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2021 (9) TMI 1013
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....principle of equity and natural justice. 2. Disallowance under section 14A 2.1 On the facts and circumstances of the case, the Ld. AO and Hon'ble DRP erred in disallowing a sum of INR 86,54,491/- under section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 ("Rules") 3.Disallowance of subsidy received towards capital expenditure. 3.1 The Ld. AO and Hon'ble DRP ought to have appreciated that the subsidy was a capital receipt not chargeable to tax and that it cannot also be adjusted against the cost of fixed assets in computing the depreciation allowable to the Appellant. 4. Disallowance of Bonus/ Performance reward under section 43B of the Act 4.1 The Ld. AO and Hon'ble DRP have failed to appreciate that the expenditure incurred by the Appellant towards "performance reward" is not in the nature of "bonus" and cannot be disallowed under section 43B read with section 36(i)(ii) of the Act - should we have an alternative claim that it should be allowed at least in year of payment. 5. Tax Treatment of Output VAT Incentive 5.1 On facts and circumstances of the case, the Ld. AO and Hon'bl....
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....of its sales is not excessive as compared to the similar levels of expenditure incurred by comparable companies. 8. Downward adjustment to the value of imports to the extent included in the domestic car sales segment 8.1 The Ld. TPO erred in rejecting the transfer pricing study carried out by the Appellant without cogent reasons and erred in analyzing domestic segment on a standalone basis. 8.2 The Ld. TPO has erred in benchmarking the international transactions entered into by the Appellant with its AEs on the basis of the segment wise profitability details obtained during the assessment proceedings, without appreciating that the international transactions entered into by Appellant are closely linked and integrated and cannot be viewed in terms of separate segments for Transfer Pricing benchmarking. 8.3 The Ld. TPO has erred in benchmarking on the basis of the segment wise profitability details pertaining to 'Domestic car sales' obtained during the assessment proceedings, without appreciating that the 'Domestic car sales' is not considered as a separate reportable segment as per the Appellant's audited financial statements and that the Appellant....
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....arable with our company and therefore to be excluded from the final set of comparable companies; 2. On the facts and circumstances of the case and in law, the lower authorities ought to have granted adjustment for difference in working capital of HMIL vis-à-vis the comparable companies selected in determining the arm's length price as claimed in the TP documentation. 3. On the facts and circumstances of the case and in Jaw, we pray that the amount received under the Focus Market Scheme is capital in nature and ought to be excluded from the computation of total income of the Appellant for the subject AY; 4. On the facts and circumstances of the case and in law, we pray that education cess and Secondary Education Cess be allowable as a business expenditure in the computation of total income of the Appellant." 4. Brief facts of the case are that the assessee M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2....
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....7,826/-, however, did not made any suo-motu disallowance of expenditure relatable to exempt income. Therefore, the Assessing Officer has invoked provisions of Rule 8D of Income Tax Rules, 1962, and determined disallowances of Rs. 86,54,491/- u/s.14A of Income Tax Act, 1961. 8. The learned AR for the assessee submitted that the learned DRP has erred in sustaining additions made by the Assessing Officer towards disallowance u/s.14A, without appreciating fact that disallowances contemplated u/s.14A cannot exceed amount of exempt income. In this case, exempt income for impugned Asst. Year is Rs. 57,826/-, whereas the Assessing Officer has determined disallowance u/s.14A at Rs. 86,54,491/- . In this regard, he relied upon decision of the Hon'ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala, 99 taxmann.com 286. 9. The learned DR, on the other hand, supporting order of learned DRP submitted that although, the assessee has earned exempt income, but could not made suo-motu disallowance of expenses relatable to exempt income u/s.14A of the Act. Therefore, the Assessing Officer has invoked Rule 8D of Income Tax Rules, 1962 and determined disallowance and hence, there is ....
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.... assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum of Rs. 2,02,865/-. 12. The learned AR for the assessee submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai, in assessee's own case for assessment year 2006-07, where it was held that subsidiary received from SIPCOT is capital receipt not liable for tax. 13. The learned DR, on the other hand, fairly agreed that this issue is covered in favour of the assessee. 14. Having heard both the sides and considered material on record, we find that the Tribunal had considered an identical issue in assessee's own case for assessment year 2006-07 in IT(TP)A.No.14/Chny/2018 and after considering nature of subsidy has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the Assessing Officer has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the Assessing Officer to delete additions made towards disallowance of depreciation on capital sub....
