TaxTMI 
TaxTMI 
2014 (5) TMI 475
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....) failed to discharge the onus to establish that the assessee's case was covered under any of the clauses (a) to (d) of sec. 92C(3) which is a pre-condition for assuming jurisdiction to proceed with the determination of Arm's Length Price (ALP) of the international transactions. In support of this contention, the ld. AR relied on certain lines from the judgment of the Hon'ble Delhi High Court in the case of Sony India (P) Ltd. Vs CBDT and Anr. (2007) 288 ITR 52 (Delhi). He stated that it was obligatory on the part of the A.O to form an opinion as regards fulfillment of either or all of requirements stipulated in the clauses (a) to (d) of sec. 92C(3). Having not done so, the ld. AR urged that the following entire exercise of determining the ALP and the resultant transfer pricing addition got vitiated. The ld. DR opposed this argument but stating that no such requirement is enshrined in the provision. He also relied on the judgment in the case of Sony India (supra). 2.2. We have heard the rival submissions and perused the relevant material on record. The thrust of the ld. AR is on sub-sec. (3) of sec. 92C which, in turn, provides that where during the course of any proceeding for th....
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....hips that the transactions of high value require a careful examination to determine if the declared price is in fact acceptable as at ALP. It may not be expedient for the AO to efficiently deal with the assessment involving such an exercise. In that sense it achieves the expedient disposal of the assessment by the AO if the exercise is referred for a specialised determination by the TPO. That is how the Instruction No. 3 dt. 20th May, 2003 issued by the CBDT was held to be consistent with the statutory objective underlying s. 92CA(1) and acting as a guidance to the AO in the exercise of discretion in referring an international transaction to the TPO for determination of its ALP. Eventually, it was held by Their Lordships that such Instruction "is neither arbitrary nor unreasonable, and is not ultra vires the Act.". It is palpable from the above judgment that the AO is required to form only a prima facie view at the stage of making reference to the TPO. The effect of holding such Instruction as intra vires is that all of its contents are legally sustainable. Similar view has been reiterated by the Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. VS. CIT (2013) 245 ITR 193 (Del)....
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.... jurisdictional High Court in the case of Sony India (supra) to unsuccessfully bolster his point of view about the necessity of formation of a considered view (analogous to that u/s 147 before issuing notice u/s 148) by the AO before making a reference in terms of clauses (a) to (d) of section 92C(3). There is hardly any doubt that the requirements of section 147 are quite distinct from that of section 92. Even otherwise, it is trite that requirements of one section cannot be bodily lifted and read into another unless the statute so mandates. Admittedly the value of the assessee's international transactions standing at Rs.116 crore is far in excess of the threshold limit of Rs.5 crore given in the Instruction, which, in turn, has been issued in the context of section 92CA. It is significant to note that the case of the assessee is covered under section 92CA and not section 92C as has been argued which is also evident from a reading of ground no.3. Arguments have been advanced by taking recourse to clauses (a) to (d) that are part of section 92C(3) and not section 92CA, which is really applicable to the assessee. When the Hon'ble Delhi High Court in Sony India (supra) has considered....
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....hority to adhere to the prescribed procedure. No material worth the name has been brought on record by the assessee to demonstrate that the AO failed to form a prima facie view at the time of making a reference to the TPO. Finding no merit in this legal ground, we dismiss the same. II. RULE OF CONSISTENCY 3.1. Next argument taken by the ld. Counsel for the assessee is that no TP adjustment was called for in the extant year inasmuch as the assessee's working of ALP for the preceding year was accepted by the authorities. He relied on the judgments of the Hon'ble Supreme Court in Radhasoami Satsang Vs CIT (1992) 193 ITR 321 (SC) and CIT Vs Excel Industries Ltd. 2013 358 ITR 259 (SC) to accentuate on the rule of consistency. 3.2. In principle, we appreciate the rule of consistency. It goes without saying that if a particular issue has been decided in a particular manner in a preceding year, similar view should be taken on such issue in the subsequent year. But it is pertinent to note that the rule of consistency is not without exception. It comes with a rider that there should be no change in the factual or legal position governing that issue in the preceding year vis-à-vis t....
