCORDINGLY. IN THE RESULT, THE APPEAL STANDS ALLOWED FOR STATIS TICAL PURPOSES IN THE TERMS INDICATED ABOVE. 5. ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNAL , WE RESTORE THE MATTER TO THE FILE OF THE AO TO READJUDICATE THE IS SUE OF LOWER CAPACITY IT(TP)A NO.770/BANG/2012 PAGE 9 OF 9 UTILIZATION AND WORKING CAPITAL ADJUSTMENT IN THE L IGHT OF THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006-07. ACCORDINGLY, THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THE MATT ER IS RESTORED TO THE AO/TPO IN THE TERMS INDICATED ABOVE. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JANUARY, 2017. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 25 TH JANUARY, 2017. /D S/ COPY TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.