The assessee submitted that the present year being the second year of manufacturing, assessee was not in a position to fully utilise the equipments purchased be cause of which an adjustment for under capacity utilisation is warranted. However, the TPO and DRP did not allow such adjustment. The Tribunal, by relying on the decision of Hon’ble Bangalore Tribunal in the case of SKF Technologies India (P.) Ltd. v. Dy. CIT [IT(TP) Appeal No. 341 (Bang.) of 2014, dated 15-2-2019], held that the capacity utilization adjustment was to be granted. Also, in light of the observations made by the Hon’ble Delhi Tribunal in case of Dy. CIT v. Claas India (P.) Ltd.[2015] 62 taxmann.com 173, the issue was remitted back to the TPO for re-examination. 

During the year, the assessee asked for treating depreciation as operating expense. However, the TPO disregarded the same. On further appeal, the DRP allowed the adjustment as the assessee was in the 2nd year of operation in contradistinction to the comparable resulting in higher impact of depreciation on profitability. On appeal by the department before the Tribunal, the Tribunal held that there was no infirmity in the order of the DRP. Further relying on the decision in   BA Continuum India (P.) Ltd. v. Asstt. CIT [2013] 40 taxmann.com 311 (Hyd) (Trib.). (AY.2009-10)