TMI Blog2017 (11) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... ons as well. A part of such exchange loss which pertains to borrowing made by the assessee from Teva Pharmaceuticals Finance Netherlands B.V., should be considered as non-operating and the remaining amount, if any, pertaining to trading transactions should be taken as operating expense. Needless to say, the assessee will be allowed a reasonable opportunity of hearing before taking any decision for the purposes of computing the assessee’s ‘Operating costs’ to find out its OP/OC. Selection of comparable - Held that:- The assessee’s aggregated international transaction under consideration is manufacturing and contract R&D, and companies functionally dissimilar with that of assessee need to be deselected from final list. - ITA No.6706/Del/2016, Stay Appln. No.601/Del/2016 And ITA No.6706/Del/2016 - - - Dated:- 3-11-2017 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER For The Assessee : Shri Himanshu Sinha Ms Vrinda Tulshan, Advocates For The Department : Mrs Y.S. Kakkar, CIT, DR ORDER PER R.S. SYAL, VP: Since the appeal has also been taken up for hearing today along with the Stay Application and the same is being dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO reduced Exchange loss of ₹ 112.40 million from total expenses for calculating Operating costs . The assessee had selected 22 companies as comparables, which have been listed on pages 9 to 11 of the TPO s order. The TPO carried out a fresh search and, eventually, shortlisted nine companies as comparable, which include two companies from the assessee s lists, namely, Shilpa Medicare Ltd. and Sri Krishna Pharmaceuticals Ltd. Average OP/OC of such nine companies was computed at 13.02%. By applying this PLI as a benchmark, the TPO worked out transfer pricing adjustment of ₹ 42,87,51,255/-. The assessee approached the Dispute Resolution Panel (DRP) which gave certain directions. The TPO, while giving effect to such directions, computed the fresh amount of transfer pricing adjustment at ₹ 40,91,86,032/-, which amount stood added by the Assessing Officer in the final assessment order. The assessee is aggrieved against such transfer pricing addition. 5. The first issue challenged before the tribunal is the exclusion of Exchange loss of ₹ 112.40 million from total expenses. The TPO treated such amount as of non-operating nature and, hence, excluded it from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction of borrowing from the assessee s AE, we cannot uphold the argument put forth before us without verification. Under these circumstances, we set aside the impugned order and remit the matter to the file of Assessing Officer/TPO for ascertaining if exchange loss of ₹ 112.40 million pertains to loan transactions from the assessee s AE or trading transactions as well. A part of such exchange loss which pertains to borrowing made by the assessee from Teva Pharmaceuticals Finance Netherlands B.V., should be considered as non-operating and the remaining amount, if any, pertaining to trading transactions should be taken as operating expense. Needless to say, the assessee will be allowed a reasonable opportunity of hearing before taking any decision for the purposes of computing the assessee s Operating costs to find out its OP/OC. 7. The next issue raised before the tribunal is about certain comparables. Before proceeding to deal with the comparables, it is significant to note that the assessee is engaged in the manufacturing of APIs, other intermediaries and bulk drugs. The first international transaction is sale of bulk drugs/bulk drug intermediates. The TPO aggregated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... progress in the total amount of Fixed assets for working out the relevant filter. Capital work in progress represents the amount spent by the company on fixed assets, but, was pending apportionment to various fixed assets at the end of the year. If we go with the logic of the ld. DR justifying the exclusion of Capital work in progress that only the fixed assets resulting in sales should be considered and the fixed assets which do not contribute to sales should be excluded, then, it would require independent evaluation of each and every item of fixed assets as to whether the same was being used for the business purpose or not. Obviously, this is not a correct proposition. Since the filter taken by the TPO himself is sales to fixed assets, not only the apportioned, but, non-apportioned cost of fixed asset should also be included. If we include the amount of Capital work in progress along with Tangible assets given under the head Fixed assets , the filter will pass. We, therefore, overturn the view point of the TPO and, order for the inclusion of this company in the list of comparables. (ii) Neuland Laboratories Limited 10. The TPO excluded this company from the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion of this company in the final tally of comparables. The ld. AR submitted that the TPO went wrong in computing OP/OC of this company. Referring to the order dated 20.6.2017 passed by the TPO u/s 154 of the Act, the ld. AR submitted that the TPO treated Loss of forward contracts and MTM of forward contracts as non-operating items, which ought to have been considered as operating. 13. Having regard to the facts of the instant case, we find that the assessee did not raise any objection before the DRP on this issue. Since the issue of Loss of forward contracts and MTM of forward contracts has not received consideration at the hands of any of the authorities below, we are of the considered opinion that the ends of justice would meet adequately if the Assessing Officer/TPO is directed to examine this contention of the assessee and then decide it as per law. 14. No other issue except the points discussed above were argued by the ld. AR. The grounds agitating other issues, not argued before us, are, therefore, dismissed as not pressed. 15. To sum up, we set aside the impugned order on the issue of addition towards transfer pricing adjustment and remit the matter to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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