TaxTMI 
TaxTMI 
2022 (11) TMI 245
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....sympathetic consideration: On the facts and circumstances of the case and in law I. Transfer Pricing ( TP) adjustments: Against the adjustments made under Transfer Pricing assessment The learned TPO/AO erred in making aggregate upward adjustment of Rs. 13.06 crores ( Page 7 Para 6 of A O's final order) to the Arm's Length Price (ALP) of the international transactions in the manufacturing segment entered into by the appellant. In making the said aggregate TP adjustment the AO/ TPO further erred inter alia 2. In excluding realized forex gain Rs. 4.37cr. earned on exports of manufactured components and insurance claim receipt of Rs. 6 lakhs in respect of export consignment damage claim from the operating income of the appellant in computing the profit level indicator (PKLI) of Op to OC. 3. In the alternative disaggregating and determining the ALP of international transaction of allocation of cross charge of intra group business support services Rs. 7,64,67,217/- viz. Selling, General and Administration (SG & A) services at 'nil' by adopting "other method" without assigning any reason. The learned T....
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....eing recorded in the books of accounts of the appellant even though the same were netted off and reduced from the power expenses incurred in the year under consideration. The Appellant prays that the learned AO be directed to delete the said addition made. The appellant craves leave to add to, alter, delete, raise any of the grounds at the time of hearing. " 2. At the outset, the ld. Counsel for the assessee, at the time of hearing submitted that the first issue for adjudication before the Tribunal is the issue of forex gain. There is no discussion in TPO's order. The ld. D.R.P has discussed this issue from para 3 onwards, which is as follows: "The inclusion of FE gain/loss in the operating revenue would result in distortion of net margins of the tested party and the comparable companies making the comparability analysis unreliable, which is illustrated by way of the following situations. i) In a case where two enterprises sell the same product on the same date at the same net margin but realise the sale proceeds on different dates, their PLI computed by including the FE gain/loss in the operating revenue would be different due to the differen....
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....ions of the assessee and therefore the same represents a non-operating income/loss which needs to be excluded for the purpose of benchmarking the international transactions . Thus, we find that there is no judicial consensus on the issue of treatment of gain/loss arising from foreign exchange rate fluctuation in respect of transactions carried out during the course of business. As the issue is pending before the higher courts for adjudication and has not reached finality in the light of the change in law doing away with the right of the department to appear against the order of the DROP, we rely on the above cited decisions of the Hon'ble Mumbai, apart from the detailed reasons cited in the preceding paragraphs to hold that the foreign exchange fluctuation gain/loss should be treated as non-operating income/expenses for the purpose of computation of PLI of the tested party and the comparables. The action of the TPO of treating the forex gain/loss as non-operative is proper and justified and therefore the contention of the assessee is rejected." 3. Therefore, the ld. D.R.P held that the forex gain/loss as non-operating in nature and upheld the action of the ld. T.P.O/A.O....
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....hange gain will have to be guided by the normal business understanding and commercial principles. It is fairly settled that foreign exchange gain/loss arising from business transactions is operating revenue/cost. Several benches of the Tribunal including a recent decision of the Pune Benches in Delval Flow Controls Pvt. Ltd. Vs. DCIT (ITA No.640/PUN/2017) dated 20-01-2021 have laid down to this extent. We, therefore, direct to take foreign exchange gain as part of operating revenue." 4. Therefore, the Tribunal has held in assessee's own case that foreign exchange gain is a part of operating revenue. The ld. CIT DR could not place on record documents/evidences to suggest any deviation of facts. In view thereof, following the same parity of reasoning in assessee's own case in earlier years, the grounds on forex gain issue are allowed. 5. The next issue is with regard to the insurance claim. The ld. D.R.P has discussed this issue at page 9 para 3.3.3 as under: 3.3.3 Objection with respect to other operating income of 30 lacs. "Though there is no reference in the order of TPO for reasons for excluding this income we find that only reference is made to rule 10TA.....
