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2017 (5) TMI 729 - AT - Income TaxSection 36(1)(iii) interest disallowance - CIT-A deleted the addition - Held that:- CIT(A) has followed his preceding assessment year’s reasoning in granting relief to the assessee on identical lines. No distinction on facts has been pointed out in the course of hearing pertaining to the two assessment years. Learned co-ordinate bench observes therein that the Assessing Officer has not brought anything on record to indicate interest bearing funds utilized in the capital work in progress. We accordingly adopt the same view herein as well to decline this first substantive ground against revenue Excess depreciation disallowance - CIT-A deleted the addition - Held that:- The relevant figures involved in the impugned assessment year qua this depreciation issue are only consequential to those involved and decided in the immediate preceding assessment year since there is no new addition herein. His case therefore is that the preceding assessment years findings not modified in any manner so far shall apply mutatis mutandis herein as well. The Revenue fails to rebut this crucial factual position. We thus find that the CIT(A) has rightly deleted the impugned disallowance. The Revenue’s second substantive ground is accordingly rejected. Transfer pricing adjustment - CIT(A) treated foreign exchange fluctuation gain/loss as an operating item not to be excluded for the purpose of computing arm’s length price - Held that:- The Revenue fails to rebut application of the extracted judicial pronouncements holding identical foreign exchange fluctuation gains/losses as operating item under the transfer pricing parlance. We thus affirm CIT(A)’s findings on this third issue as well. Non considering windmill income as an operating income for the purpose of determining the arm’s length price in question - Held that:- CIT-A held that it was a universal practice followed under transfer pricing regulations to exclude interest from the operating revenue for computing the net profit from the operating activity except where the earning of interest itself was the main activity. In this view he held that the interest income cannot be considered as the assessee’s operating income. He also found that the interest income in the present case was not so interwoven with the international transaction that it cannot be separated. No reason to disturb learned CIT(A)’s conclusion excluding assessee’s windmill income in computing the arm’s length price in question. Mr. Dhinal Shah then invites our attention the above extracted portion clause (g) not only excluding the said assessee’s interest income but also the corresponding interest expenditure. We find merit in this alternative plea as even the above judicial precedent has adopted the very course of action. The Transfer Pricing Officer is accordingly directed to re-finalize consequential computation treating both windmill income and expenditure as non operating for computing the arm’s length price in question after affording adequate opportunity of hearing to assessee. The instant cross objection is partly accepted for statistical purposes.
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