TaxTMI 
TaxTMI 
2026 (6) TMI 1485
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....nternational transactions entered into by the Commodity Division of the assessee. 4. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the manufacturing of machinery and equipments that have its application in oil well drilling and production activities. The assessee has two different segments namely Capital Goods Segment and Commodity Products Segment. The Capital Goods Segment/ Division manufactures highly specialised and custom made equipment, which has application in oil and gas industry e.g. BOP units, accumulated units, high pressure test units, hydraulic power tongs, etc. The Commodity segment/Division produces fast moving commodity items and spare parts etc. like hammer, unions, swivel, joints and pub joints, ring joints, gaskets, flanges, valves, castings, MS products etc. These are used in oil and gas industry as well in various other industries. Though the assessee has entered into several international transactions with its Associated Enterprises (AE), the only dispute before us is with regard to the international transaction pertaining to sale of finished goods by Commodity Division of the assessee to its A....
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....tands allowed for statistical purposes in all the three years before us." 6. Similar view was taken by the Bangalore Tribunal in the case of Global E Business Operations Private Ltd Vs. ACIT reported in 124 taxmann.com 244. Same view was taken by the Delhi Tribunal in the case of Rampgreen Solutions Pvt Ltd Vs DCIT reported in 154 taxmann.com 541. Respectfully following the same, we hold that the foreign exchange gain of Rs. 2,38,83,566 should be considered as part of operating income for the purpose of determination of operating margin of the assessee. 7. The ld TPO sought to disturb the PLI of the assessee by disturbing the allocation of common expenses between the Delhi Office and Dehradun office by the assessee in Commodity Segment. The assessee had allocated the common expenses between the Delhi Office and Dehradun Office on the basis of net profit ratio as has been its consistent practice. The ld TPO sought to disturb the same by reallocating the expenses on the basis of turnover. 8. By making the aforesaid two adjustments to the operating margins, the ld TPO reworked the operating margins of the assessee at (-) 1.39 %. The ld TPO also rejected four comparables of th....
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....case during the year. There is no need for the revenue to take a divergent stand during the year under consideration. Further, we find that the coordinate bench of this Delhi Tribunal in the case of Fujitsu India Ltd Vs. DCIT reported in 78 taxmann.com 279 dated 02.02.2017, had specifically held that allocation of common expenses cannot be done on the basis of turnover and the apt method would be to allocate on the basis of gross profit margins. The relevant observation in this regard is reproduced here under:- "6. We are unable to countenance the view canvassed by the Id. AR. There can be no rationale in apportioning the costs on the basis of number of persons working in the three segments. A person working at a lower level, such as, a Helper or an Assistant, cannot be compared with a person working at a higher position, such as, a well qualified technician or a marketing expert, drawing more salary. One segment may need more lower staff drawing less salaries and the other segment may have more higher staff with higher salaries. If we consider the number of heads working in each segment, irrespective of their positions etc., and apportion unallocated costs in that ratio, ....
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.... on functional similarity. There is absolutely no change in the FAR analysis with those years when compared to the year under consideration. The ld AR before us has filed the details of functions performed by the assessee company, functions performed by all the comparable companies chosen by the assessee in tabular form, which is reproduced as under:- 14. From the above, it is very that all the four comparables have been wrongly rejected by the TPO. We find that all the aforesaid four comparables are functionally comparable with that of the assessee. Moreover, what is to be seen under TNMM is only the broader functional comparability than the product similarity. Further, we also find that the comparable Gontermann Pieper had also been rejected by the ld TPO on the ground that it had failed the filter of persistent losses. We find that the coordinate bench of Mumbai Tribunal in the case of MOL Maritime India Pvt Ltd reported 120 taxmann.com 245 had observed that the expression 'persistent loss' is not defined under the Income Tax Act or the rules framed there under and accordingly, the persistent loss need to be understood as incurrence of losses in three consecutive financial ye....
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....he ld AO noted that on the investment in equity shares made in subsidiary company, the assessee had not earned any dividend income. Accordingly, he proceeded to disallow the proportionate interest to the extent of borrowed funds utilized for making investment in equity shares in wholly owned subsidiary company and disallowed interest of Rs. 51,95,632 thereon. This action of the ld AO was upheld by the ld CIT(A). 19. We find that the issue in dispute is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody reported in 115 ITR 519. Respectfully following the same, we direct the ld AO to allow the interest expenditure of Rs. 51,95,632/-. Accordingly, Ground Nos. 4 to 4.4 raised by the assessee are allowed. 20. Ground No. 5 raised by the assessee is challenging the initiation of penalty proceedings u/s. 271(1)(c) act, which would be premature for adjudication at this stage and hence dismissed. 21. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 29/06/2026. ============= Document 1Company Nature of Business Products Manufactured Applicatias / l....