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....0 to 253 they have annexed all the said evidences. The ld. A.R further submitted that in assessee's own case for A.Y. 2013-14 (supra) on the identical facts situation where the assessee was called upon by the department to file details for proving receipt of services and benefits derived, in absence of any satisfactory explanation tendered by the assessee, the T.P.O had determined the ALP at NIL of the international transactions regarding intra group services cost. In such scenario, the Tribunal had observed that given factum of various e-mails, etc. submitted by the assessee before the Department, it is difficult to hold that the assessee did not lead any evidences proving receipt of services. 10. Per contra, the ld. CIT DR submitted that one e-mail can pertain to so many transactions but it is not at all clear from the evidences submitted by the assessee that whether that particular e-mail pertains to receipt of intra group services or some other transactions. Therefore, the ld. CIT DR submitted that the matter may be restored to the file of the A.O/T.P.O for fresh adjudication after due verification. 11. Having heard the parties on this issue, we find that Pune Tribunal in....
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....ration at Rs.11.71 crore. Considering the difference in the figures of revenue on one hand and inter-group services on the other for the current year vis-a-vis the preceding year, ex facie, the transaction cannot be declared at ALP, unless a detailed examination is carried out. As the TPO has determined Nil ALP on the preliminary premise that there was no evidence of receipt of services and we have noticed above the fact of receipt of services, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for determining the ALP of the international transaction of Intra-group Sales, General and Administrative services afresh as per law after allowing reasonable opportunity of hearing to the assessee." 12. In the aforesaid findings, the Tribunal has observed that since T.P.O determined NIL ALP on the preliminary premises that there was no evidence of receipt of services and that the Tribunal has noticed the fact of receipt of services, therefore, this issue was set aside and the matter was remanded back to the file of the A.O./TPO for determining the ALP of the international transaction of intra group services as per law after allowing reasonable opport....
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....ombay High Court in CIT Vs. Thyssen Krupp Industries Pvt. Ltd. (2016) 381 ITR 413 (Bom.) and CIT Vs. Tara Jewels 7 Exports (P). Ltd. (2010) 381 ITR 404 (Bom.). We, therefore, set aside the impugned order on this score and direct that the transfer pricing adjustment should be restricted only to the extent of the international transactions. 16. Respectfully following the aforetated judicial pronouncement we set aside the findings of the ld. D.R.P on this issue and direct that the transfer pricing adjustment should be restricted only to the extent of the international transactions. Accordingly, Ground No. 6 stands allowed. 17. Regarding ground No. 7, the ld. A.R for the assessee submitted that the issue of contribution made to gratuity fund and superannuation fund under the provisions of sec. 40A(7) of the Act is decided in favour of the assessee in assessee's own case for A.Y. 2013-14 (supra) as per the following paragraphs. "19.1. The only other ground that survives for adjudication is the disallowance of Rs.27,98,305/- towards contribution to the employees' gratuity fund and Rs.42,44,970/- towards contribution to superannuation fund. The AO invoked the provisions of ....
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....te Distribution Co. Ltd. (MSDCL) on which TDS of Rs. 11,534/- was deducted u/s 194A. Further, the assessee has also received an amount of Rs. 54,980/- from Tamilnadu Generation and Distribution Corporation Ltd. (TGDCL) on which TDS of Rs. 5,498/- was deducted u/s 194A. The authorised representative of the assessee was asked to reconcile receipts and TDS captured in the ITS data with the books of accounts of the assessee company. The AR of the assessee submitted reconciliation of 26AS on 21-11-2017. On perusal it is noticed that the receipt of Rs. 1,70,316/- (1,15,336/- + 54,980/-)has not been recorded in the books of the assessee company. The assessee is following mercantile system of accounting. The receipt needs to be recorded in the books of the assessee in the assessment year 2014-15. Therefore, interest income of Rs. 1,70,316/- was proposed to be charged to tax in the draft assessment order by adding it to the income returned by the assessee company. 14.1 In respect of objection filed by the assessee against the addition on account of interest income received from Maharashtra State Distribution Co. Ltd. And Tamilnadu Generation and Distribution Corporation Ltd. Of Rs.....