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2019 (7) TMI 660

e that it is an undisputed fact that the services of expat technicians were utilized by the assessee and that was for installation of new equipments. This amount is, therefore, part of the capital of the assessee and has to be taken to the Balance Sheet and it cannot be part of the Profit & Loss account either as operating or non operating expenditure. We, therefore, set aside the impugned order and direct the AO/TPO to re-compute the operating profit by excluding such expenditure from the overall expenses. Hence, additional ground No.2 of appeal of the assessee is allowed for statistical purposes. Disallowance of good work reward - amount paid to the senior level employees under Management Incentive Bonus Plan (MIBP) - addition made u/s 43B r.w.s.36(1)(ii) considering bonus - HELD THAT:- Observation of the Revenue Authorities is incorrect since the facts on records clearly demonstrates that the issue of bonus as well as issue of MIBP are in altogether different terms and conditions. The judgment of SHRIRAM PISTONS AND RINGS LTD. VERSUS CIT [2008 (4) TMI 273 - DELHI HIGH COURT] has referred to the “Good Work Reward” and it has been clearly held that it does not cons .....

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the Tribunal has referred the judgment in Pr. CIT Vs. Ameriprise India Private Limited [2016 (3) TMI 1272 - DELHI HIGH COURT] and the judgment Pr. CIT Vs. B.C Management Services Pvt. Ltd. . [2017 (12) TMI 255 - DELHI HIGH COURT] wherein it has been held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, is operating gain or loss. Thus, in view of the foregoing discussion we are of the opinion that the amount of foreign exchange gain/loss arising out of business/trading transactions is required to be considered as an item of operating revenue/cost. Thus, the ground No.3 raised in appeal by the Revenue is allowed PLI calculation - compensation income is operating income or not - one off transaction which had not occurred in any of other assessment years - HELD THAT:- CIT-A has correctly observed that compensation income of ₹ 2.65 Cr. has arisen during regular conduct of business. Without operation of the business, the assessee would not have earned this income. This income cannot be considered to be one time income to justify its exclusion on the ground of extraordinary income. Therefore, the Ld. CIT(A) has rightly di .....

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8 Cr. incurred by the appellant for the installation and commissioning new brazing furnace and implementation of new technology in place of discarded old round tube technology. 4. Before the Ld. Commissioner of Income Tax(Appeals), the assessee submitted that the additional salary cost of expat technicians in respect of newly acquired technology and fixed assets acquired amounting to ₹ 4.08 Crores which is embedded in the operating loss and it should be excluded for computation of Profit Level Indicator (PLI). The Ld. Commissioner of Income Tax(Appeals) on this issue has held as per detailed reasons given in his order which is on record that he did not find any basis for treating the additional salary cost of expat technicians and cost of fixed assets as non operating expenditure. This expenditure is operating expenditure and would be part of computation for arriving at the assessee‟s PLI. This action of the Assessing Officer was upheld by the Ld. Commissioner of Income Tax (Appeals). 5. The Ld. AR of the assessee vehemently argued that earlier there were some old technology and there was requirement for installing new equipments and for this reasons, the assessee had b .....

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d to employees to achieve certain goals. 10. At the time of hearing, the Ld. AR of the assessee invited our attention to pages 63 to 66 of the paper book before us wherein copies of Management Incentive Policy Documents have been placed and therein, at page 65, it is clearly mentioned that the objective of the MIBP is to reward the employees for achieving key result areas of the company. There is separate provision for bonus as well which is enumerated separately under separate heading altogether. But this MIBP is only to reward the employees for achieving better result for the company. The Ld. AR of the assessee placed reliance on the decision of the Hon‟ble Delhi High Court in the case of Shriram Pistons & Rings Ltd. Vs. Commissioner of Income Tax, (2008) 307 ITR 363 (Delhi). 11. Per contra, the Ld. DR has placed reliance on the orders of the Sub-ordinate Authorities. 12. We have perused the case records and heard the rival contentions. We have also given considerable thought to the judicial pronouncement placed before us. That as demonstrated by the Ld. AR of the assessee in the statement showing Management Incentive Policy documents, there is separate column for bonus .....

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heard the rival contentions. We have also considered the judicial pronouncements placed before us in assessee‟s own case for assessment years 2001-02 and 2002-03 (supra.). The issue raised before the Co-ordinate Bench of the Tribunal, Pune was as under: 40. The last issue raised by the assessee is corporate issue against the disallowance of provision for warranty. On this issue, the Co-ordinate Bench of the Tribunal, Pune has held as follows: 44. We have heard the rival contentions and perused the record. The issue arising by way of ground of appeal No.5 raised by the assessee is against the disallowance of provision made for warranty. The assessee was engaged in the business of manufacture and sale of air-conditioners, heat exchangers, its parts and components. Against the sale of air-conditioners and heat exchangers manufactured by it, the assessee was making provision for warranty on scientific basis. If any expenditure was actually incurred for warranty, then the same was debited against the provision. The Assessing Officer was of the view that the said expenditure is not allowable in the hands of assessee, placing reliance on the decision of the Pune Bench of Tribunal in .....

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e have perused the case records and heard the rival contentions. We have also considered the judicial pronouncement placed before us. In assessee‟s own case as hereinabove referred, this issue had come up for adjudication before the Co-ordinate Bench of the Tribunal, Pune and the Tribunal on this issue has held as follows: 20. We have heard the rival contentions and perused the record. The issue arising by way of ground No. 1 raised by the Revenue is against the direction of CIT(A) in restricting the TP adjustment, if any, to the value of international transactions and not to the total turnover of the assessee. We find that the said issue is squarely covered by the decision of Hon ble Bombay High Court in Commissioner of Income Tax Vs. ALSTOM Projects India Limited (supra), wherein the Hon ble High Court has held that in the absence of segmental accounts, TP adjustment have to be restricted only to transactions with Associated Enterprises on proportionate basis. The relevant extract of the findings of Hon ble High Court are as under : 10. We may once more note that the Income Tax Department within the jurisdiction of this Court must adopt a consistent view on issues of law. I .....

