TaxTMI 
TaxTMI 
2026 (7) TMI 185
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....) dated 25.10.2024 for Assessment Year (AY) 2021-22. 2. The assessee is a company and is 100% export oriented unit and has a motor assembly and a machining unit. The assessee is mainly set up for manufacture and export of hydraulic motors and motor components to proclaim hydraulics group and other third parties. The assessee filed a return of income for AY 2021-22 declaring total income of Rs. 12,24,36,450/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to compute the Arm's Length Price (ALP) of the international transactions. The TPO proposed an upward adjustment towards ....
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....n by the assessee was at 4.35% the assessee in the TP report concluded that the transactions are at arm's length. The TPO recomputed the PLI of the assessee at 1.14% and based on fresh set of 6 comparables whose average margin is arrived at 6.18%, the TPO worked out a TP adjustment of Rs. 12.93 Crores. The TPO subsequently passed a rectification order recomputing the PLI at 4.675% which reduced the TP adjustment to Rs. 8.94 Crores. The TPO while re-computing the PLI of the assessee has considered the Forex loss as operating expenses. Forex loss being considering as operative expense 5. The Ld. Authorised Representative (Ld AR) of the assessee in this regard submitted that the assessee has been consistently treating the Forex gain/....
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....erused the material available on record. The assessee in the TPSR has computed the margin at 4.08% and since the arithmetic mean margin of the 3 comparables is 4.35% the assessee has stated that the transactions with AE are at arm's length. The TPO however recomputed the margin of the assessee at 1.14% by considering the forex loss which was excluded by assessee as operating expenses. The margin of the 6 comparables chosen by the TPO worked out to 4.675% and accordingly the TPO made an adjustment of Rs. 8,95,63,528/-. Now the assessee is contending the treatment of forex loss as operating expenses by the TPO on the ground of consistent treatment which has been allowed by the revenue in earlier / subsequent AYs and also on the ground tha....
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....ns, the resultant gain or loss is attributable to treasury and funding functions and cannot be regarded as reflective of operational profitability. It is important mention here that these guiding principles need to be applied considering the facts and circumstances of the particular case / assessee. In the present case from the perusal of the table containing the breakup of the forex loss we notice that the loss is arising from ECB and from capital transactions. The ld AR submitted in this regard that these losses are not arising from the regular business activity of the assessee and therefore to this extent the same needs to treated as non-operating. When we consider the over all facts and circumstances along with OECD guidelines, we see m....
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....he perusal of records we notice that ZF Steering operates in two verticals viz., Automotive components and Renewable energy and the TPO for the purpose of comparison has considered the overall revenue. We further notice that ZF Steering is serving a different industry which is different from that of the assessee. Though under TNMM the focus is not on exact product similarity, the comparability of functions performed, assets employed and risks assumed by the tested party and the comparable enterprises is vital. Further the reliability of the comparison depends upon whether the net profit indicators of the entities are influenced by similar economic factors. Consequently, while selecting comparables and computing the PLI, due regard must be h....
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....dia (Amount in INR Crores) Operating income (B) 288.91 Operating cost (C) 285.66 Forex loss (D) (1.13) Adjusted Operating Cost (E) = (C) - (D) 284.53 Operating profit (F) = (B) - (E) 4.38 Margins of the assessee (OP/OC) (G) = (F)/ (E) 1.54% Transfer Price(H) 256.30 Arm's Length price (I) =(H)*((100%-A)/(100%-G)) 249.312 Tolerance Band Lower end -3% 248.61 Tolerance Band Higher end +3% 263.99 Remarks ALP is within +/- 3% tolerance band 12. We direct the AO/TPO to re-compute the PLI as per directions given in this order keeping in mind the above computation submitted by the assessee. Needless to say that the assessee be given a reasonable opportunity of being h....