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....senior executives. The assessee has provided for expenses for the period beginning from January to March, 2013. However, payment was made only after due date of filing return of income for assessment year 2013-14. The Assessing Officer has disallowed performance incentive paid to staff u/s.43B(c) r.w.s. 36(1)(ii) of the Act, amounting to Rs. 13,01,51,983/- on the ground that as per section 43B(c), any sum referred to in clause (ii) of sub-section (1) of section 36, shall not be allowed as deduction, unless the same is paid on or before due date for furnishing return of income u/s.139(1) of the Act. The Assessing Officer further noted that as per section 36(1)(ii), any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend, if it had not been paid as bonus or commission is covered. Therefore, he opined that any payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as....
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....n is the year in which the liability accrues or arises, for which the time for payment gets extended to the due date for furnishing the return of income for that year. This non-obstante section means that certain deductions even if allowable as per the provisions of any other section of this Act will not be allowed unless the conditions of section 43B are satisfied. Section 43B(c) provides that any sum referred to in section 36( 1)(ii) will not be allowed as deduction unless actually paid. Section 36(1)(ii) reads as under: "any sum paid to an employee as bonus or commission for services rendered where such sum would not have been payable to him as profits or dividend f it had not been paid as bonus or commission" It is seen that the provision applies for payment of 'bonus' or 'commission' to the employees. The assessee claims that the expenditure incurred is towards 'performance reward which is not in the nature of bonus and hence, will not be covered in section 36(1) (ii). This argument of the assessee is not correct. The payment to the employees on account of performance or payment as commission is in the same nature. It is immaterial if the assessee te....
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....dmittedly, none of the employees of the assessee are covered under payment of Bonus Act, because all employees' salary is above threshold limit fixed under payment of Bonus Act. It is also an admitted fact that the assessee is paying performance incentive/reward to employees regularly and such incentive has been paid for services rendered by the employees. Therefore, it is necessary to examine performance incentive paid to employees in light of provisions of section 36(1)(ii) read with section 43B(c) of the Income Tax Act, 1961. As per section 36(1)(ii) of the Act, any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission is allowable as deduction. The provisions of Section 43B(c) provides that any sum referred to in section 36(1)(ii) will not be allowed as deduction, unless actually paid. Therefore, from a combined reading of provisions of section 36(1)(ii) read with section 43B(c), it is seen that provisions of section 36(1)(ii) is not only covers for payment of bonus to staff, but it also applies to commission paid to the employees for services....
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....f brand value of assessee parent company. The learned TPO used Spearman's Rank Correlation method to conclude that there is positive correlation between the brand value of Hyundai Motor India Limited and market capitalization of Hyundai market Corporation, South Korea. Therefore, by applying Spearman's Rank Correlation method, the ld. TPO has computed incremental brand value and attributed a portion of the same to the assesseein proportionate to its sales. 26. The learned A.R submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee's own case for the assessment year 2009-10 to 201112 in ITA Nos.853/Chny/2014, 563/Chny/2015, 842/Chny/2016, where it was held that accretion of brand value as a result of use of brand name of foreign AE under technology use agreement, which has been accepted to be an arrangement at an arm's length price does not result in a separate international transaction to be benchmarked. Facts for the year under consideration are similar to facts already considered by the Tribunal and hence, additions made by the Assessing Officer towards brand development services should be deleted. 27. The learned DR, on ....
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.... products cannot be considered as provision for services, as per international transaction definition u/s.92B of the Income Tax Act, 1961. The Tribunal further held that the expression 'benefit' and 'service' have different connotations. A service has to be a conscious activity and not a passive exercise. Not all benefits arise as a result of services rendered by someone and further all services do not result in benefits to the other parties. For the purpose of definition of international transaction, in Indian context rendering of service is what needs to be considered and not benefits. Since, there is no formal agreement or arrangement between the assessee and its AEs for rendering of service in the alleged brand promotion activity, the accretion in global brand value of its parent company cannot be attributable to the assessee by adopting some theory. In this case, facts are identical and pari materia to the facts already considered by the Tribunal for earlier years. Therefore, consistent with a view taken by the coordinate Bench in assessee's own case for earlier assessment years, we are of the considered view that the learned TPO as well as learned DRP were erred in making tra....
