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2019 (6) TMI 478

ng margin under the TNMM both for the assessee as well as the comparables - HELD THAT:- There is no doubt that in such rules, forex gain/loss has been treated as non-operating. However it is pertinent to note that such rules are not applicable to the assessment year under consideration. Even the reliance of the DR on certain decisions taking cognizance of safe harbour rules for the period anterior to their insertion in other contexts, does not improve the case of the Department. Following the judgment in Principal Commissioner of Income Tax Vs. Ameriprise India Private Limited [2016 (3) TMI 1272 - DELHI HIGH COURT] holding foreign exchange gains earned by the assessee, which is in relation to trading items and emanating from international transactions, cannot be treated as non-operating losses and gains, the Hon’ble Delhi High Court in Pr. CIT VS. B.C. Management Services Pvt. Ltd. [2017 (12) TMI 255 - DELHI HIGH COURT] reiterated held that foreign exchange fluctuation in relation to trading transactions, prior to safe harbor rules from 2013, is operating gain or loss. The amount of foreign exchange gain/loss arising out of trading transactions is required to be considered as .....

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ation of the ALP of the international transaction of Trading segment in conformity with the foregoing discussion. - ITA No.43/PUN/2017, ITA No.100/PUN/2017 - 7-6-2019 - Shri R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, Judicial Member For the Appellant : Shri Milin Mehta For the Respondent : Shri Shivraj B. Morey ORDER PER R.S.SYAL, VP : These two appeals - one by the assessee and other by the Revenue - arise out of the order passed by the CIT(A)-13, Pune on 10-10-2016 in relation to the Assessment Year 2010-11. 2. The first issue raised by the assessee in its appeal is against the computation of Arm s Length Price (ALP) of the Manufacturing as well as Trading segment by excluding Foreign Exchange Gain/Loss (forex). 3. Briefly stated, the facts of the case are that the assessee is one of the companies of INA brand of Schaeffler group worldwide. It is a wholly owned subsidiary of Schaeffler KG, Germany. The assessee is engaged in the business of manufacturing, development, marketing and distribution of roller bearing, linear bearings system and engine components. The assessee filed its return declaring total income at Rs. Nil. Certain international transactions enter .....

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currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and invoice is raised in currency of the country where such goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports. In fact, it is only the translation of invoice value from the foreign currency to the Indian rupees. The Special bench held that the exchange rate gain or loss cannot have a different character from the transaction to which it pertains. The Bench found fallacy in the submission made on behalf of the Revenue that the exchange rate difference should be detached from the exports and be considered as an independent transaction. Eventually, the Special Bench held that such exchange rate fluctuation gain/loss arising from exports cannot be viewed differently from sale proceeds. 8. The reliance of the ld. DR on Safe Harbour rules to contend that foreign exchange gain or loss be taken as non-operating, is not sustainable. There is no doubt that in such rules, forex gain/loss has been treated as non-operating. However it is pertinent to note that .....

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the category of stewardship for which no payment was necessary. In the absence of the assessee making any comparison with similar services it could have availed from third parties, the TPO held that the ALP of this transaction was to be taken at Nil. He, therefore, recommended transfer pricing adjustment amounting to ₹ 5.25 crore vide para 8.11 on page 87 of his order. However at the end of his order on page 89, he proposed only a transfer pricing adjustment of ₹ 7,35,83,486/- in relation to the Trading segment. In the penultimate para of his order, the TPO concluded that : In view of the discussion as above, the arm s length price of the international transactions of the assessee company is not being disturbed except for transaction relating to Trading segment. 11. It can be seen from the order of the Assessing Officer that he computed total income at ₹ 7,35,83,486/- by making the solitary transfer pricing addition of the equal amount proposed by the TPO under the Trading segment to the Nil income declared by the assessee. Our attention has not been drawn towards any rectification order having passed either by the AO or the TPO on this score. 12. Though the asse .....

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2) provides that if the variation between the ALP and the price at which the international transaction has actually been undertaken does not exceed the specified margin, which at the material time was 5%, then the price at which the international transaction has actually been undertaken shall be deemed to be the ALP. The effect of this proviso is that so long as the difference between the ALP as determined by applying one of the specified methods and the price at which the international transaction was undertaken is within the prescribed percentage, no transfer pricing adjustment can be made. This proviso was substituted by the Finance (No.2) Act, 2009 w.e.f. 01-10-2009. Explanation to sub-section (2) of section 92C has clarified : that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before the Assessing Officer as on 1st October, 2009 . Thus, it is overt that even for the assessment year under consideration, namely, 2010-11, the benefit of the second proviso would be available by virtue of the Explanation given at the end of sub-section (2) of 92C. We, therefore, hold that the ld. CIT(A) was justified in extending .....

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