TaxTMI 
TaxTMI 
2016 (5) TMI 252
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....e assessee contends that the TPO while computing the margin of the assessee considered the foreign exchange gain pertaining to marketing commission segment as non-operating income. It is the submission of the assessee that it has inadvertently omitted to raise specific alternative ground in relation to foreign exchange gain to be considered as operating income while computing the segmental margin of the assessee i.e The TPO while determining Arm's Length Price has erroneously considered the foreign exchange gain as nonoperating item in nature. The ld. Sr. Counsel for the assessee submits that the above grounds do not require investigation of additional facts, they are legal grounds and therefore, he prayed that these additional legal grounds may be admitted and decided on merits. 3. The ld. DR opposed for admission of additional grounds raised by the assessee. 4. On hearing both the parties, we are of the view that the additional grounds raised by the assessee do not require investigation of additional facts and the grounds raised are purely legal grounds. Respectfully following the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd , 229 ....
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....at lower rate. Since the gain or loss on account of exchange rate fluctuation arises in the normal course of business transaction, the same should be considered while computing the net margin for the international transactions with the associated enterprises of the assessee. Our view in this behalf is fortified by the decisions of the Bangalore Bench of the Tribunal in the case of SAP Labs India Ltd. supra and Bombay bench of the Tribunal in the case of Deutsche Bank A.G. V/s. D. CIT reported in 86 ITD 431......" Respectfully following the aforesaid decisions of the Tribunal, and considering the contention of the assessee that for the assessment year 2008-09 foreign exchange fluctuation gain/loss has been considered as operating margin while computing the margin of comparable companies, we hold that even for the year under appeal also the same principle should be applied, and while computing the margin for determining the ALP for the assessment year under appeal, the foreign exchange gain/loss has to be taken as part of the operating margin. Consequently, we allow the ground of the assessee on this issue and direct the Assessing Officer to treat the foreign exchange fluctu....
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.... at ALP. The ld. Sr. Counsel for the assessee submits that in the transfer pricing assessment, the TPO held that M/s Spinco is not functionally comparable for the reason that (a) greater role of assistance and greater functions assumed by the assessee-company than M/s Spinco, (b) warranty risk/post sales services, and (c) restrictions imposed on M/s Spinco. It is submitted that based on the difference in the functional profile between the assessee and M/s Spinco, the TPO held that CUP method cannot be applied, therefore, the TPO rejected the CUP method and proceeded to adopt external TNMM as the most appropriate method. The ld. Sr. Counsel submits that based on the difference in the functional profile between assessee and M/s Spinco, the TPO held that CUP method cannot be applied for the following reasons: (a) Assessee undertakes Contract Service segment which cannot be compared with Entrepreneurial Service segment of Spinco (refer Pg 11 continuation of Para 9.1). (b) Variable risk profile between assessee and Spinco cannot be compared under CUP method (refer Pg 14 continuation of Para 9.4) (c) Spinco is restriced from supplying to intermediaries whereas ....
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....e decision of Ahmedabad Tribunal in the case of Fortune Infotech Ltd (supra), the ld. Sr. counsel submits that M/s Spinco could not be considered as comparable for the reason that the TPO has given a categorical finding that the functions performed by the assessee are much more than the functions performed by M/s Spinco. Further, the TPO has also held that the risk assumed by the assessee and M/s Spinco are not the similar. DRP also having held that M/s Spinco is not functionally comparable ought not to have proceeded to consider M/s Spinco as a comparable company by adopting a different method. Therefore, it is submitted that M/s Spinco cannot be considered as a comparable company. The ld. Sr. Counsel further submits that a single comparable company will not indicate the industry/segment market trend. Therefore, for the purpose of comparability multiple companies should be considered. Further, as per TNMM the average net margin of comparable companies is compared with net margin of the tested party. This impliedly means that at least two companies should be considered as comparables for the purpose of benchmarking analysis under TNMM method. 13. The ld. Departmental Representat....
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....as an associated enterprise in an earlier accounting period but that aspect of the matter was wholly irrelevant since the prices for work done for Fidelity US were negotiated afresh after this concern ceased to an AE. Learned counsel took pains to take us through the documents in support of the facts embedded in his arguments, but, for the reasons we will set out in a short while and in our considered view, it is not really necessary to go into that aspect of the matter. When we put it to the learned counsel that when only one comparable is available so far as internal TNMM is concerned, and the reliability of this comparable is also not free from doubt, would it really be appropriate to select this method as 'most appropriate method' for determining arm's length price on the facts of this case, he quickly responded that there is no statutory bar on application of a particular method only because one comparable is available for benchmarking. He referred to judicial precedents in support of the proposition so advanced by him. That is not, however, the issue; it is not a question of statutory bar. The question is as to what is the most appropriate method on the facts of that case, an....
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....n shall be determined by one of the ...(prescribed)... methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe." Rule 10C, which prescribes the relevant factors for determining the most appropriate method, as it stood at the relevant point of time, states as follows: Rule 10 C- Most appropriate method. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction and which provides the most reliable measure of an arm's length price in relation to the international transaction (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed o....