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....han the benchmarked profit. If the assessee has shown profit at Arm's Length Price in one year, which has been accepted as such, it does not necessarily mean that the assessee's profit from international transaction in the succeeding year is also better than that of the comparables. It is axiomatic that if profit from the assessee's international transactions in succeeding year is equal to or better than that of comparables after considering the cushion available, then there can be no question of making any transfer pricing adjustment notwithstanding the fact that the international transactions were scrutinized in terms of section 92. The crux of the matter is that there are several factors which affect the determination of the ALP, which may be present in one year but absent in the other year. It is too far to claim that the acceptance of international transaction at ALP in one year should preclude the authorities from the determination of ALP in a subsequent year. We, therefore, reject this contention. III. FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS 4.1. The next issue taken up by the ld. AR is against the exclusion of foreign exchange fluctuation gain/loss from the operating reven....
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.... assessee earned foreign exchange gain amounting to Rs. 1,17,78,842/- which was declared as part of the operating profit by reducing it from the operating expenses incurred by the assessee, but the TPO reduced such amount of foreign exchange fluctuation gain from the assessee's profit and also embarked upon the same exercise for excluding the effect of similar foreign exchange gain/loss from the financial results of the five comparables cases finally chosen by him. It was urged that the forex gain/loss is required to be considered as a part of the operating revenue/cost. 4.5. We observe that the assessee raised objection at Serial No. 11 before the DRP contending for the inclusion of foreign exchange gain/loss as part of the operating cost/revenue. The DRP vide page 9 of its order directed the TPO: 'to rectify the arithmetical errors in the computation of margins of the comparables in accordance with the provision of the Act'. There is no decision on the assessee's objection against not including foreign exchange gain/loss as the operating revenue/cost. On a specific query, it was pointed out by the ld. AR that the assessee's foreign exchange gain resulted from the international t....
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.... in SAP Labs India Pvt. Ltd. Vs ACIT (2011) 44 SOT 156 (Bangalore) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. Similar view has been taken in Trilogy E Business Software India (P) Ltd. Vs DCIT (2011) 47 SOT 45 (URO) (Bangalore). The Mumbai Bench of the Tribunal in S. Narendra Vs Addtl. CIT (2013) 32 taxman.com 196 has also laid down to this extent. In view of the foregoing discussion, we are of the considered opinion that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost. 4.9. Since, the TPO has computed PLI of the assessee as well as comparables by ignoring the amount of forex gain/loss, we set aside the impugned order and remit the matter to the file of AO/TPO to recompute the assessee's margin as well as that of the comparables by considering foreign exchange gain/loss as an item of operating revenue/cost. We want to make it clear that our finding in this regard is restricted to considering forex gain/loss from the transactions of the revenue nature as part of operating revenue/cost. If the f....
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.... incomparable for the succeeding year. It is essential to consider the basis on which such case was held to be not comparable. If the same basis continues in the succeeding year, then, of course, such case merits exclusion. As the base for leaving out the case of VITL from comparables for the immediately preceding year has not been proved for the instant year, we cannot approve this contention of the ld. AR. 5.3. However, we find from the Tribunal order for the assessment year 2007-08 that the case of Vishal Information Technologies Ltd. (now called as Coral Hub Ltd.) has been held to be not comparable because of different business model as it was outsourcing execution of contract from external vendors. The Tribunal has noted in para 13 of its order, a copy of which is available on record, that the employee cost in the case of VITL was a mere 3% of the total cost, whereas in the case of the assessee it stood at 60%. The position for the current year is also more or less similar. The employees cost of VITL for the instant year is at 2.71% of the total cost as against a little more than 60% of the assessee. 5.4. At this juncture, it is paramount to record the contention of the ld. ....