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| The Tax Publishers2020 TaxPub(DT) 2419 (Bang-Trib) INCOME TAX ACT, 1961
Section 92C
Capacity underutilization by enterprises is certainly an important factor affecting net profit margin in open market because lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits. Accordingly, TPO was directed to collect relevant details from comparable companeis for the year under consideration and accordingly compute adjustment. While determining ALP of international transactions entered by assessee with AE.
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Tramsfer pricing - Determination of ALP - Comparables and adjustment - Allowability of capacity under utilization adjustment
Assessee having entered into transactions with AE abroad, sought 'capacity undrutilization adjustment' while computing PLI. TPO denied assessee's claim. Held: Capacity underutilization by enterprises is certainly an important factor affecting net profit margin in open market because lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits. Of course, fundamental issue, so far as acceptability of such adjustments is concerted, is reasonable accuracy embedded in the mechanism for such adjustments, and as long as such an adjustment mechanism can be found, no objection can be taken to the adjustment accordingly, TPO was directed to collect relevant details from comparable companeis for the year under consideration and accordingly compute adjustment.
Followed:IKA (India) Pvt. Ltd. v. DCIT (2018) 98 Taxmann.com 312 (Bang) : 2018 TaxPub(DT) 6387 (Bang-Trib); M/s Flint Group (India) Pvt. Ltd., (IT(TP)A No.3285/Bang/2018 dated 31-10-2019
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2013-14
IN THE ITAT, BANGALORE BENCH
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