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2017 (9) TMI 968 - ITAT DELHITPA - addition on account of arm’s length price - rejection of ‘CUP’ method and adopting ‘TNMM’ as the most appropriate method for computation of the arm’s length price - selection of appropriate method for computation of arm’s length price - Held that:- We find that when the pollution norms of the Europe and the India during relevant period are different, the quality of the product cannot be same and in such situation adopting the transaction of the AE with third-parties in Europe as ‘CUP’ for comparison of the transaction with the assessee, is not correct. Moreover, the currencies of both jurisdiction are different and, therefore, also prices charged to party at the Europe and to AE in the India cannot be compared. Assessee’s international transactions cannot be benchmarked applying the ‘CUP’ method. The TPO has adopted TNMM as most appropriate method for computing the arm’s length price on the ground that the assessee operated as independent entrepreneur, as it caters to requirement of automobiles manufacturers in India like General Motors, Mahindra and Mahindra, and Ashok Leyland and compared the profit margins with the other comparables in similar market conditions. In our opinion, the approach of the learned TPO/AO is justified and we accordingly set aside the order of the learned CIT-(A) on the issue in dispute and uphold the order of the learned TPO/AO on the issue in dispute. Loss due to fluctuation in foreign exchange - whether loss should be treated as nonoperative expenditure in the case of the assessee - Held that:- As following the decision of the Tribunal in the case of McKinsey Knowledge Centre Private Limited (2017 (5) TMI 830 - ITAT DELHI), we hold that foreign exchange fluctuation loss is part of a operating expenses. Accordingly, the finding of the Ld. CIT-(A) on the issue in dispute is set aside and that of the Assessing Officer is upheld. TPO/AO has considered foreign exchange fluctuation loss as part of operating expenses in the case of the assessee, however, same has also to be considered in the case of the comparables. From the order of the lower authorities, it is not clear whether the AO/TPO has considered this aspect in the case of the comparables. Accordingly, we feel it appropriate to restore the issue of computing average margin of the comparables with limited direction to consider the foreign exchange fluctuation loss as part of the operating expenses in case of comparables also. What is the correct calculation of the PLI of the comparables as well as the assessee? - Held that:- CIT-(A) has already rectified the clerical mistake as under: “5.5 It is important to note at this point to say that while calculating the margin of the comparables, the TPO has taken OP/sales as the PLI. While calculating the ALP margin of the assessee, the TPO has multiplied the mean margin of the ALP of the comparable with that of cost base of the assessee instead of sales, which seems to be a clerical mistake. In the above calculation, this mistake is rectified. Since the appellant falls within the range, the other issues relating to the comparable becomes academic in nature and therefore they are not separately adjudicated.” Since the assessee is neither in the appeal nor in cross objection before us and, therefore, the arguments of the learned counsel regarding adopting of incorrect PLI by the TPO are not considered.
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