Tribunal Decision: Expenses Dismissed, Forex Gain as Revenue, Comparable Companies, Benchmarking Appeal Partially Allowed

The Tribunal dismissed the claim of extraordinary expenses due to lack of evidence, allowed treating foreign exchange gain as operating revenue, resolved the comparable company issue, and partially allowed the appeal on selecting the benchmarking method for traded goods.

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Issues:
1. Extraordinary expenses of Rs. 1.70 crores.
2. Treatment of foreign exchange gain as operating revenue.
3. Comparable company in the case of Kirloskar Pneumatic Co. Ltd.
4. Selection of the Resale Price Method (RPM) as the most appropriate method for benchmarking traded goods.

1. Extraordinary Expenses:
The assessee claimed extraordinary expenses of Rs. 1.70 crores due to goods returned and scrapped. The Tribunal noted that the TPO rejected the claim as no separate item for extraordinary expenses was mentioned in the audited financials. The TPO found no evidence to support the claim, leading to the dismissal of the issue by the Tribunal.

2. Treatment of Foreign Exchange Gain:
The AO treated foreign exchange gain as operating revenue, affecting the comparability analysis. The Tribunal referred to a previous order where foreign exchange gain/loss was considered operating revenue. Following this precedent, the Tribunal allowed the issue, considering foreign exchange gain/loss as operating revenue in the ALP determination.

3. Comparable Company Issue:
An additional ground regarding a comparable company was raised but later withdrawn by the assessee. The Tribunal treated the additional ground as withdrawn, resolving this issue.

4. Selection of Benchmarking Method:
The TPO favored the Transactional Net Margin Method (TNMM) over the Resale Price Method (RPM) for benchmarking traded goods. The assessee argued that RPM was appropriate for the trading segment due to gross margin considerations. The Tribunal agreed that RPM is suitable when there is no value addition to traded goods but directed the exclusion of manufacturing value. Consequently, the Tribunal allowed the issue for statistical purposes, partially allowing the assessee's appeal.

In conclusion, the Tribunal dismissed the claim of extraordinary expenses, allowed the treatment of foreign exchange gain as operating revenue, resolved the comparable company issue, and partially allowed the appeal concerning the selection of the benchmarking method for traded goods. The order was pronounced on 27th January 2022.

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