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....also relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs Ponni Sugars & Chemicals Ltd., 306 ITR 392. 31. The learned DR, on the other hand, strongly supporting orders of learned DRP submitted that the issue is covered against the assessee by the decision of ITAT., Chennai for the assessment year 2007-08 in ITA No.2157/Chny/2007, where the issue has been decided against the assessee . He further submitted that if you go through the nature of amount received under focus market scheme, it was given for the purpose of enhancement of profitability of the assessee by exploring new markets for which the assessee is not required to spend any capital expenditure which gives enduring benefit. Further, expenses incurred by the assessee to explore new market is in the nature of sales promotion expenses required to be incurred after commencement of production and thus, it cannot be at any stretch of imagination held as capital in nature to exclude from tax. Moreover, the assessee itself has offered to tax the same as revenue in nature and hence, there is no merit in the arguments of the assessee that said expenditure is capital in nature. 32. We have heard both the par....
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....aws on the issue and it has laid down basic test to be applied in judging the character of subsidy. That test is the character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply purpose for test. The point of time at which subsidy paid is not relevant. The source is immaterial. The form of subsidy is immaterial. 33. Therefore, in the light of decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. Vs. CIT(supra), if we examine facts of the present case, we are of the considered view that duty credit scrips received by the assessee from Govt. of India for export of certain goods to some specified regions is certainly in the nature of revenue receipt, because which is primarily given to offset higher freight cost and other disabilities to select international markets, with a view to enhance our export competitiveness to these countries. We further, are of the opinion that this subsidy was given by way of assistance in carrying on of trade or business and to meet recurring expenses, but it was not for acquiring any capital asset. It....
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....idy from the Govt. of India. It is a well known fact that the assessee is best judge to decide a particular item of income or expenditure, because it is well aware facts of its case. In this case, the assessee, after considering nature and purpose of amount received under Focus Market Scheme, has very well considered the same as revenue receipt and offered to tax. Therefore, based on some judgements of higher forum making a claim for excluding said receipt from tax by claiming that it is in the nature of capital receipt is not correct, unless the assessee demonstrates that facts of those case laws considered by appellate forum and facts of assessee's case are similar in nature. As regards various case laws relied upon by the assessee including the decision of ITAT., Chennai in the case of Eastman Exports Global Clothing Pvt.Ltd. in ITA No.47 & 48/Chny/2016, we find that the ITAT, Chennai Bench in above case has not apprised facts in right perspective of law and hence, the judgment of Chennai Bench is not considered. As regards decision of Hon'ble Rajasthan High Court in the case of Pr.CIT Vs. Nitin Spinners Ltd. in Income Tax Appeal No.31 of 2019, we find that facts of case before ....
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....ion for education cess & secondary and higher education cess, as business expenditure deductible u/s.37(1) of the Act. But, fact remains that assessee has taken up this issue for the first time by filing additional grounds and the Assessing Officer does not have any occasion to examine claim of the assessee. Therefore, we are of the considered view that issue needs to go back to file of the Assessing Officer and hence, we set aside the issue to file of the Assessing Officer and direct him to re-examine claim of the assessee in light of our discussions given herein above and also by considering ratio laid down by the Hon'ble Bombay High Court and Hon'ble Rajasthan High Court in the cases cited above. 39. The next issue that came up for our consideration from Ground Nos.8.1 to 8.11 and additional Ground Nos.1 & 2 of assessee appeal is transfer price adjustment made by the AO towards international transactions of the assessee with its Associated Enterprises. 40. The assessee is engaged in the business of manufacture and sale of passenger vehicles in domestic as well as export market. The sourcing, purchasing, manufacturing and warehousing facility of the assessee is common for c....
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.... 6. Service availed 41,68,02,303 7. Trade Receivable 558,02,61,746 8. Trade Payables 438,23,14,994 9. Advance from customers 16,08,521 10. Payment of guarantee fee 1,05,56,244 Other Method 11. Interest Income 10,87,20,398 12. Export of samples 1,31,64,983 13. Reimbursement Expenses 96,04,66,596 14. Recovery of Expenses 2,95,50,331 5. Specified Domestic Transactions: Directors' salary - Rs. 98.68 million 6. Margin level adjustment: 6.1 Need for segmentation: The assessee is engaged in manufacturing and selling cars in India as well as exporting them to its AEs abroad. During the Financial Year 2012-13, the assessee aggregated all the international transactions and benchmarked the same by applying TNMM using third party comparable companies. During the course of T.P. assessment proceedings the assessee was called upon to furnish segmental results showing the margins from AE export segment and domestic segment separately. This approach was required since the FAR profile of these two segments were different. It was observed that the margins from t....
