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2018 (4) TMI 1637 - AT - Income TaxTPA - comparable selection criteria - functional similarity - Held that:- The assessee company mainly carried out assembly operations of the components imported from its associated enterprises. Majority of import of components of assessee company were from its parent company WIKA Germany. The assessee had entered into various international transactions with its associated enterprises including import of components from its parent company i.e. WIKA Germany and also export of finished goods and manufactured components. Different international transactions were aggregated by the assessee and TNMM method was applied as most appropriate method to benchmark international transactions of the assessee. Selection of Aplab Ltd. as functionally comparable - Whether the event of strike of 8 days would make it an extraordinary event justifying the exclusion of the said concern from the final list of comparables, where the concern was selected and adopted as comparable in the preceding year - Held that:- We find merit in the plea of assessee in this regard and hold that the margins of said concern be applied to benchmark international transactions of the assessee with its associated enterprises. However, we direct the Assessing Officer to exclude cost of ₹ 147.33 lakhs while working out the margins of said concern to be applied in order to determine mean margins of comparables. AO shall re-work the margins in line with our directions and compute the mean margins of comparables accordingly and determine the arm's length price of international transactions. Accordingly, the ground of appeal No.3 raised by the assessee is allowed. Non-allowability of working capital adjustment - Held that:- Authorized Representative for the assessee here pointed out that the DRP in para 2.4 had directed the Assessing Officer / TPO to allow working capital adjustment but the Assessing Officer / TPO have failed to follow the directions of DRP. Accordingly, we direct the Assessing Officer / TPO to comply with directions of DRP and allow working capital adjustment in accordance with law and the settled legal position on the issue and work out the adjustment on account of arm's length price. Computation of correct operating margins of assessee - whether commission income was part of operating revenue, hence there was no reason to deviate and exclude the said commission income from PLI - Held that:- The plea of assessee that commission income earned from associated enterprises was earlier included as part of operating revenue, needs verification at the end of Assessing Officer / TPO. Though the principles of res judicata are not applicable to the Income Tax proceedings but in case the facts and circumstances are similar, then there is no reason to deviate from the stand taken in earlier year. The Assessing Officer is directed to verify the plea of assessee and in case the stand of Revenue is to include commission income as part of operating revenue in earlier years, then the same merits to be included during the year under consideration also. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and compute the operating revenue accordingly. Transfer pricing adjustment made on entity level - Held that:- We find this issue is squarely covered by the ratio laid down by Hon’ble Bombay High Court in CIT Vs. Thyssen Krupp Industries India P. Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] wherein it has been held that adjustment, if any, on account of transfer pricing provisions is to be made to the associated enterprises segment only and not on entity level. Accordingly, we direct the AO / TPO to re-compute the arm's length price of international transactions of assessee with its associated enterprises on the basis of transactions with associated enterprises only and not on entity level. The ground of appeal No.6 raised by the assessee is thus, allowed. Allowing adjustment on account of foreign exchange fluctuations - Held that:- The additional ground of appeal raised by the assessee is purely legal in nature and the same is admitted for adjudication. The assessee is aggrieved by non-allowance of adjustment on account of foreign exchange gain. The issue stands settled by various decisions of Tribunal that foreign exchange fluctuation cannot be excluded from computation of operating margins of assessee company. We direct the Assessing Officer to consider the foreign exchange fluctuation as part of operating revenue of assessee after verification of the claim of assessee, for which reasonable opportunity of hearing shall be given to the assessee. Additional ground of appeal raised by the assessee is thus, allowed.
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