TaxTMI 
TaxTMI 
2021 (2) TMI 938
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.... is against the confirmation of transfer pricing adjustment of Rs. 1,03,98,000/-. 3. Succinctly, the factual panorama of the case is that the assessee is engaged in manufacturing of butterfly valves, actuators and ball valves. The products of the assessee company are used in oil, gas and petrochemical industries. The assessee filed its return declaring total income of Rs. 4.06 crore. The assessee also filed Form No. 3CEB detailing international transactions, inter alia, Sale of valves and actuators, Purchase of raw material and Sale of valves and accessories to its associated enterprises (AEs). The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions.....
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....e set of transactions of purchase and sale to its Associate Enterprises (AE), which has not been disputed by the TPO. The assessee benchmarked the transactions by applying internal as well external TNMM. The TPO rejected the internal TNMM, which has not been disputed by the assessee. Similarly, there is no dispute on comparables nor their PLI of OP/TC at 16.64%. The only short point raised before the Tribunal is the calculation of the amount of transfer pricing adjustment. 6. We have extracted above the methodology adopted by the TPO for computing the transfer pricing adjustment. There is no quarrel on the figure of total sales of the assessee at Rs. 6097.94 lakh comprising of AE sales at Rs. 1530.98 lakh and non-AE sales at Rs. 4566.96 ....
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....ertaining the arm's length sale price. The resultant total cost in relation to the AE transactions, under this mechanism, comes to Rs. 1369.23 lakh, which is obtained by multiplying total cost of Rs. 5453.68 lakh with AE sales of Rs. 1530.98 lakh as divided by total sales of Rs. 6097.94 lakh. It is this cost of the transactions with AE which needs to be loaded with the margin of the comparables at 16.64% to find out ALP of the AE transactions at Rs. 1597.06 lakh (Rs. 1369.23 lakh x 1.1664 lakhs), calling for further action. 7. The Ld. AR espoused the next issue by submitting that the TPO erred in computing the assessee's PLI and that of the comparables by treating foreign exchange fluctuation gain as non-operating revenue, which ....
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....as non-operating. He tried to fortify his view point by referring to section 92CB providing that the ALP determination shall be subject to the safe harbour rules. In the hue of this provision, it was argued that the ALP determination needs to be carried out in the extant case in the light of the safe harbour rule requiring exclusion of forex gain from operating revenue. 11. Section 92CB(1) of the Act at the material time provided that the determination of ALP u/ss. 92C or 92CA shall be subject to safe harbour rules. Sub-section (2) states that: 'the Board may, for the purpose of sub-section (4), make rules for Safe Harbour'. The relevant rules from 10TA to 10TG came to be inserted by the Income-tax (Sixteenth Amendment) Rules, 20....
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....and operating revenue [defined in Rule 10TA(k)]. It is this definition of operating revenue which has been evoked by the DRP for construing foreign exchange fluctuation gain as non-operating revenue. 12. At this juncture, it is apposite to take note of rule 10TD(1), which underscores that the exercise of option for safe harbour rules by an eligible assessee [as defined under Rule 10TB] in respect of an eligible international transaction [as given in Rule 10TC] is optional. Thus, it is self-evident that the safe harbour rules are simply optional for an eligible assessee. One assessee may opt, another may not. The entire mechanism under the safe harbour rules, including the calculation of "operating revenue', comes into play only when ....
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.... the application of rule 10TA(k) across the board is essential whether or not the assessee opts for the safe harbour - in our considered opinion does not merit acceptance. Section 92CB unequivocally states that the arm's length price under section 92C or section 92CA shall be subject to safe harbour rules. It only means that if there is an eligible assessee, who has exercised option to be governed by the safe harbour rules in respect of an eligible international transaction after complying with the due procedure, then the determination of the ALP shall be done in accordance with the safe harbour rules in terms of section 92CB of the Act and ex consequenti, the application of other rules will be ousted. The sequitur is that where such an....