TMI Blog2016 (11) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of disallowance of the provision for liquidated damages. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 12,10,74,346/- on account of foreign exchange fluctuation loss. 3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 23,93,22,490/- for the purpose of computing the book profit u/s 115JB of the IT Act. 4. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 3,19,22,989/- on account of transfer pricing addition u/s 92CA(3) of the IT Act. 2. Brief facts of the case are as under: 2.1 Ericsson India Private Limited (hereinafter referred as 'the assessee') is a company incorporated under the Indian Companies Act, 1956. The assessee is a wholly owned subsidiary of Telefonaktiebolaget LM Ericsson, Sweden ('LME'). LME is the ultimate holding company of all Ericsson Group Companies located in various countries across the globe. 2.2 During the relevant Assessment Year 2005-06 under consideration, the assessee was engaged in the business of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of liquidated damages is allowable as liability accrued in the year under appeal, hence allowable under section 37(1) of the Act. Assessment Year 2002-03 : 20. Thus, it has been concluded by the Tribunal that liquidated damages is allowable as liability accrued in the year under appeal, hence, allowable u/s 37(1) of the Act. No material has been brought on record by the Revenue that the facts of the present year differ from the facts in assessment year 2001-02. One of us (i.e., Accountant Member) is the party to the said decision. Following the said decision of the Tribunal which is in assessee s own case for preceding year, we allow both the grounds. We hold that liability regarding liquidated damages is allowable liability during the year under consideration, hence, could not be added either under normal computation of income or while computing income u/s 115JB of the Act. These grounds raised by the assessee are allowed. Assessment Year 2003-04 2004-05: 25. In the assessment orders, the A.O. made disallowance of ₹ 252,679,327/- and Rs.156,071,161/- in Assessment Year 2003-04 and 2004-05 respectively, claimed as provision for liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be validly applied. Their Lordships have confirmed the decision of ITAT in the case of ONGC which was held to have rightly followed the settled position as explained in the judgement of Hon'ble Supreme Court which were referred to before Hon'ble High Court and the submission of Revenue was rejected that in the revenue account cases, the increase in liability on account of fluctuation in the foreign exchange prevailing on the last day of the financial year is notional or contingent and cannot be allowed as a deduction in terms of Section 37 of the Act. It will be relevant to reproduce the following observations of their Lordships from the said decision:- 46. We may briefly summarise our conclusions: (i) The judicially accepted position appears to be that in determining whether there has in fact been accrual of liability or income. - the accountancy standards prescribed by the ICAI would have to be followed and applied. (ii) In the context of the revenue account cases, we affirm the decision of the ITAT in Oil Natural Gas Corpn. Ltd.'s case (supra) which rightly follows the settled position as explained in the judgment of the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims of deduction on account of foreign exchange fluctuation loss now stands squarely covered in favour of the assessee by virtue of the following orders of the Hon'ble ITAT in assessee's own case as well as the decision of Hon ble Jurisdictional High Court of Delhi wherein the loss due to foreign exchange fluctuation while importing goods was held to be allowable as a revenue loss :- 1. Assessment year 2002-03 in ITA No. 695/0/2006. Refer to para 27 at page 75 of this compilation. 2. Also covered in favour of assessee by the decision of Jurisdictional High Court of Delhi in the case of CIT v / s. Woodward Governor, 294 ITR 451 (Copy placed at pages 93 to 123 of this compilation of assessee.) 34. On the other hand, ld. DR for the Revenue was fair enough to concede to the above submissions of Id. AR for the assessee. 32. In this view of the matter and respectfully following the order (supra) of the Tribunal and the order of Hon'ble Delhi High Court in the case of Woodward Governor (supra) the issue relating to foreign exchange fluctuation loss is decided in favour of the assessee and against the Revenue. Consequently, the order of CIT(A) in this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Softeare Segment OP/TC 28% 6.2 In the Transfer Pricing (TP) study, the assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method for the determination of arm s length price for the international transactions entered by the assessee in each of the aforementioned business segments. 6.3 The Ld. TPO accepted the margins earned by the assessee in each of the three business segments. However, in respect of transaction pertaining to reimbursement of cost related to wireless segment by Associated Enterprise to assessee for purchase and supply of ancillary / non-core equipment such as antennas / filters to customer of EAB in India, was objected by Ld. TPO. The Ld. TPO considered the supply of equipment to the AE as sales and support services and added a markup of 6% on such costs to cost reimbursements thereby enhancing the total income by ₹ 3,19,22,989/- contending that the transaction must be benchmarked separately. Ld. A.O. gave effect to the order of Ld. TPO. 6.4 Aggrieved by the adjustment made, the assessee preferred appeal before Ld. CIT(A). Ld. CIT(A) ongoing through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar basis. The main purpose of undertaking such a transaction was to achieve administrative convenience for the AE. The assessee merely acts as an intermediary or facilitator for administrative convenience of the AE. Therefore, the transaction of cost recharge for supply of hardware is a mere pass through cost which is timely reimbursed to the assessee by the AE and cannot entail a markup since no service is being rendered. 7.1 It is observed that the Ld. CIT(A) has dealt with the issue a length and has examined the scope and nature of services rendered by the assessee to its AEs in each segment. Ld. CIT(A) observed as under: 36. I have carefully examined this issue and considered submissions made by the appellant in the light of the material available on record, the main bone of contention is whether the appellant has undertaken significant functions, employed significant assets and borne significant risks with respect to the cost reimbursement transaction. 37. The claim of the appellant is that with respect to the said transaction it has not undertaken any significant functions, employed significant assets and borne significant risks with respect to the cost reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuant to the Bharti Supply Contract, EAB has desired and EIL has agreed to procure and supply antennas, filters, etc. as instructed by EAB from time to time effective April 2004 to Bharti. 40. The above extract clearly indicates that the primary contract has been entered into between the AE and Bharti and the appellant purchases and supplies the equipment at the instruction of AE. The above extracts clearly indicates that the primary contract has been entered into between the AE and the appellant purchases and supplies the equipment at the instruction of the AE. 41. Based on the facts present and the material placed on record, I accept the appellant's contention that the cost reimbursement transaction was undertaken by the appellant only for administrative convenience and the appellant had not undertaken any significant activity in this regard. 7.2 We do not find any infirmity in the findings of the Ld. CIT(A). We therefore, confirm the same and dismiss this ground of appeal raised by the Revenue. 8. In the result, appeal filed by the Revenue stands dismissed. Order pronounced in the open court on 12 th Sep., 2016. - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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