AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 660
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the form of additional grounds of appeal which are on record. The Ld.AR sought permission to put forth his submissions with regard to the additional ground No.2 of additional grounds of appeal. The additional Ground No.2 filed by the assessee read as under: "2. The learned CIT(A) erred in not allowing exclusion from the operating expenses the extra-ordinary expenditure on expats remuneration Rs. 4.08 Cr. incurred by the appellant for the installation and commissioning new brazing furnace and implementation of new technology in place of discarded old round tube technology." 4. Before the Ld. Commissioner of Income Tax(Appeals), the assessee submitted that the additional salary cost of expat technicians in respect of newly acquired technology and fixed assets acquired amounting to Rs. 4.08 Crores which is embedded in the operating loss and it should be excluded for computation of Profit Level Indicator (PLI). The Ld. Commissioner of Income Tax(Appeals) on this issue has held as per detailed reasons given in his order which is on record that he did not find any basis for treating the additional salary cost of expat technicians and cost of fixed assets as non operating expendi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount was bonus in the hands of the said employees of the assessee and hence, disallowed accordingly. 9. The submissions of the assessee had been that it paid management incentive bonus on the basis of performance to the eligible employees. It is claimed that this payment is not covered under the payment of Bonus Act, 1965 but is based on the performance measured on the key parameters assigned to employees to achieve certain goals. 10. At the time of hearing, the Ld. AR of the assessee invited our attention to pages 63 to 66 of the paper book before us wherein copies of Management Incentive Policy Documents have been placed and therein, at page 65, it is clearly mentioned that the objective of the MIBP is to reward the employees for achieving key result areas of the company. There is separate provision for bonus as well which is enumerated separately under separate heading altogether. But this MIBP is only to reward the employees for achieving better result for the company. The Ld. AR of the assessee placed reliance on the decision of the Hon‟ble Delhi High Court in the case of Shriram Pistons & Rings Ltd. Vs. Commissioner of Income Tax, (2008) 307 ITR 363 (Delhi). 11. Per ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal, Pune in assessee‟s own case in ITA No.566/PUN/2013 and ITA No.645/PUN/2013 for assessment year 2002-03 and ITA No.2637/PUN/2016 for assessment year 2001-02. 15. The Ld. DR fairly conceded to the submissions of the Ld. AR of the assessee. 16. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed before us in assessee‟s own case for assessment years 2001-02 and 2002-03 (supra.). The issue raised before the Co-ordinate Bench of the Tribunal, Pune was as under: "40. The last issue raised by the assessee is corporate issue against the disallowance of provision for warranty." On this issue, the Co-ordinate Bench of the Tribunal, Pune has held as follows: "44. We have heard the rival contentions and perused the record. The issue arising by way of ground of appeal No.5 raised by the assessee is against the disallowance of provision made for warranty. The assessee was engaged in the business of manufacture and sale of air-conditioners, heat exchangers, its parts and components. Against the sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en referred by the Co-ordinate Bench of the Tribunal, Pune in assessee‟s own case in ITA No.566/PUN/2013 and ITA No.645/PUN/2013 for assessment year 2002-03 and ITA No.2637/PUN/2016 for assessment year 2001-02 and the Tribunal has also provided relief on this issue to the assessee. 19. The Ld. DR raised no objection to the submissions put forth by the Ld. AR of the assessee on this issue. 20. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncement placed before us. In assessee‟s own case as hereinabove referred, this issue had come up for adjudication before the Co-ordinate Bench of the Tribunal, Pune and the Tribunal on this issue has held as follows: "20. We have heard the rival contentions and perused the record. The issue arising by way of ground No. 1 raised by the Revenue is against the direction of CIT(A) in restricting the TP adjustment, if any, to the value of international transactions and not to the total turnover of the assessee. We find that the said issue is squarely covered by the decision of Hon'ble Bombay High Court in Commissioner of Income Tax Vs. ALSTOM Projects India Limited (supra),....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial increase in the profits of transactions entered into with non Associated Enterprises by applying the margin at entity level which is not the object of Chapter X of the Act. Absence of segmental accounting is not an insurmountable issue, as proportionate basis could be adopted as done by the Delhi High Court in Keihin Panalfa Ltd. (supra). 13. In the above view, no substantial question of law arises. Therefore, we do not entertain the present appeal." 