TaxTMI 
TaxTMI 
2026 (4) TMI 1302
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....cts and in circumstances of the case and in law by rejecting the analysis undertaken by the Appellant to determine the arm's length price, thereby proposing an adjustment of INR 8,37,88,625 in respect of the international transactions of the Appellant and not considering all the legal and factual submissions filed Issue no. 2-Adoption of single year financial data for the arm's length analysis The Ld. TPO/AO and Ld. CIT(A) have erred, in law and in facts, by determining the arm's length margin using only single financial year ("FY") data ie. FY 2013-14 which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and not allowing the usage of multiple year data against the principles laid out in the Indian transfer pricing and in violation of the guidelines as notified by the CBDT vide Notification No. 83/2015 [F.No. 142/25/2015- TPL] dated 19 October 2015 with regard to use of multiple year data and use of percentile range concept, while determining the arm's length price. Issue No. 3-Disregarding the economic analysis The Ld. TPO/AO and Ld. CIT(A) have erred, in laws and i....
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....of appeal, at the time, before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law." The grounds raised by the Revenue are as given below: i. The order of the learned CIT(A) is contrary to the facts and circumstances of the case. ii. Whether on the facts and circumstances of the case the Ld.CIT(A) is right in considering the liabilities written back as operating income, when the liabilities are expenditure booked by the assessee in some earlier years and hence the underlying income on account of writing off the same cannot be treated as operating income of the current year. Further, this income does not provide a proper measure of the profitability of the assessee, for the year under study, out of the regular business operations. iii. Whether on the facts and circumstances of the case the Ld. CIT(A) is right in considering the liabilities written back as operating income, when the comparables were not found to have income arising out of the write back of liabilities and the same were considered as non-operating in nature for the purpose of comparability. Comparability analysis i....
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....ternational transactions with Associated Enterprises (AEs) to the tune of Rs. 1,79,20,86,674/-. The A.O therefore made a reference to the Transfer Pricing Officer (TPO) who proposed an adjustment of Rs. 51,86,27,609/- which was subsequently revised u/s. 154 of the Act to Rs. 51,16,27,454/-. Aggrieved, the assessee filed further appeal before the CIT(A), who dismissed the assessee's appeal. The assessee filed further appeal before the Tribunal and the Tribunal vide order dated 17.10.2019 remitted the matter back to the file of the CIT(A) to decide the issues afresh in accordance with law by affording sufficient opportunities of being heard to the assessee. During the remanded proceedings before the CIT(A), the assessee raised contentions with regard to rejection of certain adjustments made by the assessee while computing the PLI towards the following: i. Liabilities written back - Treated as operating income ii. Foreign Exchange loss - Treated as non-operating expenses iii. Customs duty adjustment - Treated as economic adjustment iv. Capacity utilization adjustment - Treated as economic adjustment v. Price penetration adjustment- Trea....
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....15-16, the assessee has earned forex gain and has treated the same as non operating income which has been accepted by the A.O. Accordingly, the Ld. AR argued that the assessee has been consistently treating the forex movement as non-operating and the same has not been disputed by the Revenue in the prior as well as the subsequent AY. The Ld. AR further argued that for the current year alone the TPO has rejected the claim of the assessee and has made the adjustments. The ld. AR also submitted that the forex risk is not born by the assessee and in the TP study it is incorrectly mentioned that forex risk is born by the assessee. The Ld. AR submitted that the said error has been brought to the notice of the TPO which has not been considered. The Ld. AR drew our attention to the finding of the CIT(A) to submit that the CIT(A) has not adjudicated the ground raised by the assessee but simply rejected the same stating that it is not allowable (para 3.10.2 from page 11 of CIT(A) order). The Ld. AR further submitted that since the TPO has not considered the consistent stand taken by the assessee with regard to forex moment, the issue of adjustment towards forex loss may be remitted back to t....
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....rounds of the assessee has not given any specific findings with regard to forex adjustment sought by the assessee and has merely stated that the ground raised is rejected. Considering these facts as enumerated above, we are of the view that the issue of forex adjustment has to be examined afresh by the TPO and therefore we remit the issue back to the TPO. The TPO is directed to examine the impugned issue afresh keeping in mind the consistent approach followed by the assessee in earlier years and decide the claim of the assessee in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. 12. With regard to adjustment towards customs duty, we notice that the CIT(A) while rejecting the adjustment, did not give any elaborate findings but has merely stated that the ground is rejected. The contention of the assessee is that the customs duty forms a major portion of the cost of imports affecting the profit margin of the assessee and therefore is an extraordinary item to be adjusted for PLI purposes. We notice that the TPO did not accept the adjustment for the reason that the customs duty element should have been....
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.... same form part of the pricing of the products. The ld. DR also submitted if the treatment of the assessee is accepted then the same would affect the bench marking since the margins of the comparables may not include such reversals. 15. The Ld. AR on the other hand, submitted that the major part of the write back pertain to the trade payable waived off by the related party and that the corresponding cost when incurred was part of the operating expenses of the assessee. The Ld. AR further submitted that when the cost of treated as operating expenses the liability against the same when reversed need to be treated as operating income. The Ld. AR also submitted that if the reversal is not treated as operating income then it would result in dual adjustment of income. The ld. AR drew our attention to the fact that the agreement with regard waiver of liability was submitted before the TPO which has not been considered. 16. We have heard the parties, and perused the material available on record. The assessee during the year under consideration wrote back certain liabilities the break up of which is as under - Description Amount in Rs. Liabilities no longer required written b....
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....turnover and the assessee has not submitted any supporting for arriving at such adjustment. The Ld. DR also submitted that in the absence of relevant details of the bifurcation of cost into variable and fixed cost and without substantiating that the under absorption of depreciation as a result of under utilization installed capacity, the adjustment towards capacity utilization as claimed by the assessee cannot be entertained. The ld DR argued that the CIT(A) has allowed the adjustment merely based on assessee's submission without proper verification. 19. The Ld. AR, on the other hand, submitted that the CIT(A) has allowed the depreciation adjustment after consideration the workings submitted by the assessee wherein the depreciation as a percentage of sales in assessee's case is 6.7% whereas the same percentage of the comparables stood at 3.08%. The Ld. AR submitted that Rule 10B(e)(iii) allows for adjustment that would materially effect the margins of the assessee and the depreciation having a significant impact on the margin of the assessee is therefore adjusted for the purpose of computing the PLI. Accordingly, the Ld. AR supported the order of the CIT(A). The Ld. AR a....