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2017 (1) TMI 674 - AT - Income TaxTransfer pricing adjustment - ALP adjustment - Held that:- As clarified in the Memorandum explaining the provisions of the Finance Bill 2002 which, while inserting the words “For the purpose of sub section (1) of section 92A” in Section 92A(2), had observed that “It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled”. In our considered view, therefore, the assessee and Blue Gems BVBA cannot be said to be associated enterprises. As these enterprises are not associated enterprises, the ALP adjustments in respect of the transactions between these enterprises were wholly unwarranted. For this short reason, and without going any further into the matter, we approve the impugned deletion of ALP adjustment. The plea of the assesse, in cross objection, is upheld and, for that reason, grievance of the Assessing Officer, in appeal, is dismissed as infructuous. Section 68 addition as well as interest expenditure incurred there upon - Held that:- Assessing Officer as well as DDIT (Inv) were first of all of the opinion that although six out of seven entities were based at Mumbai whereas their business were in Surat, they were able to trace all these creditors later on and get statement of their authorised persons recorded in the corresponding proceedings. It is thus not a case of identity dispute. Coming to the capacity aspect of the creditors, the assessee has already proved that its transactions have been routed through banking channel including repayment. We accordingly find no reason to interfere with CIT(A)’s observation hereinabove deleting the impugned section 68 addition as well as interest expenditure incurred there upon. This Revenue’s substantive ground on both these aspects is accordingly declined. - Decided in favour of assessee Disallowance of provision of forward contract payable - whether the entry passed in the books of account in respect of difference in exchange rate cannot be said to be in the nature of notional/unascertained liability - Held that:- The assessee has admittedly made the impugned provision in view of difference in exchange rate as on the date of booking of its forward contract vis-a-vis exchange rate prevailing as on 31.03.2008. It has fortified its claim in view of ABN Amro Bank’s MTM certificate forming basis of the impugned provision. The Revenue fails to dispute that the assessee has followed mercantile system of accounting instead of cash system and it is accordingly supposed to account for all expenses/gains in the P&L account on the said basis. It thus emerges that assessee had sufficient reason to treat the impugned liability arising on account of foreign exchange rate difference so as to make the impugned provision as per the relevant accounting standard issued by the Institute of Chartered Accountants of India. We thus find no reason to restore the impugned disallowance.
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