TaxTMI 
TaxTMI 
2025 (4) TMI 45
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....144B of the Indian Income-tax Act, 1961 ("the Act") in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-II, Delhi ("DRP") on the following grounds of appeal, which are without prejudice to each other: A. General ground 1. The Learned Additional / Joint Commissioner of Income-Tax, Transfer Pricing Officer, 2(3), Delhi, (hereinafter referred to as "TPO"), The Hon'ble DRP and Learned Assessing Officer (following the directions of the Hon'ble DRP) erred on facts and in law, in making addition of Rs. 6,24,92,982/- to the value of international transactions undertaken by KCPL. B. Relating to transfer pricing adjustment of Rs. 5,61,68,896/- on international transactions of Sale/ Purchase of Jewellery/ Diamonds 2. The learned AO / TPO erred in facts and in law by not taking into consideration the segmental profitability submitted by the Assessee (certified by statutory auditor) between jewellery manufacturing and diamond trading activity separately and incorrectly adopted entity level margins to test the arm's length price of international transactions pertaining to jewellery manufacturing and diamond trading act....
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....nies selected, thus failing to discharge the onus bestowed by the Act to re-compute the arm's-length price in accordance with Sections 92C(1) and (2) of the Act. C. Relating to transfer pricing adjustment of Rs. 62,94,086/- on international transactions of charging interest on overdue receivables 9. The learned TPO/AO, on the facts and in the circumstances of the case and in law, erred in making an adjustment by considering overdue receivables as a separate international transaction and erred in re-characterizing overdue receivables as interest bearing loans and proposing an interest thereof. 10. Without prejudice to above, on the facts and in the circumstances of the case and in law, the learned TPO/AO erred in ignoring the fact that the assessee has not charged any interest on delayed export realization from AE and non-AE both which can be seen as an internal comparable for the realization policy of the assessee. 11. The learned TPO/AO erred in facts and in law by inappropriately adopting an ad-hoc 60 days as an arm's length credit period to determine overdue receivables from associated enterprises without providing any basis for the sa....
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....s on account of internation transaction of charging of interest of overdue receivable. 4. The Ld. AR of the assessee submit that assessee is in the business of diamond and jewellery. The assessee was having transaction with its Associated Enterprises (AE). The assessee while filing return of income furnish transfer pricing study report, reporting transaction with its Associated Enterprises (AE) Arm's Length Price (ALP). The Assessing Officer (AO) made reference to Transfer Pricing Officer (TPO) for determination of Arm's Length Price in respect of transactions reported by assessee in its transfer pricing report (TPSR). During the proceedings before Transfer Pricing Officer (TPO) the assessee furnished required information along with which its Transfer Pricing Study Report. The Transfer Pricing Officer (TPO) was of the view that price charge by the assessee from its AE is not at Arm's Length and made recommendation of adjustment of Rs. 6.28 crore while passing his order dated 30/10/2023, passed under section 92(C)(A)(3) of the Act on account of sale and purchase of jewellery and diamonds with its Associated Enterprises (AE). The Transfer Pricing Officer (TPO) also recommended adj....
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....ransaction are available at Page No.439 to 461 of paper book (PB), thus, these are revenue in nature. The gain/loss is arising out of normal business operation. The TPO as well as Dispute DRP while holding the same as non-operating, relied upon Rule 10TA of Income Tax Rules-1962, which pertains to safe Harbor Rules. Safe Harbor Rules are optional and the same is applicable only in case where the assessee has opted for it. Various Higher Courts had taken view that the Foreign Exchange gain or loss arising out of normal business operation is to be considered as operating in nature. Such view has been taken by Courts after considering effect of Safe Harbor Rule to support his contention the Ld. AR. of the assessee relied upon the decision of: * Delhi High Court in Pr. CIT v. Ameriprise India Private Limited (ITA No. 206 of 2016), * Delhi High Court in the Pr. CIT v. Freescale Semiconductor India Private limited (ITA No. 19 of 2019), * Delhi High Court in Pr. CIT v. Samsung India Electronic Private Limited (ITA No. 453 of 2024), * Karnataka High Court in the Pr. CIT v. Subex Limited (ITA No. 492 of 2016) and * Chennai Tribunal in LS Automoti....
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.... far as foreign exchange fluctuation is concerned, we find that the TPO treated the same as non-operating in nature on the treated on relying Rule-10TA. We find that such Rule 10TA pertains to Safe Harbour Rules, and such rules are applicable only when the assessee opted for it. We find that in series of decisions various bench of Tribunal has consistently held that foreign exchange fluctuation either gain or loss is an operating item. Further, Hon'ble Delhi High Court in Pr CIT Vs Ameriprise India Pvt Ltd in ITA No. 206/2016 also held that foreign exchange fluctuation loss or gain is to be considered as item of revenue/ cost. It was also held that foreign exchange fluctuation loss directly resulted from trading item, it could not be considered as non-operating loss. Similar View was taken by Karnataka High Court in PCIT Vs Subex Ltd in ITA No. 492/2016 dated 01.10.2021. Thus, in view of aforesaid legal position, we direct the AO/ TPO to treat foreign exchange fluctuation loss/ gain as operating in nature. Turning to the items of reversal of provisions of leave encashment and gratuity, we find that both the items are revenue items. Furthermore, ld AR of the assessee vehemently argu....
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....ellery Ltd., in ITA No.1053 of 2012 (Bom HC), * CIT vs. Livingstones in ITA No.887 of 2014 (Bom HC), * Evonik Degussa India Pvt. Ltd. Vs ACIT in ITA No.7653/Mum/2011 (Mum)(Tribunal), * Agilisys IT Services India Pvt. Ltd. v. ITO-9(1) in ITA No.7622 of 2014, * Lintas India Pvt. Ltd. vs. ACIT in ITA No.2024 of 2007 (Mum)(Tribunal), * S. Vinodkumar Diamonds Pvt. Ltd. vs. DCIT-5(3), in ITA No.79 of 2015 (Mum)(Tribunal) 11. On the other hand, the learned Sr. DR for the Revenue supported the order of TPO/DRP. The learned Sr. DR for the revenue submitted that non charging interest from AEs the assessee has extended benefit to its AE. The TPO has thus rightly computed interest which is on Arms' Length. 12. We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the TPO suggested adjustment by taking view that there is delay in receivable from AEs. The TPO was of the view that amount should be realised within 60 days from issuance of invoice. The TPO worked out the notional interest and suggested adjustment. Ld DRP confirmed the action of AO/TPO. Before us, the....