TaxTMI 
TaxTMI 
2021 (9) TMI 1013
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.... 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'ble DRP erred in not adjudicating and not allowing the claim made by the Appellant to treat Outp....
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....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 does not maintain segment wise books of accounts. 8.4 The Ld. TPO erred in excluding certain items of income which are operating in nature while computing the ope....
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....erence 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 2013-14 on 28th November, 2013 admitting total income of Rs. 1717,21,91,860/- under normal provisions of the Act, and book profit u/s.115JB of the Act at Rs. 2145,05,22,193/-. The assessee had entered into various international transactions ....
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..../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 no merit in the arguments of the assessee that disallowance u/s.14A cannot exceed amount of exempt income. 10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is well s....
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.... 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 subsidy received from SIPCOT. 15. The next issue that came up for our consideration from ground no.5 of assessee appeal is addition towards VAT incentive received from Government of Tamil Nadu. During the year under consideration, the assessee has rec....
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....ormance 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 per section 43B(c) of the Act. 20. The assessee has filed objections before learned DRP and challenged additions made by the Assessing Officer. The learned DRP vide its directions dated 16.09.2017 has rejected objections filed by the assessee and confi....
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....ill 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 terms it performance reward This sum would not have been paid to the employees as profits or dividend had it not been paid as commission l performance reward Hence, this Panel is of the considered opinion that the provision of section 36(1)(ii) is squarely applicable in case of the assessee and consequently the misch....
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....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 rendered. The assessee claims that expenditure incurred is towards performance reward, which is not in the nature of bonus and hence, will not be covered u/s. 36(1)(ii) of the Act. 24. We have given our thoughtful consideration to facts brought out by the ld. AO in light of arguments of the ld. AR for the assessee ....
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....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 the other hand, strongly supporting order of the TPO as well as learned DRP submitted that because of huge spending on advertisement and brand promotion expenses by the assessee, brand value of M/s. Hyundai Motor Corporation, South Korea is substantially enhanced, which is evident from facts brought out by the TPO that M/....
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....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 transfer pricing adjustments towards brand services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, we direct the Assessing Officer/TPO to delete transfer pricing adjustment made towards brand development servic....
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.... 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 parties, perused material available on record and gone through orders of the authorities below. The Government of India, Ministry of Commerce and Industry has come out with Foreign Trade Policy for the period 1st September, 2004 to 31.03.2009 and as per the said policy, it has announced a scheme for exporters of certain goods to ....
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....ime 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 was not to meet part of the cost to manufacturing activity. It was not granted for production or bringing into existence any new asset. The subsidy was given year after year only after setting up of industry and only after commencement of production and therefore, such subsidy could only be treated as assistance given for the ....
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.... 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 Hon'ble High Court and facts of present case are different and hence, same is not considered. 35. In this view of the matter, and considering facts and circumstances of the case, we are of the considered view that duty credit scrips received from Govt. of India under Focus Market scheme is revenue in nature and further, same w....
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.... 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 cars manufactured for all geographies. The various stages involved in the manufacturing process is explained by the assessee as per which the process up to the stage of trial run and predelivery inspection is common for both export and domestic sales. Further, the inputs for manufacture, such as import of raw materials, domestic purcha....
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....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 these two segments are not required to be the same. The segmental financials furnished by the assessee confirmed the observation as may be seen from the table below: Description Margin on revenue Margin on cost Domestic Export Domestic Export Vehicles 3.88 % 9.70 % 4.03 % 10.74 % Spares 6.30 % 8.40 % 6.72 % 9.27 % CKD units 14.38 % 9.04 % Others 16.80 % 9.94 % Tota....
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.... 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 genuine parts division. The assessee's claim is that royalty received has to be treated as operating revenue since this is similar to the royalty payment made to AE for use of technology and use of trademarks, which forms part of the operating cost while computing the margin of the assessee. Hence assessee claimed that royalty income received from Mobis India also should form part of the revenue. Position of this Office: Mobis India Ltd. has carved out, as per requirement of AS 17, separate segments showing the margins from genuine parts division and manufacturi....
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....cials 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 raised towards purchase of materials/components * Amount received towards Car Finance referral and car insurance referral Position of this Office: The above items are classified as 'other income' in the financials. They arise as a result of activities after the sale of the cars. Therefore they cannot partake the character of operating revenue. Insurance referral income is treated on par with that of commission income. Discount partakes the character of interest income which represents the difference between credit price as per invoice and the actual amount paid before the payment became due. The assessee's claim that discount receive....
