TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1419
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....e was adjourned to 16.11.2022 ii) 16.11.2022 At the request of the Ld. AR of the assessee, the case was adjourned to 20.02.2023 iii) 20.02.2023 At the request of the Ld. AR of the assessee, the case was adjourned to 18.05.2023 iv) 18.05.2023 At the request of the Ld. AR of the assessee, the case was adjourned to 21.08.2023 v) 21.08.2023 At the request of the Ld. DR, the case was adjourned to 28.11.2023 vi) 28.11.2023 At the request of the Ld. DR of the assessee, the case was adjourned to 19.02.2024 vii) 19.02.2024 At the request of the Ld. AR of the assessee, the case was adjourned to 30.05.2024 viii) 30.05.2024 At the request of the Ld. AR of the assessee, the case was adjourned to 11.09.2024 ix 11.09.2024 Bench did not function and the case was adjourned to 11.02.2025 x) 11.02.2025 None appeared for the assessee, and the case was adjourned to 18.02.2025 xi) 18.02.2025 None appeared for the assessee and the case was adjourned to 03.03.2025 xii) 03.03.2025 None appeared for the assessee and the case was adjourned to 15.04.2025 xiii) 15.04.2025 None appeared for the assessee a....
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..... Nature of international transactions Amount (In INR) Method 1. Sale of Trade goods (Rice) Rs. 574,61,63,557/- TNMM 2. Trade advance received Rs. 13,53,879,238/- TNMM 4.2 The TPO after considering ten comparables, proposed an adjustment to the value of international transaction amounting to Rs. 18,70,34,202/-. After the receipt of the order u/s 92CA(3) of the Act, dated 29.10.2019, the AO passed a draft assessment order u/s 144C of the Act, dated 18.12.2019, making the above adjustment and also making further following disallowances as under: i) Foreign exchange loss - on currency derivatives Rs. 4,05,61,649/- ii) Default in deduction/ collection of TDS- Rs. - 27,978/- iii) Disallowance of capital expenditure. - Rs. - 17,545/- Addition on account of TP Adjustment - Rs. 18,70,34,202/- 5. Aggrieved with the said adjustment, the assessee filed its objections before the Ld. DRP. The Ld. DRP, vide its directions dated 29.10.2020, noted that out of the above ten comparables the assessee had accepted the seven comparables and had objected in respect of the three comparables, out of which the DRP also agreed with the ass....
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....20 passed by the TPO is reproduced as under: 6.1 The AO after receipt of the said OGE passed the final assessment order u/s 143(3) r.w.s. 144C(13) r.w.s. 143(3A) & 143(3B) of the Act on 22.02.2021 by making the following additions: I. On account of TP Adjustment - 115209793 II. Foreign exchange gain / loss - on derivatives (F & O) Rs. 36,49,338/- paid towards Brokerage and Commission - F & O + Rs. 3,69,12,311/- on account of foreign exchange gain / loss - export) for Rs. 4,05,61,649/- III. Default in deduction / collection - 27978 IV. Disallowance of capital expenditure - 17545 7. Against the above final assessment order, the assessee has filed an appeal before us. 7.1 Ground nos. 1 & 2 are reproduced as under: ""1. General Grounds 1. That the Ld. Assessing Officer (AO) has grossly erred in law and on facts, in the circumstances of the appellant's case by passing the final assessment order u/s 143(3) r.w.s. 144C(13)/92CA(3) pursuant to the directions of Ld. Dispute Resolution Panel (DRP) making addition/ adjustment of 11,52,09,793/- on account of the order of the Transfer Pricing Officer (TPO) u/s 92CA(3) and disall....
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....O have grossly erred in law and facts and circumstances of the case in not even giving effect to the above direction of Id. DRP treating the bank charges as operating item and to compute the correct margins of the comparables. 9. That without prejudice, the Id. TPO/DRP and consequently the Id. AO have grossly erred in treating the entire finance cost (including bank charges, treasury expenses, interest paid on working capital loans) of the assessee (tested party) as operating item while computing its PLI. The Id TPO has erred in not computing the correct PLI of the assessee inspite of direction of Id. DRP to compute the correct margin of the assessee. IV. Adjustment for interest free advances 10. The Id. TPO/DRP and consequently the Id. AO have has grossly erred in facts and in law in not granting the adjustment in respect of interest free advances granted by the AE to the assessee. The Id. TPO/DRP and consequently the Id. AO have has failed to appreciate that the proposed transfer pricing adjustment would be NIL if an adjustment for the interest free advances given by AE to the assessee, would have been granted to the assessee 11. The Ld. DRP an....
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....fter considering the assessee's objections, he finally retained ten. The assessee raised objections before the Ld. DRP against three of these, and in compliance with the Ld. DRP's directions, the TPO deleted all three, leaving a final set of seven comparables. Thus, there now remains no dispute between the parties regarding the selection of comparables. 9.1 The only issue that survives for adjudication relates to the computation of margins of these comparables and the treatment of certain items, such as treasury expenses, and interest on working capital loans, in determining the operating profit. 9.2 In this regard, the assessee had raised before the Learned DRP a specific ground (Ground No. 7) contending that the TPO erred in treating the entire finance cost, including bank charges, treasury expenses, interest expenses on working capital loans, etc., as non- operating items while computing the PLI of comparable companies. The grievance of the assessee was that all these components formed part of the normal operating cycle and hence should be treated as operating in nature. The Learned DRP, however, in paragraph 3.2 of its order, has merely observed that "Bank charges....
