TMI Blog2013 (2) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... -fall in the arm length price determined by the TPO. The computation has already been made after including such gain and it has been seen that there is no short-fall in the profits of the assessee as compared to the arm length price profit determined by the TPO. We found that the adjustment made by the TPO and upheld by DRP deserves to be deleted - IT APPEAL NO. 6839 /Mum/2012 - - - Dated:- 8-2-2013 - I.P. Bansal, Judicial Member And Rajendra Singh, Accountant Member For the Petitioner : Mrs. Aarti Visanji For the Respondent : Ajeet Kumar Jain ORDER I.P. Bansal, Judicial Member This appeal is filed by this assessee. It is directed against the Assessment Order dt. 5th October 2012 passed u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 (Act). Assessment Order has been passed in pursuance of directions of Dispute Resolution Panel (DRP) given vide its order dt. 13th August, 2012. A copy of which has been placed on record. 2. This is a stay granted matter. The stay was granted by the Tribunal vide its order on 14th day of December 2012 on the condition for making total payment of ₹ 25 Lakhs in two instalments. The assessee has complied wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.15% TP/TE 1.16% O.S. = opening stock, C.S. = cls. stock The assessee in the TP study had bench marked its international transactions with AE on TNMM basis for which assessee had selected 5 comparables and had worked out mean average margin at 1.62% as against net margin of assessee at 3.36% and thus it was contended that international transactions of the assessee with his AE are at arm's length. However, Ld. AO did not accept such submission of the assessee and searched out 11 comparables which are listed in para 4.3 of the order of the TPO. However, after considering the submissions of the assessee, Ld. TPO has short-listed 7 comparables whose mean margin on OP/OC and OP/Net Sales is computed at 6% and 5.58% respectively. While computing the mean margin of comparables under sale price, the short-fall in profit was computed by TPO at ₹ 2,87,65,719/- and while computing mean margin of purchase price, difference is computed at ₹ 3,19,55,004/-. Sum of ₹ 3,19,55,004/- being the higher one and favourable to Revenue has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Suashish Diamonds Ltd -0.57% -0.57% 7. Zodiac-JRD-MKJ Ltd 5.75% 5.44% 6.00% 5.58% The assessee requested invoking + / -5% in its favour. The same is analysed as under: Assessee's sale price 231,055,520 ALP profit for assessee on cost 36,336,744 Actual profit of assessee 7,571,025 Shortfall in profit 28,765,719 ALP sale price 259,821,239 95% of assessee's sale price 246,830,177 Conclusion: No benefit of 92C(2) Assessee's purchase price 556,592,798 ALP profit for assessee on sale 39,526,029 Actual profit of assessee 7,571,025 Shortfall in profit 31,955,004 ALP purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n re-computed by the assessee are stated in the following table: Operating Profit as Computed by the learned TPO Name of Company OP/OC OP/SALES (As per TPO) C Mahendra Exports Ltd 6.79% 6.36% Dimexon Diamonds Ltd 8.89% 8.17% Goenka diamond Jewel Ltd 9.64% 8.79% Mohit Diamonds Pvt Ltd 4.45% 4.26% SB T International Ltd 7.08% 6.61% Suashish Diamonds Ltd -0.57% -0.57% Zodiac-JRD-MKJ Ltd 5.75% 5.44% Assessee 6.00% 5.58% Operating Profit of the assessee (Including Exchange Difference) 1.16% 1.15% Net Sales 658,767,157 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; Turnover Assets Employed Risk Undertaken Functions performed Source of Purchase of Rough Diamonds -Making adjustment on total turnover of the appellant instead of AE transactions only After narrating the facts, it was submitted by the Ld. Authorised Representative (AR) that the issue that whether or not gain on foreign exchange should be considered as part of profit for computing Arm Length Price (ALP) is no more res-integra as this proposition is well settled by the following decisions of the Tribunal: Sap Labs India (P.) Ltd. v. Asstt. CIT [2011] 44 SOT 156/[2010] 8 taxmann.com 207 (Bang.) Where in vide para 42 of the order it has been held that foreign exchange fluctuation gain is nothing but an integral part of the sale proceeds of an assessee. Following observations of the Tribunal from the said decision are re-produced below: We considered the issue carefully. The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business. This proposition has been time and again considered in cases arising in the context of s. 80HHC. The Court and the Tribunals have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for any adjustment to the price declared by the assessee, since the assessee's margin would fall within the Arms Length range. We therefore, hold that no adjustment is required to be made on the margin declared by the assessee for the international transaction of the associated enterprises in relation to software development services. We direct accordingly. 2. Trilogy E Business Software India (P.) Ltd. v. Dy. CIT [2011] 47 SOT 45 (URO)/12 taxmann.com 464 (Bang.) Wherein similar proposition was accepted with the following observations. Copy placed on record and given to the Ld. DR With regard to computation of margins of the assessee under 'Foreign Exchange Gain' we find that an identical issue had cropped up before the earlier Bench wherein the Hon'ble Bench in the case of Sap Labs India (P.) Ltd., v. ACIT referred supra had held that the foreign exchange gain needs to be considered as being operating in nature while determining arm's length price. In conformity with the said finding, we decide the issue in favour of the assessee 3. Order dt. 23-01-2013 in ITA No. 7148/Mum/2012 Sumit Diamond India (P.) Ltd. v. Addl. CIT. The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither side and after referring to the details as placed in the APB, we are of the considered opinion that the AO/TPO were not justified in excluding gain on foreign exchange fluctuation from the total revenues, as held by the decision of Saps Labs (supra). The Special Bench in the case of ACIT v. Prakash I Shah, ITA No. 6349/Mum/2004 (where one of us a party), reported in 115 ITD 167, it was held, Foreign exchange fluctuation gain is a part and parcel of export turnover for the purposes of section 80HHC . . Since the issue of foreign exchange fluctuation being part of operations has been laid at rest and since there are neither any contrary decision nor any reference to the High Court, we are inclined to accept the arguments of the assessee on this issue and observe that we cannot take into consideration the decisions referred to by the DR. 8. Copy of all these decisions were placed on record and also was given to Ld. DR. Ld. AR further submitted that though TPO has accepted that to bring the case of the assessee at parity with the comparables on inclusion of gain on foreign exchange in the Operative Profit, but while computing the profit margin of the assessee, he has exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade. 11. We have carefully considered the rival submissions in the light of material placed before us. The proposition that gain on foreign exchange if it relates to the business of the assessee is part and parcel of operating income is well established by the afore-mentioned decisions of the coordinate benches. In the present case, nothing has been brought on record to suggest that the gain made by the assessee on fluctuation of foreign exchange was not on account of business transactions of the assessee. In absence of any such material, following the afore-mentioned decisions of the Tribunal, it has to be held that the foreign exchange gain of the assessee is to be considered as part and parcel of the profit of the assessee and therefore should be included for the purpose of computing the profit margin of the assessee. Moreover, Ld. TPO has clearly observed that to bring parity of the comparables with the assessee, foreign exchange gain is included as well in the case of comparables and after including such gain of the comparables, he has re-worked the margin of the comparable entities. However, while computing the margin of the assessee, TPO ignored the gain of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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