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TMI Blog2012 (7) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... nover for the purpose of deduction u/s.10AA by adjusting the exchange gains/losses from the export realization, instead of considering the actual export realizations. 4. For that Assessing Officer erred in holding that where an adjustment has been made in the export turnover, a corresponding adjustment need not be made in the value of total turnover for the purpose of computing deduction u/s.10AA. 5. For that while determining Arms' Length Price the Assessing Officer erred by taking into account only those transactions where the sale price to Associated Enterprise was lower than the sale price to non-Associated Enterprise, ignoring the instances where the sale price to Associated Enterprise exceeded the sale price to non-Associated Enterprise. 6. For that Assessing Officer erred in computing Arms' Length Price by considering only the negative differential on sales to Associated Enterprise and ignoring the positive differential on purchases from Associated Enterprise. 7. For that Assessing Officer erred in holding that the 5% toleran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale proceeds. He submitted that the issue was squarely covered by the decision of the Hon'ble Gujarat High Court in the case of CIT v. Amba Impex [2006] 282 ITR 144/[2007] 164 Taxman 344 wherein the Hon'ble Gujarat High Court held that foreign exchange fluctuation is liable to be treated as part of the sale proceeds and consequently liable to be included in the export turnover. In reply, Ld. DR vehemently supported the order of the Assessing Officer. 6. We have considered the rival submissions. As it is noticed that the issue is now settled by the decision of the Hon'ble Gujarat High Court in the case of Amba Impex (supra), the Assessing Officer is directed to re-compute the deduction u/s.10AA by including the exchange gain and loss when computing the export turnover. 7. In regard to Ground Nos.5,6, 8 & 9, it was submitted by the Ld. AR that the issue was against the determination of the Arm's Length Price (ALP) by the Assessing Officer. It was the submission that when computing the ALP, the Assessing Officer had taken into account only those transactions where the sale price to Associate Enterprise (AE) was lower than the sale price to non-Associated Enterprise (non-AE) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the country. It was the submission that this is not case where the assessee is only purchasing the products or only selling the products. It was the submission that the assessee was buying and selling the products to the AEs. It was the further submission that on comparison with the non-AE when the pricing is considered by applying the CUP method, the same could be done only if a reasonable comparison could be made and only if direct methods were available. It was fairly agreed by the Ld. A.R. that assessee itself agrees with the applicability of CUP method. It was the submission that when applying the CUP method as the transaction done by the assessee was continuous transaction with the AEs, the consolidated effect of all the transactions between the assessee and the AEs must be considered as a whole. As otherwise it would lead to a situation where the assessee would be making very high margins in some cases and very low margins in some cases and where the transactions show high margins, the same would stand accepted and in the transactions were low margins, the same would call for an adjustment, which would in effect be inflating the margins of the assessee to disproportiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions' come to the forefront in the present case. In the assessee's case, the transaction with the AE is not one of simple purchase or simple sale. The assessee purchases from one and sells to another. The assessee has purchased from its AE in Hongkong, Srilanka, Malayasia, Pakistan and RANDY Asia and has sold to its AE in Srilanka, Korea, Hongkong, Gulf, Egypt, Bangladesh, Malayasia, Taiwan, UK and Pakistan. In regard to the sales made by the assessee, the transaction with Bangaladesh is in positive, the transaction with Egypt is in negative, the transaction with Gulf is in the positive, the transaction with Hongkong is in negative, the transaction with Korea is in positive, the transaction with Srilanka is in the negative, the transaction with Malayasia is in the negative, the transaction with Pakistan is in the negative, the transaction with Taiwan is in the negative and the transaction with UK is in the negative. Thus, what is noticed is that on the purchase the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (ii) The assessee's sale price is adjusted to ALP at Rs. 17/-. Thus, the profit of the assessee will be determined at Rs. 7/-. Now if we compare the profitability, Assessee's purchase and sale to AE is Rs. 5/-. Percentage of profit = 5 x 100 = 33.33% 15 Non-AE purchase & sale is Rs. 5/- Percentage of profit = 5 x 100 = 29.41% 17 After adjustment profit is Rs. 7/- Percentage of profit = 7 x 100 = 41.17% 17 Thus the profitability if considered without considering the positive deviations would lead to impossible profitability positions, which is not what is contemplated under the provisions of 92C. In the circumstances, the Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP, if any. In the circumstances, the grounds Nos. 5, 6, 8 & 9 of the assessee stand partly allowed for statistical purposes. 9. In regard to ground No.7, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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