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....t speculative transactions and duly covered u/s 43(5) of the Act and are eligible transactions as per Section 45(3) of the Act read with proviso (d) and explanation 1 to section 43(5) of the Act. 10.1 The AO after analyzing the definition of an eligible transaction as provided in clause (d) of proviso to section 43(5) of the Act held that currency derivatives are not covered up by the above clause. Regarding the claim of the assessee that the same were hedging transactions, the AO observed that, it was well settled position that contract must be in respect of same goods in respect of which contracts of purchase/sale are already entered into. The AO noted that in the case assessee company, it was stated that the same was in respect of invoices raised in foreign currency. 10.2. The AO after making analyzing the facts, held that currency derivatives do not fall within the in proviso to section 43(5) of the Act and therefore, treated them as speculative transaction. 10.3. Further with regard to brokerage & commission paid to hedge the export/import transactions against future currency exchange risk, the AO held that, it was an expenditure in respect of F & O, and held, F&O tra....
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....s as a distinct and separate business is necessary for the purpose of setting off the loss provisions. As per Section 73, losses from speculation business can be set off only against profits from speculative business unlike loss from other business which can be set off against the profits of any business. Further, loss from a speculation business carried forward to a subsequent year can be set off only against the profit and gains of any speculative business in the subsequent year. Along with treating speculative business as separate and distinct business, profits and loves resulting from speculative transactions must also be treated as separate and distinct from other profits and gains of business and profession. Loss from speculative business cannot be carried forward for more than 4 assessment years succeeding the year in which loss is incurred. 6.2 The explanation 2 to Section 28 provides for the speculation business as separate and distinct business while Section 43(5) defines what is speculative transaction. From the reading of these two sections it is quite clear that unless the speculative transactions constitute business, the provisions of Section 73 cannot apply.....
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.... taking an offsetting position in a derivative in order to balance any gains an losses to the underlying asset. Hedging attempts to eliminate the volatility associated with the price of an asset by taking offsetting positions contrary to what the investor currently has. The main purpose of speculation, on the other hand, is to profit from betting on the direction which an asset will be moving. It is therefore clear that although hedgers are protected from any losses, they are also restricted from any gains. Speculators trade based on their educated guesses on where they believe the market headed. For example, if a speculator believes that a stock is overpriced, he or she may short sell the stock and wait for the price of the stock to decline, at which point he or she will buy back the stock and receive a profit. Speculators are vulnerable to both the downside and upside the market which may result into profit and losses both. Whereas hedging attempts to reduce the amount of risk and the losses only. Hedgers try to reduce the risks associated w uncertainty, while speculators bet against the movements of the market to try to profit fo fluctuations in the price of securities.....
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....ated out of export sales invoices raised in foreign currency i.e. USD. f Not appreciating that it is the substance and not the form of the transaction which determines its true character. 16. Without prejudice to the above ground, the Id. DRP and consequently the Id. AO failed to appreciate that in substance, the transactions of foreign exchange derivative is covered under clause (a) of proviso to Section 43(5) of the Income Tax Act. 17. Without prejudice to the above grounds, the assessee should be allowed carry forward of such speculative foreign exchange losses and set off in the subsequent years against future foreign exchange gains. 18. That the Ld. AO has erred on facts in specifying the incorrect figure of Foreign Exchange Loss- F & O of Rs. 3,69,12,311/- at Pg. No. 13 of Draft Assessment order whereas the same has been shown correctly at Pg. No. 3 of Draft assessment order 3,50,17,947/-. " 11.4 The Ld. Sr. DR supported the orders of the authorities below. 11.5 We have heard the Ld. Sr. DR and perused the material available on record. On perusal of the submissions of the assessee before the Ld. DRP and the above grounds of appeal, we....
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....this regard it is respectfully submitted that the appellant has correctly shown INR 1,59,49,654/- in column 5 which pertains to "Total amount on which tax was required to be deducted" out of which TDS on INR 1,58,56,394 was deducted at specified rates (as disclosed in column 6). The difference of amount disclosed in column 5 and column 6 which is INR 93,260 pertains to the amount on which TDS was deducted at less than specified rates as the deductee has provided the Certificate issued under section 195/197(1) of the Income Tax Act by the DCIT, Circle 3(1), Chennai dated 15.04.2015 and therefore this does not fall under the scope of disallowance under section 40(a)(ia) of the act." 12.2 We have heard the Ld. Sr. DR and perused the material available on record. In this regard, the assessee in its ground no. 19(iii) has inter alia submitted that the difference of amount of Rs. 93,260 pertains to the amount on which TDS was deducted at less than specified rates as the deductee had provided the Certificate issued under section 195/197(1) of the Income Tax Act by the DCIT, Circle 3(1), Chennai dated 15.04.2015 and therefore this does not fall under the scope of disallowance under sect....
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....tsthe same has been duly excluded from the final set of comparable. Document 2 (ii) M/s KTC Foods Pvt. Ltd: The Ld. DRP has directed to exclude this company as it is leading processor and exporter of super basmati rice having rice milling and processing units having processing enpacity of more than 150 M. Ton per day. It also has Quality Testing lab and. warehousing facility and is limetionally different from the assessce company. TPO's Comments: The same has been duly excluded from the final set of comparable. (iii) M/s R P Basmati Rice Ltd: The L.d. DRP has directed to retain this company as comparable if segmental'information is available in the financials of this company. TPO's Comments: There is no segmental information available in the financials of the company. Therefore, it is excluded from the final set comparable. 5. Final set of comparables as per the directions issued by the L.d. DRP pertaining to sale of traded goods (Rice) :- As per DRP directions, bank charges are related to the business transactions of the assessee and therefore should be treated as operating. The AO/TPO is directed to re-compute the TP adjustment accordingly adopting the....