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....ment on the cost side, the AE transactions affecting the cost side of the financials are proportionately allocated as done by the assessee in the segmental results. The same would form the basis for giving a parity approach while determining the quantum of adjustment. 6.4 Computing the profit margin of the domestic segment: 6,4.1 Show Cause Notice: While computing the operating income, the assessee has taken certain non-operating items also. Therefore vide show cause notice dated 28-9-2016 the assessee was called upon to state its objections, if any, to exclude certain incomes which are taken as operating income and to include forex loss which is taken as non-operating. Vide reply dated 11-10-2016 the assessee raised its objections, which are discussed item-wise hereunder: 6.4.2 . Royalty income - Rs. 1116 millions: Assessee's claim: In an earlier year, the assessee had transferred its genuine parts division, which is after sales service parts, to M/s. Mobis India Ltd. Apart from the consideration for the transfer of genuine parts. division, Mobis India agreed to pay the running royalty calculated at a percentage on sales of gen....
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....e recognised in the profit and loss account in the year of performance/ eligibility in accordance with the related scheme, and when there is no uncertainty in receiving the incentives." This is actually an entry in the books of accounts recognising the revenue and subject to realisation and reversal in the later years, if not received". When that is the case, the assessee's claim that it would constitute revenue from operations appears less convincing. Besides, the assessee has failed to substantiate its pricing taking note of the incentive from the Government. It is also correctly classified in the financials as an item distinct from 'Revenue from Operations' and shown under the head 'Other income'. Such a classification cannot be treated as without any meaning. Therefore the incentive income is treated as nonoperating in nature. This treatment is also in tune with the stand taken by this office last year. 6.4.4 Commission / Discount received- Rs. 73 million: Assessee's claim: The assessee claims that it receives discount/commission as follows: * Discounts offered by suppliers as a result of timely/early payment of bills raise....
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....956404 claim relates to damage/loss inside factory for unbilled cars Total 35887660 From the above break-up, it is seen that the breakup of domestic car loss claim is to the extent of Rs. 19,33,712 (Rs. 3,17,381 + Rs. 1616331 (computed, out of 1956404, in proportion to the domestic cars sold) only. The impact of this claim on the margin is negligible and therefore ignored. 6.4.6 Foreiqn exchange loss - Rs. 726.69 million: Assessee's claim: The assessee has claimed that forex gain and losses should be treated as non-operating in nature. The assessee had huge international transactions denominated in foreign currency and the exposure is admittedly not covered through hedging or swap or other forward contracts. The assessee has decided to take the risk of volatility in the reporting currency and the transaction currency. Whether the foreign exchange loss as recorded in the books is operational in nature or not depends upon the position taken by the assessee and as admitted as part of the foreign exchange risk profile submitted by the assessee in the TP study. The assessee has declared that it is exposed to foreign exchang....
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....ns and translations in relation to revenue and capital items. Besides, the assessee has failed to reconcile the figures of forex loss as per cash flow statement and the forex loss added back as part of total income. The computation shows unrealised loss on Korean Exim loan is Rs. 47.595 crores. In the absence of the necessary d this claim is not entertained. 6.4.7 Erroneous computation of value of international tractions in the show cause notice: Assessee's claim: The assessee claimed that the technical knowhow fees of Rs. 274.15 million has actually been capitalised in the books and therefore it warrants similar treatment as has been given to acquisition of capital assets. Only 10% of Rs. 274.15 million has to be taken as the quantum of international transactions pertaining to both domestic and export segment. Position of this office: This contention of the assessee will be suitably considered while quantifying the adjustment. The international transaction that would be relevant for domestic segment would be taken at Rs. 30002 million instead of Rs. 30155 million. 6.4.8 Computation of adjustment in the domestic segment: ....
