TMI Blog2017 (7) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... w of our finding on the issue above, we do not find any substance in these additional grounds of the assessee. Working capital adjustment - Held that:- We find that the assessee did not claim working capital adjustment either before the TPO or before the DRP nor the assessee has given any working in the TP study regarding working capital adjustment. The learned Authorised Representative of the assessee has submitted that the assessee raised advance from the AE and therefore an appropriate working capital adjustment has to be granted. We find that this claim of the assessee is not supported by the agreement as there is no clause for giving any advance against the purchase price payable by the assessee. Therefore if the assessee received loan or other advance which is not an advance against the export then the claim of the assessee cannot be accepted. Treatment to foreign exchange gain/loss as operating in nature - Held that:- If the foreign exchange fluctuation gain or loss is arising from the sales realization then it will be operating in nature. However, it would be considered as part of the operating revenue or cost only when such gain or loss is arising from the realizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s comparable to it under the external TNMM approach are not comparable. On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice. 3. Ground No.1 is general in nature and does not require any specific adjudication. 4. Ground Nos.2 3 are regarding rejection of Transfer Pricing documentation of the assessee by the Transfer Pricing Officer ( TPO ) The assessee is engaged in the business of trading in cotton bales. The assessee purchased cotton bales from various factories in India and sold to its Associated Enterprises (AEs) as well as in domestic market. The international transactions as well as segment results have been reproduced by the TPO in paras 3 3.2 as under : 3. International Transactions (as mentioned in the 3CEB report) Particulars Amount Sale of Cotton Bales 556,531,849 Advance Received towards export of Cotton Bales 238,164,943 Total 794,696,792 3.2. Segmental results as reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale of cotton bales to AE as well as non-AE segments. The purchase for both the segments are made from various vendors in India at prevailing market price. The TPO took the average sale price of cotton bale as furnished by the assessee for AE segment as well as non-AE segment @ ₹ 13,141 per cotton bale and ₹ 14,723 per cotton bale respectively as against the average purchase price of cotton bale of ₹ 14,765 per cotton bale in AE segment and ₹ 13,943 per cotton bale in non-AE segment. Thus the TPO found that the profit margin in non-AE segment was 4.32 % on cost and in AE segment was (-) 11.91 %. The TPO noted that the loss in the AE segment is due to high purchase price and low sale price when compared to non-AE segment. It was also noted that the assessee has losses only in AE segment and there are profits in non-AE segment although the purchases are made locally involving the same method. In view of the above reason the TPO rejected the TP document as well as the external TNMM method adopted by the assessee. The TPO adopted the internal TNMM as the assessee is also selling the cotton bales to non-AE. The TPO determined the Arm s Length Price ( ALP )/mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward contract and has suffered losses which is extraordinary in nature. Thus the learned Authorised Representative has reiterated the assessee's stand as taken before the authorities below and submitted that the loss suffered by the assessee due to default of purchase forward contract of the vendor shall be treated as extra-ordinary in nature for the purpose of determining the ALP. 6. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that in the case of the assessee the economic and financial scenario of AE and non-AE are similar and comparable. Therefore when an internal comparable is available which is direct and close relationship to the transaction then as per the OECD Guidelines the internal comparable should be preferred than the external comparable. He has further submitted that once the internal comparable is available then there is no need to go for the external comparables. 7. We have considered the rival submissions as well as the relevant material on record. The international transactions of the assessee are export of cotton bales to the AE. Therefore there is no value addition by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cotton bales from local market. It is contended that the local market vendor has defaulted the forward contract obligation and therefore the assessee had to purchase cotton bales from the market at the prevailing price and supply the same to the AE at a lesser rate as per the forward contract. It is pertinent to note that the concept of forward contract is to hedge the fluctuation of the price in future and is adopted when the parties are dealing independently without any mutual interest. Therefore to avoid the risk due to the fluctuation of the price in future the parties enter into forward contract for purchase or sale of the goods at a pre-agreed price. In the case on hand, the assessee has entered into a forward contract with the AE. Since both the parties of the contract are related parties therefore, the agreement between the related party does not serve the very purpose of entering the forward contract because a loss to either of the party will not be the gain to the other party. The forward contract serves its purpose only between independent parties and therefore in the case of fluctuation in the price in future if protects the interest of the parties independently in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant sold goods to domestic customers under forward contracts. We pray to the Hon. Bench to admit the above additional grounds of appeal. 10. We have considered the rival submissions as well as the relevant material on record. The additional ground No.1 is regarding working capital adjustment. We find that the assessee did not claim working capital adjustment either before the TPO or before the DRP nor the assessee has given any working in the TP study regarding working capital adjustment. The learned Authorised Representative of the assessee has submitted that the assessee raised advance from the AE and therefore an appropriate working capital adjustment has to be granted. We find that this claim of the assessee is not supported by the agreement as there is no clause for giving any advance against the purchase price payable by the assessee. Therefore if the assessee received loan or other advance which is not an advance against the export then the claim of the assessee cannot be accepted. Accordingly in the facts and circumstances of the case when the assessee has not claimed working capital adjustment before the authorities below and this claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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