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....p 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 exchange fluctuation risk. Accordingly, it should be treated as nonoperating in nature. The assessee has raised two additional issues in connection with foreign exchange loss. 1. Erroneous consideration of entire forex loss of domestic segment:- The assessee claimed that while re-computing the margin of HMIL, TPO had erroneously considered the total foreign exchange loss of Rs. 726.69 million disclosed in the P & L account entirely towards domestic segment instead of attributing the same to both domestic and export segments. The amount attributable to the domestic segment should only be considered for arriving at the operating margin. The assessee claimed that it is only Rs. 150.05 million. Position of this Office: Forex loss charged ....
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....estic 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: The adjustment is computed as under:- S No Particulars Amount [Fig. IN MIO] Remarks 1 Operating Revenue [OR] 1,45,364.02 2 Operating Cost [OCJ 1,41,935.46 3 Operating Profit [OP] 3,428.56 (1-2) *I PLI - Tested Farty [OP/ORJ in % 2.36% (3/1) 5 Value of International Transaction 30,002.00 6 Proportion of International Transaction to OC in % 21.14% (5/2) 7 Arm's Length Comparable Margin 5.68% 8 Arm's Length Profit - at entity level 8,258.12 (1*7) 9 Arm's Length Cost - at entity level 1,37,105.89 (1-8) 10 Arm's Length Cost - after parity 28,981.14 (9*6) 11 TP Adjustment - after parity 1,020.86 (5-10) a Arm's Length Cost - after Parity 28,981 ('10) b Transfer Price - Value of Intern....
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....d 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 transaction by transaction basis for arriving at most precise approximation of fair market value. 44. As regards re-computation of operating margin by including certain non-operating income as operating in nature like royalty income, insurance claim and forex losses, has rejected objections filed by the assessee, on the ground that forex loss is always an operating expenditure because it is inextricably linked with business transactions of the assessee and hence, it cannot be considered as non-operating revenue. Similarly, royalty received from Mobis Ltd., is also in the nature of sharing of certain profit for transferring it's after sales service business to another entity and hence, it cannot be said that it is having nexus with business activity of the assessee. The ld.DRP has also rejected contention of the assessee for selecting multiple year data by holding that as per Rule 10B(4) it is mandatory to use only current year data. Further, revised OECD Guidelines 2010 had also discussed the issu....
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.... 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 assessee, separate benchmarking of the same by applying most appropriate method by the TPO cannot be considered as inappropriate. Hence, the approach of the TPO is both logical and legal. It is also observed that the approach of TPO gets support in various judicial decisions. In the case of Development Consultants Pvt. Ltd., Vs. DCIT, 115 PTJ 577, it was held that arm's length price should be determined on a transaction by transaction basis. In the case of Star India Pvt. Ltd. vs. ACIT, the Hon'ble Mumbai ITAT has held that ALP should be determined with respect to the functions performed, assets employed, risks assumed by the assessee but not on a consolidated basis. The Honourable ITAT in case of Bombardier Transportation India Private Limited, while upholding the action of the TPO in disallowance of management services, held that the payment of intra group services to AE is a separate international transaction independent of financial results and capable of verification separately. Decision of ITAT Delhi ....
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....he assessee objects to the action of the AO treating royalty income, know how, incentive received from government, discount and insurance received as non-operating while computing the operating margin of the assessee. The assessee also contends that the TPO was not correct to consider forex loss as operating. Further it is contended that multiple year data of the comparables should be considered. The submissions of the assessee have duly been considered. It is observed that the TPO has considered the contentions of the assessee raised before him on above issues or royalty income, incentive received from government, discount and insurance received. The TPO has discussed in detail the reasons and justifications for his action at page 4-6 of his order. This Panel has perused the same and finds the approach of the TPO justifiable. In respect of Forex loss the TPO has considered all the contentions of the assessee into account and arrived at the conclusion that the Forex loss is operating. This Panel is in agreement with the TPO order and hence no change is called for. As regards the contention relating to the rejection of multiple year data by the TPO, we note that Rule 10B(4)....
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....TP) * Deloitte Consulting India Pvt Ltd. (ITA No. 1082/Hyd/2011) In view of the above discussion, the action of the TPO of rejecting the use of multiple year data is considered to be to be justified and the objection raised by the assessee in this ground is rejected." 45. The ld.AR for the assessee submitted that the ld.TPO / DRP has erred in benchmarking international transactions by segregating domestic car sales segment on standalone basis without appreciating the fact that international transactions that are closely linked are to be aggregated and benchmarked and therefore, adjustment based on segmented results is not warranted. The ld.AR further submitted that the ld.TPO has not brought on record any functional differences between two segments, but only alleged that profit of two segments are varied without considering the fact that the assessee has tested its international transactions at entity level and proved itself as a tested party by selecting 5 comparables of similar nature with their margin as per which, the assessee's operating margin is much higher than the comparable companies margin. The ld.AR further submitted that approach of the ld.TPO is erroneous as h....
