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of <h1>Tribunal upholds CIT(A)'s decisions on transfer pricing, forex losses & lease rentals.</h1> <h3>Dy. Commissioner of Income Tax, Circle-1, Nashik Versus ThyssenKrupp Electrical Steel India Pvt. Ltd.</h3> Dy. Commissioner of Income Tax, Circle-1, Nashik Versus ThyssenKrupp Electrical Steel India Pvt. Ltd. - TMI Issues Involved:1. Deletion of transfer pricing adjustment of Rs.4,37,30,383/- related to export sales and receipt of sales commission.2. Deletion of addition of Rs.1,27,31,000/- treating foreign exchange fluctuation as capital in nature.3. Deletion of addition of Rs.30,21,129/- treating lease rental expenses as capital in nature.Issue-wise Detailed Analysis:1. Deletion of Transfer Pricing Adjustment:The first issue raised by the Revenue concerns the deletion of a transfer pricing adjustment of Rs.4,37,30,383/-. The assessee had entered into international transactions involving export sales and receipt of sales commission. The TPO applied the CUP method instead of the CPM method used by the assessee for benchmarking these transactions. The CIT(A) deleted the adjustment, noting that in subsequent years, the TPO had accepted the assessee's methodology. The CIT(A) also referenced the Pune Bench of Tribunal's decision in the case of Hoganas India Pvt. Ltd. Vs. DCIT, which supported the assessee's approach. The Tribunal upheld the CIT(A)'s decision, finding no merit in the TPO's application of the CUP method for benchmarking the transactions, given the consistency in the assessee's approach and the lack of comparable transactions.2. Deletion of Addition Treating Foreign Exchange Fluctuation as Capital in Nature:The second issue involves the deletion of an addition of Rs.1,27,31,000/- made by treating foreign exchange fluctuations as capital in nature. The assessee claimed the loss on account of foreign exchange fluctuations as revenue expenditure under section 37(1) of the Act. The CIT(A) allowed the claim, referencing the consistency in treating similar claims in earlier years as revenue expenditure. The Tribunal affirmed this decision, citing the Hon’ble Supreme Court's ruling in CIT Vs. Woodward Governor India (P.) Ltd., which held that losses due to foreign exchange differences as on the date of the balance sheet are allowable as expenditure.3. Deletion of Addition Treating Lease Rental Expenses as Capital in Nature:The third issue pertains to the deletion of an addition of Rs.30,21,129/- related to lease rental expenses. The assessee had claimed lease payments for vehicles used in its business, which the Assessing Officer disallowed, treating them as capital expenses due to the non-cancelable nature of the lease. The CIT(A) allowed the deduction, noting that the lease was for a limited period, cancelable, and the normal repairs and maintenance were the lessor's responsibility. The Tribunal upheld the CIT(A)'s decision, finding that the lease payments were revenue in nature and thus allowable as business expenditure.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The transfer pricing adjustments were found to be unjustified based on consistent methodology and comparable cases. The foreign exchange fluctuation losses were deemed revenue expenditure per established legal precedent. The lease rental expenses were also considered revenue in nature, given the terms of the lease agreement.
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