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....of the Act, rejected contentions raised by the assessee on re-characterization of TP study conducted by the assessee by segregating domestic car sale segment on standalone basis, by holding that as per the provisions of the Act, each class of transactions has to be examined having regard to the Arm's length price by applying most appropriate method. Under CUP method, the price charged in an uncontrolled transaction or a number of such transactions are relevant. Similarly, under TNMM, the profit realized by an independent enterprise from a comparable uncontrolled transaction or a number of such transactions are relevant. Thus, the Act does not say that TNMM is to be applied at the enterprise level and once TNMM is applied at the enterprise level, all international transaction are at arm's length price. As there are international transactions pertaining to the domestic segment of the assessee, separate benchmarking of the same by applying most appropriate method by the TPO cannot be considered as inappropriate. The ld.DRP has also taken support from some judicial precedents and also OECD guidelines to come to the conclusion that arm's length principle should be applied on a transacti....
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.... the assessee has submitted its objections to the proposed action of TPO vide its written reply. The TPO has considered these contentions while carrying out the comparability exercise. The TPO has discussed the reasons and justification for accepting /rejecting the contentions of the assessee. Hence, the approach of the TPO cannot be faulted with. Further, as regards the submissions of the assessee on benchmarking of domestic segment on standalone basis, it lass been judicially held that as per the provisions, each class of transactions has to be examined having regard to the arm's length principle by applying the most appropriate method. Under CUP method, the price charged in an uncontrolled transaction or a number of such transactions are relevant. Similarly, under TNMM, the profit realized by an independent enterprise from a comparable uncontrolled transaction or a number of such transactions are relevant. Thus, the .Act does not say that TNMM is to be applied at the enterprise level and once TNMM is applied at the enterprises level, all the international transaction are at arm's length. As there are international transactions pertaining to the domestic segment of the a....
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....ter sales products, as operating while computing the operating margins of the tested party. * The Ld. TPO erred in not considering the incentives received from the Government of Tamil Nadu for its Phase II investments under Ultra Mega Integrated Automobile Projects within Tamil Nadu, as operating while computing the operating margins of the tested party. * The Ld. TPO erred in not considering the insurance income, discount received from suppliers towards early payment of bills, and commission received towards car finance referrals and car insurance referrals as operating while computing the operating margins of the tested party. * The Ld. TPO erred in considering foreign exchange loss as operating while computing the operating margins of the tested party. * The Ld.TPO has considered the economic analysis submitted by the Applicant, but had considered single year margins of comparable companies, thereby ignoring multiple year data while determining the operation margins of the comparable companies. Panel: In above grounds, the assessee objects to the action of the AO treating royalty income, know how, incentive received from government, d....
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....g them incomparable. However, the OECD also cautions that, "use of multiple year data does not necessarily imply the use of multiple year averages." With regard to the judicial decisions relied upon by the assessee, it is seen that the Hon'ble jurisdictional ITAT as well as numerous other ITATs have now passed a number of judicial pronouncements supporting the use of current year data alone for the purpose of comparability, if the special conditions mentioned in the proviso are not capable of being demonstrated by the assessee. Some of these judicial decisions are mentioned below: * Honeywell Ltd. [2000-TIOL-104-ITAT-Pune] * Aztech Software Technology [294 ITR (AT) 32 (Bang) (SB)] * Customer Services India (P) Ltd [2009-TIOL-424-ITATDel] * ScheefenackerMotherson Ltd. [2009-TIOL.-376-ITATDel] * Geodis Overseas (P) Ltd. (2011-II-3'1-ITAT-Del-TP) * TNT India Pvt. Ltd. (2011-TII-39-ITAT-Bang-TP) * NGC Network (India) Pvt. Ltd. (2011-T II-45-ITATMum-Intl) * Birla Soft Limited (2011-'1'1 I -70-ITAT-Del-TP) * Haworth (India) Pvt. Ltd. (2011-TII-64-ITAT-Del-TP) * Deloitte Consulti....
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....rd, he has relied upon the decision of ITAT in the case of Cummins India Ltd., vs. DCIT, Pune, 80 taxmann.com 62. 46. As regards re-computation of operating margin by considering certain items in the Profit & Loss account as operating / non-operating in nature, the ld.AR submitted that the AO has erred in re-computation of margin by considering royalty income from Mobis as non-operating income. The TPO has grossly erred in appreciating the fact that royalty received by the assessee from Mobis is inextricably linked with sales made by the assessee, because the assessee was earlier generating revenue from after sales service business and the same has been considered as operating, whereas for the year, the total business segment of after sales services has been transferred to Mobis. Further, Mobis agreed to pay a license fee at 8.5% on domestic sales value, which is directly linked to each and every car sales made by the assessee. The ld.AR further submitted that the TPO has considered royalty paid by the assessee to its AE's as operating cost whereas resulting income received has been treated as non-operating revenue, without appreciating the fact that both royalty payment as well....
