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2015 (9) TMI 178 - AT - Income TaxComputation of Profit Level Indicator (PLI), being, the Operating Profit/Total Cost (OP/TC) of the assessee - Advances written off treated as non-operating in the calculation of its OP/TC by assessee - TPO held it to be an operating cost - Held that:- On a pertinent query, it was admitted by the ld. AR that the Advances so written off were given in relation to trading items. Like debts becoming bad from the sale of goods assuming the character of operating cost, the advances given in relation to trading items, becoming non-recoverable, also cannot be considered as anything other than an item of operating cost. In our considered opinion, such amount has rightly been considered as an operating cost. Fixed assets written off - Held that:- The amount of ₹ 3,84,196/- is distinct from the amount of depreciation claimed by the assessee at ₹ 1.45 crore. This represents a loss on the fixed assets which has been written off. The purchase of fixed assets is capital expenditure. As such, the amount of fixed assets when written off, otherwise than by depreciation, falls for consideration as an item of non-operating cost. We, therefore, accept the assessee’s contention for treating this sum of ₹ 3,84,196/- as non-operating. Loss on foreign exchange - Held that:- The amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both of the assessee as well as comparables. We, therefore, hold that the AO was justified in considering forex loss as operating cost as against the assessee’s claim of non-operating cost. Computation of transfer pricing adjustment in respect of transaction with Associated Enterprises (AEs) and non-AEs - AR contended that no transfer pricing adjustment is possible in respect of transactions with non-AEs - Held that:- As the entire exercise under Chapter-X is confined to computing total income of the assessee from international transactions having regard to the arm’s length price, there is no scope for computing income from non-international transactions having regard to the ALP. As the TPO has computed the transfer pricing adjustment qua all the transactions carried out by the assessee with reference to the base of ‘total costs’, also inclusive of costs relevant for transactions with non-AEs, we vacate the impugned order on this issue and restore the matter to the file of the TPO/AO for recalculating the amount of addition of transfer pricing adjustment by taking into consideration the international transactions only under this segment, to the exclusion of transactions with non-AEs. Non considering operating profit margin from internal comparables in computing the ALP of international transactions - Held that:- Various Benches of the Tribunal have repeatedly held that internal comparables should be preferred over external comparables, if these are actually comparables. The Mumbai bench of the tribunal in Gharda Chemicals Ltd. vs. DCIT (2009 (11) TMI 653 - ITAT MUMBAI ) has held that internal comparables should be preferred over the external comparables. Since this issue was not taken up before the TPO and the DRP has not given any finding on specific objection taken before it in this regard, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of the TPO/AO with a direction to decide this issue afresh, as per law, after allowing a reasonable opportunity of being heard to the assessee. Disallowance on account of expenses incurred for improving the existing product - Held that:- Both the sides are in agreement that the facts and circumstances of this ground are mutatis mutandis similar to ground no. 3 of the assessee’s appeal for the AY 2005-06. Vide our separate order passed for the said earlier year, we have accepted the assessee’s claim in this regard by relying on an earlier order passed by the Tribunal in the assessee’s own case for the AY 2007-08. This ground is, therefore, allowed in favour of the assessee
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