TaxTMI 
TaxTMI 
2025 (1) TMI 1178
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.... Transfer Pricing 2. Treatment of Foreign Exchange Gain/loss as operating Income/expense in case of purchase of goods in foreign currency. (?) 2.1 The TPO/DRP-1/National e-Assessment Center erred on fact and in law in holding that the Foreign exchange gain pertaining to international transaction of purchase of books do not form part of the operating income and thus removing the amount of Rs. 39,93,000 from the operating income of the appellant. 3. Selection of comparables functionally non-comparable to the business activity of the appellant while computing arm's length price using the Transactional Net Margin Method. 3.1 The TPO/DRP-1/National e-Assessment Center erred on fact and in law in making the adjustment amounting to Rs. 59,07,000/- on account of international transaction for segment relating to books purchase from Macmillan Distributors Ltd.["MDL"] by rejecting the Transfer Pricing documentation of the appellant. The TPO/DRP-1/National e-Assessment Center erred in rejecting the comparables companies selected by the appellant on the ground of persistence losses despite such comparables are functionally most comparable to the business ....
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.... reasons :- (i) Large increase in sundry creditors and reduction in business income as compared to preceding year. (ii) Large current liability in comparison to total asset in Balance Sheet. (iii) Deemed international transactions by person other than AE in pursuance of a prior agreement (T.P. Risk Parameters). 5. Ld. AR of the assessee attended and submitted the relevant information as called for. 6. The assessee is engaged in the business of printing and publishing. The assessee has filed Form 3CEB along with return of income and it was observed that assessee had entered into international transactions with its Associated Enterprises (AE)/concerns during the year. Accordingly, the matter was referred to Transfer Pricing Officer (TPO). 7. A notice u/s 92CA (3) was issued to the assessee and in response, ld. AR of the assessee submitted the relevant information as called for. The assessee also submitted documentations prescribed under Rule 10D of the Income-tax Rules, 1962 (for short 'the Rules'). 8. The TPO observed that the assessee is primarily engaged in the business of publishing and trading of books and other related services. BDIPL dist....
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....98 Operating Net Profit (Loss)/ Turnover 1.79% (41.22%) (6.53%) Gross Profit (Loss) E =D+g+h 261.88 (89.14) 172.74 Gross Profit/Turnover 16.55% (23.51%) 8.81% Other Income F - 1.61 1.61 Net Profit/ (Loss) G =D+F 28.27 (154.64) (126.37) Net Profit (Loss)/Turnover 1.79% (40.79%) (6.44%) 10. Based on the information submitted by the assessee, ld. TPO benchmarked the Class-VI transactions which is deemed international transactions and he observed that assessee has benchmarked OP/OR of 1.79% by selecting following comparables :- S.No. Company Name Weighted average 1. Westland Ltd. - 22.88% 2. Random House Publishers India Pvt. Ltd. - 61.0% 3. Leadstart Publishing Pvt. Ltd. - 5.26% 4. Nova Publications India Ltd. 1.45% 5. Vikram Publishers Pvt. Ltd. 3.66% 6. Harvard Business School Publishing India Pvt. Ltd. 6.45% 7. Informatics India Ltd. 24.87% 11. Afte....
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....e segment of "books purchased from MDL" and "Transaction other than AE". He submitted that in the said computation of OP/OR, the sale value of books were bifurcated in two segments on the basis of value of books purchased during the year from deemed AE. It was further submitted that rest of the expenditures were allocated applying the allocation key of ratio of sales value in the each segment. He submitted that this allocation key did not provide the true picture of allocation of sales turnover and the expenditure allocated between the two segments. 15.1 It was further submitted that there are certain expenditure which are directly allocable to one segment but could not be so allocated due to defective allocation key. Now the assessee has prepared a more robust segmental accounts on the basis of actual sales undertaken in both the segments and directly allocatable expenditure have been allocated directly to that segments. It was further submitted that number of books sold in each segment provides an unblemished allocation of expenditure as it represents the efforts put in each segment. Accordingly, few expenditure has been allocated applying the ratio of no. of books sold in eac....