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.... of Doosan Power Systems India Pvt. Ltd. in IT(TP)A 83/Chny/2018. 3) ITAT, Chennai in the case of Yongsan Automotive India Pvt. Ltd in ITA No.357/Mds/2017 4) ITAT, Chennai in the case of Mobis India Ltd in 38 Taxmann.com231 5) ITAT, Chennai in the case of Misuba Sical India Pvt. Ltd., in ITA No.400/Chny/2017. 6) ITAT, Mumbai in the case of IOT Design and Engineering Ltd., in ITA No. 4722/Mum/2016. 48. The ld. DR, on the other hand, strongly supporting order of the ld. DRP submitted that there is no error in recharacterization of international transactions by the TPO by segregating domestic car sales segment on a standalone basis, because as per the provisions of the Act, arm's length price needs to be tested on transaction by transaction method having regard to the nature of transactions by adopting most appropriate method. Further, once aggregate transaction are tested by adopting TNMM as most appropriate method, there is no bar to test other transactions of its nature by considering most appropriate method. The TPO as well as the ld.DRP has brought out various reasons to segregate transactions on a standalone basis and held that the assessee....
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.... basis for the simple reason that as per the provisions of the Act, each class of transactions has to be examined having regard to the Arm's length price by applying most appropriate method. Under CUP method, the price charged in an uncontrolled transaction or a number of such transactions are relevant whereas, under TNMM, the profit realized by an independent enterprise from a comparable uncontrolled transaction or a number of such transactions are relevant. Therefore, as per the provisions of the Act, it does not say that once, TNMM is applied at the enterprise level, all international transactions are at arm's length price. Since, there are international transactions pertaining to domestic segment, separate benchmarking of the same by applying most appropriate method by the TPO is in accordance with law and thus, the approach of the TPO in segregating domestic car sale segment on a standalone basis is both logical and legal. We, further noted that the assessee is having different margins for different segments of business, as per which, its margin from domestic car sale segment is 2.36% whereas, its margin from export sale segment is 6.04%. Further, revenue-wise domestic segment....
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....ate domestic segment of comparables, otherwise it gives distortion figures. The TPO has segregated domestic car sales of the assessee and tested by applying margin of comparables which is inclusive of export sales. We find merit in the arguments of the ld.AR for the assessee for the simple reason that when the ld TPO is considering a particular segment on a standalone basis, then it is the duty of the TPO to benchmark relevant segment by selecting appropriate comparables, whose functions performed, asset employed and risk assumed are also similar to FAR analysis of the assessee's segment. In this case, the TPO having segregated domestic car sale segment on a standalone basis, has failed to select appropriate comparables or to carved out domestic sale segment of comparables to compare margins of the assessee with comparable companies. Therefore, we are of the considered view that the approach of the TPO is inconsistent and needs to be reconsidered. 51. As regards re-computation of margin of the assessee by considering certain operating / non-operating incomes, we find that the AO has considered royalty income received from Mobis, commission / discount income and insurance claim r....
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....Hence, we direct the ld. TPO to consider commission / discount income, incentives and insurance claim as operating income for the purpose of computing operating margin. 53. As regards forex loss, the assessee has treated it as nonoperating income. The main reason given by the assessee to treat forex gain / loss as non-operating in nature that most of the loss / gain is arised from repayment of External Commercial Borrowings, which is a finance activity and not related to business activity of the assessee. The assessee further claimed that, it had consistently recognizing gain / loss as non-operating in nature and the same has been accepted by the Department for earlier assessment years. We have considered reasons given by the ld.TPO in light of arguments advanced by the ld.AR for the assessee and find that there is no merit in arguments of the ld.AR of the assessee for the simple reason that mere treatment of the assessee in its books of accounts is not a sufficient reason for treating a particular item of expenditure / income is operating or non-operating in nature. But, what is to be seen is the nature of income. In this case, the assessee has derived forex loss on account of ....