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2015 (12) TMI 516 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Held that:- RITES Ltd., Apitco Ltd. and Kitco Ltd be excluded from the list of comoarable as not comparable to the functions performed by different service segments of assessee - Decided in favour of assessee. Exclusion of foreign exchange gains/ loss and provision for bad debts, by calculating the PLI, treating the same as non-operating item by TPO - Held that:- We find considerable force in the submission of ld. counsel for the assessee that ld. DRP wrongly invoked Safe Harbour Rule for coming to the conclusion that forex gain/ loss was not to be treated as operating income/ loss for current assessment year because the Safe Harbour Rules, in any case, were applicable from 18-9-2013 and prior to that the said Rules could not be applied. That apart, it is not disputed that in the case of assessee forex gain/ loss was related to sale price of export, which was in US dollar. Therefore, the entire receipts were on revenue account. This issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of Woodward Governor’s (2009 (4) TMI 4 - SUPREME COURT ), wherein it has been held that forex gain/ loss in the revenue account is a trading receipt, or, as the case may be, business expenditure, allowable u/s 37(1) of the Act. We, accordingly, direct that the forex gain/ loss be treated as operating income/ loss both in the case of tested party as well as comparable and the PLI should be determined accordingly. As regards the treatment of provision of doubtful debts also, we find that the reasoning given by ld. TPO cannot be accepted because he has primarily relied on safe harbor rule for treating this as non-operating expenditure. We find considerable force in the submission of ld. counsel for the assessee, considered earlier, that provision for doubtful debts is a provision which is to be made as a part of the operating activities of business governed by the principles of prudence. We, accordingly, direct that this provision be treated as part of operating expenditure and treatment be made accordingly, because, in any view of the matter, the safe harbor rule is not applicable for the current year under consideration. - Decided in favour of assessee.
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