21. Applying the ratio laid down by the Hon'ble Bombay High Court, we uphold the order of CIT(A) and dismiss the ground No.1 raised by the Revenue." Respectfully following the decision of the Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. ALSTOM Projects India Limited (supra.) and the decision of the Co-ordinate Bench of the Tribunal, Pune in assessee‟s own case, we dismiss the ground No.1 of the Revenue's appeal. 21. Ground No.2 of Revenue‟s appeal is with regard to whether the Ld. Commissioner of Income Tax(Appeals) was justified in deleting transfer pricing adjustment of Product Development and testing. 22. The assessee had paid Rs. 9,28,80,947/-towards international transactio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t that there is difference of observation on facts by the Ld. Transfer pricing Officer as well as the Ld. Commissioner of Income Tax(Appeals), we set aside the order of the Ld. Commissioner of Income Tax(Appeals) on this issue and restore the issue back to the file of the Assessing Officer/ Transfer Pricing Officer to verify the nature of expenses in relation to the services received by the assessee and adjudicate the matter after providing reasonable opportunity of hearing to the assessee. Thus, ground No.2 of the Revenue's appeal is allowed for statistical purposes. 25. Ground No.3 of the Revenue‟s appeal is with regard to the exclusion from operating expenses the foreign currency losses suffered. The assessee stated that the Transfer Pricing Officer has not excluded foreign currency losses suffered from the forward contracts for computation of PLI. It was stated that the assessee had suffered foreign currency loss during the year as under: Particulars Amount (in lakhs) Discount on forward foreign currency contracts 30.79 Provision for loss on forward contracts ( amortised) 2.94 Foreign Exchange loss 25.99 Bank charges 53.81 Total 113.53 The assessee subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....harges and hence, should be excluded. On pertinent query, the Ld. AR could not produce any details of such expenditure for ascertaining whether it is in the nature of finance charges or foreign currency loss. In view of the above facts, we set aside the impugned order and remit the issue to the file of Assessing Officer for ascertaining the true nature of this amount. In case, it is found to be in the nature of finance charges, it should be excluded from total operating expenses for the purpose of calculating PLI of the assessee. However, if it is in the nature of foreign currency loss, it should be included in the operating expenses of the assessee. This additional ground is thus allowed for statistical purposes. 28. Now we take up the ground of the Revenue against the direction of the Ld. CIT(Appeals) in treating foreign currency gain/loss as non-operating. The Co-ordinate Bench of the Tribunal, Pune on this issue has held as under: "6. We find merit in the contention raised on behalf of the assessee about the inclusion of foreign exchange gain/loss in the operating revenue/costs of the assessee as well as that of the comparables. When we advert to the nature of such foreign....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnational transactions, cannot be treated as non-operating losses and gains, the Hon'ble Delhi High Court in Pr. CIT Vs. B. C. Management Services Pvt. Ltd. (2018) 403 ITR 45 (Del) reiterated held that foreign exchange fluctuation in relation to trading transactions, prior to safe harbor rules from 2013, is operating gain or loss. In view of the foregoing discussion, we are of the considered opinion that the amount of foreign exchange gain/loss arising out of trading transactions is required to be considered as an item of operating revenue/cost, both for the assessee as well as the comparables." It is an undisputed fact that the assessee has been consistently treating foreign exchange fluctuation as operating in nature and the Revenue has accepted the same. The Ld. AR of the assessee submitted that according to the "Safe Harbour Rules" issued by the CBDT dated 18.09.2013, foreign currency loss should be treated as non operating in nature. However, it is pertinent to note that such rules are not applicable to the assessment year under consideration. The Co-ordinate Bench of the Tribunal has referred the judgment in Pr. Commissioner of Income Tax Vs. Ameriprise India Private Lim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conduct of business. Without operation of the business, the assessee would not have earned this income. This income cannot be considered to be one time income to justify its exclusion on the ground of extraordinary income. Therefore, the Ld. Commissioner of Income Tax (Appeals) has rightly directed to the Assessing Officer to include this compensation income for computing PLI being operating income. Thus, we are of the considered view that the order of the Ld. Commissioner of Income Tax (Appeals) is fair and reasonable and it does not call for any interference and relief provided to the assessee is hereby sustained. Accordingly, ground No.4 raised in appeal by the Revenue is dismissed. 33. Ground No.5 of the Revenue‟s appeal is with regard to the deletion of addition on account of payment of retention bonus of Rs. 20,00,000/-. The facts on this issue are that the assessee paid Rs. 20,00,000/- to Mr. Sunil Kaul, Manager towards retention and long term goal achievement for the services rendered during the period from 2005-08. It was stated that the payment was made as per the contract and the amount did not pertain to only FY 2008-09. The Assessing Officer stated that the paym....