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....ty payment as well as royalty income is araised out of trademark and known-how obtained by the assessee from its parent HMC, Korea vide Technology and Royalty Agreement dated 1st July, 2006. When royalty expense is considered as operating expense, royalty income which is related to royalty expense should also be given the same treatment. 47. As regards, commission / discount income, incentive, insurance income, the assessee has treated these incomes as operating in nature, because all are linked to main business activity of the assessee. The TPO without giving any reasons has changed nature of income and re-computed operating margin. As regards, forex losses to be treated as non-operating expenditure, the ld.AR submitted that the assessee has consistency considered foreign exchange gain or loss as nonoperating item for several years and the same has been accepted by the Department. However, for the year under considering, the TPO has considered foreign exchange loss as operating without following the principles of consistency. Further, substantial portion of the forex loss is attributable to restatement of External Commercial Borrowing ('ECB'), which forms part of financing activ....
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.... margins from different segments and hence, it needs to be separately benchmarked. Therefore, there is no error in the orders of the TPO as well as the ld.DRP. He, further submitted that as regards re-computation of operating margin by considering certain operating / non-operating income, the TPO as well as the ld.DRP has given valid reasons to consider royalty income, commission / discount income, incentives and insurance as non-operating, because those incomes are not recurring in nature, which accrues to the assessee on day to day basis and further, derived from main business activity of the assessee. As regards foreign exchange loss, it is a well settled principle of law by various decisions of Courts and Tribunals that forex loss is also revenue in nature, which is operating income / expense, because same arises out of sales or purchase transaction of the assessee or other capital financing activities. Therefore, forex loss / gain cannot be considered as non-operating. The TPO / ld.DRP have given valid reasons to reject objection filed by the assessee and hence, their orders should be upheld. 49. We have heard both the parties, perused materials available on record and gone ....
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....enue, when compared to export segment. Both segment involved substantial AE's transactions affecting operating cost. Therefore, we are of the considered view that separate benchmarking of transactions on segmentwise was is very much required, because the FAR profile of two segments are different. We, further, noted that OECD Guidelines also require that arm's length principle should be applied on a transaction by transaction basis for arriving at the most precise approximation of fair market value. Therefore, we are of the considered view that there is no error in reasons given by the TPO to segregate domestic car sale segment on a standalone basis and benchmarked transactions of the assessee with its AE's. As regards, case laws relied upon by the ld.AR for the assessee, we find that there are divergent views on the issue, where some appellate forums have held that international transactions that are closely linked are to be aggregated and benchmarked, whereas some appellate forums had held that arm's length price should be determined on a transaction by transaction basis, based on functions performed, asset employed and risk assumed by the assessee. Further, the Act is very clear,....
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.... as non-operating. The TPO has given his own reasons for reaching to a conclusion that all these incomes are non-operating in nature. We have given our thoughtful consideration to the reasons given by the TPO in light of various arguments advanced by the assessee and we ourselves do not subscribe to the reasons given by the TPO for the simple reason that the assessee right from financial year 2007-08 onwards appointed Mobis Ltd to take up after sales service activities carried on by the assessee by transferring its business to Mobis. As per the agreement between the assessee and Mobis, Mobis agreed to pay license fee at 8.5% on the domestic sales value. The assessee has considered royalty income received from Mobis as operating in nature, because revenue received from Mobis for after sales service business in inextricably linked with car sales made by the assessee. Further, the assessee has paid royalty to its parent company HMC, Korea for sharing technology and know-how and same has been treated as operating expenses by the TPO. The assessee has received royalty income from Mobis under similar agreement for sharing technology and know-how, but the same has been considered as non-o....
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....rrency and said loss is arised during the course of business of the assessee, either for import of raw materials or export of goods or borrowings from external sources. Further, loss arised on account of fluctuation in foreign currency for payment made to suppliers of materials or receipts from buyers of assessee product is also arised out of main business activity of the assessee and thus, the same cannot be considered as non-operating in nature. As regards, the claim of the assessee in light of principle of consistency, we find that although the AO requires to follow principles of consistency in giving treatment of particular item of income or expenditure, but res judicata is not applicable to Income-tax proceedings. Moreover, the law is evolving day by day, based on various factors including amendment to the Act and judgments of various courts and tribunals, as per which it is difficult for the AO to give a particular treatment for any item of income or expenditure, when the law has been substantially changed in subsequent assessment years. Further, it is a well settled principle of law that forex gain or loss is revenue in nature and operating income/expenditure. Therefore, we ....