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2023 (11) TMI 588 - ITAT DELHITP Adjustment - action of the TPO charging mark-up on the third party costs incurred by the assessee - TPO examined whether reimbursement of expenses without any mark-up is justified in this case - According to the assessee, these expenses were not germane to the main services provided to the assessee - TPO opined that the agreement between the assessee and its associated enterprises (AEs) covers all the activities on which the assessee is expected to provide the services to its AEs HELD THAT:- As found by the ld. CIT, there were certain expenses like advertisement & publicity, business promotion and participation in trade events which were undertaken by the assessee at the request of the overseas entity. The budget in this regard is also controlled by the AE. The risk and outcome of these expenses were borne or attributed to the AE. The expenses relating to advertisement were on buying of advertisement space in the newspapers; that in such activities, the cost involved is too high and the effort required to buy such space is not much. On these reasoning, ld. CIT (A) held that they should be treated as pass through cost. From the above, we are of the opinion that ld. CIT (A) rightly held that other than these three items, all other items should be considered as part of the cost base of the appellant and should be marked up. Thus, we hold that the TPO’s order in this regard has no cogent basis. The reference to ITAT order for AYs 2002-03 & 2003-04 [2019 (12) TMI 1221 - ITAT DELHI] is also not germane as in those cases, ITAT found that the agreement was not before the authorities below. Accordingly, in the background of the aforesaid discussion, we uphold the order of the ld. CIT (A) in this regard. Foreign exchange loss being operational in nature - TPO opined that as the assessee company is a captive service provider all costs inclusive of any loss arising out of forex fluctuations and interest cost should have been marked up - assessee contended that the forex loss partakes the nature of interest cost and all the financial charges are excluded in the hands of the comparable company while calculating the PLI of the company, therefore, they should be excluded while computing the PLI of the assessee - HELD THAT:- CIT(A) correctly held Most important aspect of benchmarking analysis is treating the com parables on the same footing as in the case of the assessee and if certain expenses are excluded in the hands of the comparable same should be excluded in the hands of the tested party - in this case the tested party is the appellant. Financial charges are normally excluded while arriving at the operating margins. This matter was subject matter of adjudication for the AY 2003-04 [2019 (12) TMI 1221 - ITAT DELHI] The Ld. predecessor also has held that these expenses as non operating in nature. Thus forex fluctuation loss and interest expenses should be excluded while computing the PLI of the assessee.
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