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....to third parties, the MDL. Provides discount between 45%-65% of the title print prices. However, in case of the assessee the discount avowed on the title print price is minimum 70% or some time even more. He submitted that an internal mail of the AE declaring the policy of giving 70% discount to all the subsidiary companies is attached herewith as Annexure 2. 15.6 He further contended that the discount offered on print price to assessee and third parties is a good third party Comparable Uncontrolled Price [CUP] available to organise the comparability of the transaction of purchase of books from MDL and other distributors of BBPLC and the price charged from assessee for the goods purchased can be compared due to availability of third party comparable, thus for the transaction of purchase of books from MDL, considering the nature of the transaction, the discount offered by MDL to the assessee and the third party in India can be compared alternatively for applying the CUP method to be the most appropriate method to determine the ALP. 15.7 Ld. AR submitted that the assessee placed a detail of some of the invoices [sample basis] raised by AE along with the copies of the invoices o....
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....o influence by non submission of the additional evidences at this stage. He pleaded that to avoid irreparable injury to the assessee, the additional evidences should be taken on record and considered while adjudicating the present appeal. 16. With the above submissions, ld. AR also made a prayer that the ITAT would be obliged to exercise its discretionary power for calling additional evidences. Reliance was placed for similar provisions under Civil Procedure Code, 1908 and also relied on the decision of Hon'ble Supreme Court in the case of Arjan Singh vs. Kartar Singh AIR 1951 SC 193, decision of Hon'ble Gujarat High Court in the case of Pari Mangaldas Girdhardas vs. CIT (1977) CTR (Guj.) 647 and prayed that the additional evidences may be considered for adjudication. 17. Ld. AR submitted that the assessee has submitted additional evidences for the reason that in AY 2021-22, the assessee has submitted segmental report for the transactions involving purchases of books from MDIL having exactly similar transactions as in the present assessment year and the TPO has appreciated the above segmental reports and completed the assessment based on the available segmental report. Accord....
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....PO rejected the TP study submitted by the assessee. Now based on the detailed findings in the AY 2021-22, the assessee has prepared the segmental report by following the similar allocation of expenses relating to the segment. Since the books of account maintained by the assessee are exactly similar, it is only a re-appreciation of facts and allocation of expenses following allocation key of respective sales. In our considered view, the above additional evidences are relevant and accepted. For the sake of complete justice, we are inclined to remit this issue to the file of AO/TPO to verify the allocation of expenses and the segmental report prepared by the assessee based on the accepted method of allocation in AY 2021-22 and also the details of discount offered by its AE and may be compared with the discount offered by the AE in the uncontrolled transactions and directed to compare the internal CUP available in this case to benchmark the transactions of purchase of books from its AE. Therefore, we direct the AO/TPO to benchmark the international transactions based on the additional evidences brought on record by the assessee as per law after giving proper opportunity of being heard ....
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....prayed that the same may be accepted and remitted the same before the Assessing Officer to verify the relevant information available on record. In this view of the matter, we remit the issue to the file of the AO to verify the relevant information available on record and then decide the issue as per law after giving proper opportunity of being heard to the assessee. Accordingly, ground no.4 raised by the assessee is allowed for statistical purposes. We also direct assessee to make proper submissions and appear before the Assessing Officer on the date of hearing and cooperate with the tax authorities. 27. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on this 22nd day of January, 2025. ============= Document 1 Ratio of sales No of Books Sold Revenue from operations Other income Total revenue Expenses Cost of Goods Sold GROSS PROFIT GROSS PROFIT % Employee benefits expense Editorial Staff Other Staff Particualrs Basis Allocation Total Division Trading Segment Sgment Amounts in Rs. 100% 6,81,995 33.25% 66.75% 3,26,491 3,55,504 ....