TMI Blog2016 (9) TMI 1070X X X X Extracts X X X X X X X X Extracts X X X X ..... cancelled forward contract, that cannot be a reason to treat the gain arising on account of cancellation of forward contract as revenue receipt. Since the transaction was relatable to acquisition of capital asset, namely, plant and machinery by way of import from Japan, this Tribunal is of the considered opinion that the gain due to foreign exchange fluctuation would definitely be on the capital field. Therefore, this Tribunal is unable to uphold the order of the Assessing Officer. Accordingly, the orders of the Assessing Officer are set aside. The Assessing Officer is directed to treat the gain arising out of the foreign exchange fluctuation on account of cancellation of forward contract as capital receipt. Credit of advance tax denied - Held that:- When the assessee has paid advance tax to the extent of ₹ 54,61,897/-, the same has to be given credit while computing the tax payable by the Assessing Officer. Under normal circumstances, income-tax has to be paid on the assessed income. However, the Income-tax Act provides for payment of tax on income in advance before assessment of total income. When the assessee pays the tax in advance as per the scheme of Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the same or similar functions. Since the TPO as well as the DRP have not selected the companies which are engaged in the same or similar functions as that of the assessee-company, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Transfer Pricing Officer. Accordingly, the orders of the authorities below are set aside and the issue of transfer pricing adjustment is remitted back to the file of Assessing Officer. The Assessing Officer shall refer the matter once again to the Transfer Pricing Officer. The Transfer Pricing Officer shall find out the companies which are performing same or similar functions as that of the assessee-company and thereafter decide the issue in accordance with law after giving a reasonable opportunity to the assessee. It is open to the assessee to file objection to the order of the Transfer Pricing Officer. When such an objection is filed, the matter shall be referred to DRP once again to determine in accordance with law. - ITA No. 361/Mds/2014 - - - Dated:- 15-7-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member Appellant by : Shri Sriram Seshadri, CA Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange fluctuation is not liable for taxation. Referring to the judgment of Apex Court in CIT v. Tata Locomotive and Engineering Co. Ltd. (1966) 60 ITR 405, the Ld. representative submitted that the Dispute Resolution Panel failed to appreciate that even though no plant and machinery was imported due to cancellation of the unit in Tamil Nadu, the forward contract was taken in the course of import of plant and machinery, which is a capital asset, hence, the gain has to be classified as capital receipt, therefore, the DRP ought not have directed the Assessing Officer to treat the gain on foreign exchange fluctuation as revenue receipt. 5. On the contrary, Smt. Vijayalakshmi, the Ld. Departmental Representative, submitted that had the assessee imported plant and machinery, the gain due to foreign exchange fluctuation may go to reduce the cost of the plant and machinery. In the case before us, admittedly, the assessee has not imported any plant and machinery, therefore, there is no question of increasing or decreasing the cost of asset due to foreign exchange fluctuation. According to the Ld. D.R., foreign exchange gain in forward contract is a reality which cannot be associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The question arises for consideration is when the assessee gained to the extent of ₹ 25,82,81,725/- due to foreign exchange fluctuation, whether the same would be classified as revenue receipt or capital receipt? The fact remains that the forward contract was taken to insulate / protect the assessee from the possible loss that may be suffered due to foreign exchange fluctuation in the course of purchasing of plant and machinery. It is not in dispute that the plant and machinery which was proposed to be purchased for the purpose of setting up of plant in the State of Tamil Nadu, which is a capital asset. When the assessee cancelled / suspended the setting up of plant in the State of Tamil Nadu and cancelled the forward contract, this Tribunal is of the considered opinion that the loss or gain would be relatable to the purchase of capital asset, namely, plant and machinery. Therefore, the loss or gain arose to the assessee due to cancellation of forward contract on account of foreign exchange fluctuation has to be treated as capital in nature. Merely because the assessee suspended the setting up of plant in Tamil Nadu and cancelled forward contract, that cannot be a reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of the Assessing Officer. The Assessing Officer shall verify the details of advance tax paid by the assessee and thereafter give necessary credit, if the advance tax was actually paid by the assessee. 13. The next issue arises for consideration is with regard to interest under Section 234C of the Act. 14. Shri Sriram Seshadri, the Ld. representative for the assessee, submitted that interest under Section 234C of the Act has to be levied on the returned income and not on the assessed income. In this case, the Assessing Officer levied interest on the assessed income and not on the returned income. 15. On the contrary, Smt. Vijayalakshmi, the Ld. Departmental Representative, submitted that Section 234C of the Act provides for interest for non-payment of advance tax within the time prescribed. Referring to Section 234C of the Act, the Ld. D.R. submitted that the assessee has to pay the advance tax as per the scheme framed in Section 234C of the Act. In the absence of any payment of advance tax, according to the Ld. D.R., the Assessing Officer has rightly levied interest under Section 234C of the Act. 16. We have considered the rival submissions on either side and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., the Ld. representative submitted that the TPO found that no segmental analysis was available. The TPO has also found that CSS Technergy Ltd. provides engineering and information technology services to utilities, aerospace and healthcare. Similarly, Tata Elxsi Ltd., Vama Industries Ltd. and KLG Systel Ltd. were also rejected by the TPO on the ground that their functions are not similar to that of the assessee-company. The Dispute Resolution Panel, however, classified the assessee s function as Knowledge Process Outsourcing. According to the Ld. representative, the function of the assessee is design engineering services and not knowledge process outsourcing. None of the company selected by the TPO are engaged in the business of providing engineering design service. All the companies selected by the assessee and compared by the TPO are engaged in IT enabled services. Therefore, the comparison made by the TPO with that of the companies which are not doing similar functions, cannot be a foundation for making transfer pricing adjustment. According to the Ld. representative, without comparing the comparable companies which are performing similar functions, the DRP proceeded on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Functional similarity is one of the relevant factors for the purpose of comparing the assessee s transaction with that of transaction of comparable company. If the transaction of the assessee-company with its associate enterprise is totally different from comparable companies, then the same cannot be compared instantly for the purpose of determining the arm's length price. This Tribunal is of the considered opinion that for the purpose of comparing the comparable transaction with that of transaction of assessee for the purpose of determination of arm's length price, the TPO as well as the DRP have to find out the companies which are engaged in the same or similar functions. Since the TPO as well as the DRP have not selected the companies which are engaged in the same or similar functions as that of the assessee-company, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Transfer Pricing Officer. Accordingly, the orders of the authorities below are set aside and the issue of transfer pricing adjustment is remitted back to the file of Assessing Officer. The Assessing Officer shall refer the matter once again to the Transfer Pricing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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