TaxTMI 
TaxTMI 
2017 (7) TMI 1349
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.... Pricing Officer (Ld. TPO) erred and Hon'ble DRP erred in confirming the addition in income by Rs. 41,59,420/- as adjustment at arm's length price of international transactions. 3. On the facts and in law, the Id. AO, Id. TPO and Hon'ble DRP erred in proceeding on the premise that the Assessee is providing Engineering Services to AE whereas the Assessee is providing only its manpower for low end engineering services for designing, sourcing and other services to A.E. 4. On the facts and in law, the Id. AO, Id. TPO and Hon'ble DRP erred in rejecting cost plus method as most appropriate method to benchmark international transaction with AE as chosen by Assessee and instead applying T M method as most appropriate method. 5. On the facts and in law, the Id. AO, Id. TPO and Hon'ble DRP erred in not making adjustments in operating profit on account of functional differences between the assessee and comparable companies on account of market risk, credit risk, working capital adjustment and warranty other risks. 6. On the facts and in law, the Id. AO, Id. TPO and Hon'ble DRP erred in not allowing benefit of variation of 5% while de....
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.... well as relevant material on record. Since it is a case of foreign exchange gain on the receivables from the A.E. on account of services rendered by the assessee therefore, such gain becomes part and parcel of the revenue receivable or received by the assessee from its A.E. and cannot be separated from the revenue of the assessee for the purpose of computing the margins to be compared with the comparables. There is no quarrel on the point that in case an exchange loss or gain is considered as part of the operating cost or revenue of the assessee then on the principle of parity the same has to be considered as part of the operating cost/operating revenue in case of comparable companies. The Tribunal has taken a consistent view on this issue in series of decisions as relied upon by the Learned Counsel for the Assessee. Therefore, without deliberating much on the issue, we concur with the earlier views of the Tribunal wherein it has been held that if the loss or gain arising due to fluctuation of foreign exchange on account of revenue receivables on exports then the same will be treated as part of operating cost or operating revenue of the assessee as well as comparable companies. Th....
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....e assessee for the purpose of computing the margins. In support of its contention, the Learned Counsel for the Assessee has relied upon the following decisions : 1. DCIT vs. Genesis Integrating Systems (Ind.) (P) Ltd., 2016) 66 taxmann.com 20 (Bang.) 2. Transwitch India (P) Ltd., vs. DCIT (2012) 53 SOT 151 (Del.) 3. Global Turbine Services Ind. Vs. ADIT (2013) 38 taxmann.com 220 (Del.) 4. Bechtel India (P) Ltd., vs. DCIT (2016) 66 taxmann.com 160 (Del.) 5. HCL Technologies BPO Services Ltd. vs. ACIT (2015) 60 taxmann.com 186 (Del.). 5.1. Hence, the Learned Counsel for the Assessee has argued that when the assessee's new office was remained idle from April, 2008 to October, 2008 then the non-utilisation of that facility/capacity is an abnormal cost required to be excluded from the operating cost of the assessee. He contended that this Tribunal in a series of decision has taken a consistent view that appropriate adjustment on account of abnormal cost or under utilisation has to be given while computing the margins of the assessee. This cost is an additional burden due to opening of the office at New Delhi but remain unutilised due t....
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....tered in India, VTIPL is a wholly owned subsidiary of VTC holds the appropriate approvals to do business in India. VTIPL Is at present involved in the designing transformers, transformer components, etc. VIPL has to substantiate and well equipped designing team which is in the know of international standards of technique as also' market acceptability and is capable of designing* made to. order high power transformers. C. VTC has decided to outsource its designing activities to VTIPL for its projects from time to time upon the terms and conditions as agreed herein." "3. Particulars etc., VTC shall provide to VTIPL the particulars dimensions, battery and specifications of the transformers to be designed. The details and specifications shall be exploit in all respects to enable VTIPL to design the end product to the best of their ability and professional expertise. 5. Representations : VTIPL has represented to VTC that VTIPL has the required manpower and expertise to carry out the tasks as required under this Agreement by VTC. 6. Personnel : VTIPL shall from time to time appoint such persons as it would require to appoint for t....
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....see's employees to USA or anywhere else in the world for training and upgrade of their knowledge. Thus the training and up-gradation of the employees of the assessee was to be assessed and to be kept as per the requirement was to be decided by the A.E. of the assessee. The salaries and other cost on account of those employees which are taken on secondment by the A.E. are to be borne by the A.E. and therefore, any loss on account of the secondment of the personnel were to be reimbursed by the A.E. of the assessee. It is manifested from the terms and conditions of the agreement that the assessee was fully reimbursed by the A.E. on account of the remuneration paid to the engineers who are assigned to the work for carrying out and executing the project of the A.E. The assessee has claimed that since the assessee has set-up a new office in Delhi which could not be fully utilised for the initial period from 1st April to 30th September, 2008 and therefore, the cost incurred by the assessee on account of the salary to the trainee engineers as well as on account of lease rentals be treated as abnormal cost. We do not find any substance in this claim of the assessee because when the asse....
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....d to show that these office building as well as engineers who were hired from 1st April, 2008 could not be used for the purpose of execution of the work but it may the assessee's own decision not to charge its A.E. to compensate the assessee in respect of the remuneration of these engineers which was otherwise agreed between the parties as per clause-10 of the agreement. Thus when the assessee was to be compensated by the A.E. at 250% of the remuneration of service engineers then the salary paid to the service engineer cannot be considered as an abnormal cost. Hence, in view of the above discussion, we do not find any subsistence or merit in the claim of the assessee. 8. The next issue raised by the assessee is regarding exclusion of two comparable companies namely L & T Ramboll Cons and WAPCOS Ltd., 9. At the time of hearing, the Ld. A.R. of the assessee has stated at Bar that the assessee is pressing only the exclusion of these two companies and therefore, the other comparable companies which are selected by the TPO has not been disputed by the assessee. We will deal with the comparability of these companies one by one. WAPCOS Ltd., 10. The Ld. A.R. of the assesse....
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.... : 13. The Ld. A.R. of the assessee has submitted that the TPO while selecting the comparables has applied a filter of 25% of related party transactions. However, the TPO has not examined the related party transactions of L & T Ramboll Cons, the Ld. A.R. of the assessee has furnished details of the related party transactions and submitted that the related party transaction of this company is 59.28%. Thus, he has submitted that having the related party transaction of more than 25% of the total sales, this company does not satisfy the filter applied by the TPO and therefore, has to be excluded from the set of comparables. 14. On the other hand, the Ld. D.R. has objected to the contention of the assessee and submitted that assessee has given its own working on related party transaction without furnishing complete details and annual report of this company. Therefore, the details furnished by the assessee cannot be accepted. He has further contended that assessee did not furnish any record before the TPO to show that related party transaction of this company are more than 25%. He has relied upon the orders of the authorities below. 15. We have considered the rival submissions a....