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do not entertain the present appeal. 21. Applying the ratio laid down by the Hon ble Bombay High Court, we uphold the order of CIT(A) and dismiss the ground No.1 raised by the Revenue. Respectfully following the decision of the Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. ALSTOM Projects India Limited (supra.) and the decision of the Co-ordinate Bench of the Tribunal, Pune in assessee‟s own case, we dismiss the ground No.1 of the Revenue s appeal. 21. Ground No.2 of Revenue‟s appeal is with regard to whether the Ld. Commissioner of Income Tax(Appeals) was justified in deleting transfer pricing adjustment of Product Development and testing. 22. The assessee had paid ₹ 9,28,80,947/-towards international transactions relating to the payment of reimbursement of product development and testing expenses to Behr group of entities. The Ld. Transfer Pricing Officer in his order has observed that the assessee has furnished no evidence in respect of receipt of services, its price in open market etc. Though the assessee had paid this amount to the Associated Enterprises but it has not been able to demonstrate with facts and figures that any be .....

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ter providing reasonable opportunity of hearing to the assessee. Thus, ground No.2 of the Revenue s appeal is allowed for statistical purposes. 25. Ground No.3 of the Revenue‟s appeal is with regard to the exclusion from operating expenses the foreign currency losses suffered. The assessee stated that the Transfer Pricing Officer has not excluded foreign currency losses suffered from the forward contracts for computation of PLI. It was stated that the assessee had suffered foreign currency loss during the year as under: Particulars Amount (in lakhs) Discount on forward foreign currency contracts 30.79 Provision for loss on forward contracts ( amortised) 2.94 Foreign Exchange loss 25.99 Bank charges 53.81 Total 113.53 The assessee submitted that the loss has not arisen out of the assessee‟s ordinary business operations and according to the Safe Harbour Rules issued by the CBDT dated 18.09.2013, foreign currency loss should be treated as non-operating in nature. 26. The Ld. Commissioner of Income Tax(Appeals) on this issue has held as follows: 2.4.4 I have considered the facts and the position of the law. It is settled that foreign currency loss is non-operating loss in v .....

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ges, it should be excluded from total operating expenses for the purpose of calculating PLI of the assessee. However, if it is in the nature of foreign currency loss, it should be included in the operating expenses of the assessee. This additional ground is thus allowed for statistical purposes. 28. Now we take up the ground of the Revenue against the direction of the Ld. CIT(Appeals) in treating foreign currency gain/loss as non-operating. The Co-ordinate Bench of the Tribunal, Pune on this issue has held as under: 6. We find merit in the contention raised on behalf of the assessee about the inclusion of foreign exchange gain/loss in the operating revenue/costs of the assessee as well as that of the comparables. When we advert to the nature of such foreign exchange gain earned by the assessee, it has not been controverted by the ld. DR that the same is in relation to the trading items emanating from the international transactions. If the foreign exchange gain/loss directly results from the trading items, we fail to appreciate as to how such foreign exchange fluctuation gain/loss can be considered as non-operating. 7. The Special Bench of the Tribunal in ACIT Vs Prakash I Shah (200 .....

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hange gain/loss arising out of trading transactions is required to be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. It is an undisputed fact that the assessee has been consistently treating foreign exchange fluctuation as operating in nature and the Revenue has accepted the same. The Ld. AR of the assessee submitted that according to the Safe Harbour Rules issued by the CBDT dated 18.09.2013, foreign currency loss should be treated as non operating in nature. However, it is pertinent to note that such rules are not applicable to the assessment year under consideration. The Co-ordinate Bench of the Tribunal has referred the judgment in Pr. Commissioner of Income Tax Vs. Ameriprise India Private Limited (ITA 206/2016) and the judgment of Hon‟ble Delhi High Court in Pr. CIT Vs. B.C Management Services Pvt. Ltd. (2018), 403 ITR 45( Del.) wherein it has been held that foreign exchange fluctuation in relation to trading transactions, prior to Safe Harbour Rules from 2013, is operating gain or loss. Thus, in view of the foregoing discussion we are of the opinion that the amount of foreign exchange gain/loss arising out of business .....

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view that the order of the Ld. Commissioner of Income Tax (Appeals) is fair and reasonable and it does not call for any interference and relief provided to the assessee is hereby sustained. Accordingly, ground No.4 raised in appeal by the Revenue is dismissed. 33. Ground No.5 of the Revenue‟s appeal is with regard to the deletion of addition on account of payment of retention bonus of ₹ 20,00,000/-. The facts on this issue are that the assessee paid ₹ 20,00,000/- to Mr. Sunil Kaul, Manager towards retention and long term goal achievement for the services rendered during the period from 2005-08. It was stated that the payment was made as per the contract and the amount did not pertain to only FY 2008-09. The Assessing Officer stated that the payment was made for achieving enduring gain and therefore, expenditure of ₹ 20,00,000/- is capital in nature and hence, was disallowed by the Assessing Officer. The assessee stated that the said payment is an incentive given to the employee for being in the assessee‟s employment for the period from 2005-08. As per the terms of the contract, the assessee was to pay the employee in the FY 2008-09 an amount of ₹ .....

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