Tribunal Partially Allows Assessee's Appeal, Remits Issues for Fresh Consideration

The Tribunal partly allowed the appeal by the assessee, remitting various issues back to the AO/TPO for fresh consideration. The Tribunal directed the consideration of adjustments for foreign exchange fluctuations and customs duty against the ALP, restricted transfer pricing adjustments to international transactions with associated enterprises, and ordered a re-computation of operating profit margins based on the MAP resolution under the India-Japan DTAA.

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Issues Involved:
1. Adjustment towards fluctuation of foreign currency.
2. Adjustment towards customs duty.
3. Adjustment to the purchase of raw materials not restricted to transactions with AE.
4. Re-computation of operating profit margin pursuant to the MAP resolution.

Issue-wise Detailed Analysis of the Judgment:

1. Adjustment towards fluctuation of foreign currency:
The assessee argued that it incurred additional costs due to the depreciation of the Indian Rupee, which affected the import costs of raw materials. The TPO and DRP rejected this adjustment, citing that the loss was due to high import costs and poor negotiation with the AE, and that the computation was not in line with AS 21. The Tribunal, however, admitted additional evidence and referred to previous judgments, including the assessee's own case for AY 2011-12, which supported the adjustment for abnormal foreign exchange fluctuations. The Tribunal remitted the issue back to the AO/TPO to consider the foreign exchange fluctuation adjustment for computing the ALP.

2. Adjustment towards customs duty:
The assessee incurred additional customs duty costs due to increased import costs from adverse exchange rate fluctuations, which it treated as an extraordinary expense. The TPO and DRP rejected this adjustment for the same reasons as the forex fluctuation loss. The Tribunal, following its decision in the assessee's own case for AY 2011-12 and other precedents, remitted the issue to the AO/TPO for fresh consideration, directing them to give suitable adjustments against the customs duty component while determining the ALP.

3. Adjustment to the purchase of raw materials not restricted to transactions with AE:
The assessee contended that the TPO's adjustment, which included transactions with unrelated parties, was erroneous and contrary to the provisions of the Act. The Tribunal agreed, referencing the decision in IKA India (P.) Ltd., which held that section 92 of the Act applies only to international transactions with AE. Therefore, the Tribunal ruled that the transfer pricing adjustment should be restricted only to the international transactions with the AE and allowed this ground in favor of the assessee.

4. Re-computation of operating profit margin pursuant to the MAP resolution:
The assessee sought a re-computation of its operating profit margin based on the MAP resolution under the India-Japan DTAA, which resulted in a downward revision of the transfer pricing adjustment. The Tribunal, referencing its decision in the assessee's own case for AY 2011-12, remitted the issue to the AO with a direction to re-compute the operating margins pursuant to the MAP resolution.

Conclusion:
The appeal by the assessee was partly allowed, with the Tribunal remitting several issues back to the AO/TPO for fresh consideration and re-computation in line with the provided directions and judicial precedents.

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