2022 (11) TMI 1104 - AT - Income Tax
TP Adjustment - Foreign exchange fluctuation gain - treated as operating income while computing the operating profit margin - recourse to Safe Harbour Rules - HELD THAT:- As firstly Safe Harbour Rules can be applied only at the option of the assessee and not otherwise. In any case of the matter, in the facts of the present appeal, TPO has made adjustment without taking recourse to Safe Harbour Rules. That being the case, contention of CIT(DR) cannot be accepted.
Before us, assessee has furnished a working to demonstrate that, in case, foreign exchange fluctuation gain is treated as operating income, assessee’s margin would be 7.88%, which will come within the range of + 3% of average operating profit margin of comparables worked out at 9.91%. AO is directed to verify the working and delete the addition.
TP adjustment on account of delayed receivables from AE - assessee received remittances after expiry of credit period - re-characterizing the delay in receipt of receivables as unsecured loan, the AO computed interest by applying rate of 4.33% on the basis of 6 months LIBOR with a mark-up of 400 basis points - HELD THAT:- We agree with CIT (DR) that there may be instances where the AE is benefited due to delay in remitting the outstanding receivables, however, it depends upon the facts of each case. In the present case, admittedly, the assessee has very negligible interest liability. On perusal of materials placed before us, it is observed that the only borrowing made by the assessee is loan availed for purchasing vehicle. There is no dispute that the assessee had utilized the loan for the purpose of which it was availed and paying interest on that. Further, on perusal of the documents placed before us, it is observed that in the year under consideration, the assessee has paid interest of small amount - Thus, from the aforesaid facts it is clear that the assessee is more or less a debt free company, whereas, it has substantial reserve and surplus. Thus we hold that no adjustment on account of interest on outstanding receivables can be made in the facts of the present appeal. Accordingly, we delete the adjustment.