TMI Blog2021 (9) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same to the AO/TPO for consideration afresh as directed by the Tribunal in AY 2013-14. Loss/gains arising from fluctuation and restatement of foreign currency ought to be treated as non-operating in nature - TPO has considered forex fluctuation as being operating in nature while computing the margin of the assessee as well as the comparable companies - HELD THAT:- In the context of transfer pricing, the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. [ 2010 (8) TMI 676 - ITAT, BANGALORE] has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. In the light of above judgement, which is being followed consistently by the various Benches of ITAT, we hold that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both of the assessee as well as comparables. Hence, the AO was justified in considering forex loss as operating cost. AO/TPO will compute the ALP of the international transaction in question in accordance with the directions given above after affording assessee opportunity of bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and above the statutory limit and that ratio cannot be applied to the facts of the present case. Hence, we dismiss Gr. raised by the assessee. Disallowance of irrecoverable insurance claim - HELD THAT:- This Tribunal in assessee s own case for AY 2014-15 remanded the issue to the AO with direction to the assessee to furnish the required details to show that claim made for recovery from the insurance company was rejected to the extent of sum claimed as deduction by the assessee and directed the AO to examine the claim of the assessee in the light of the details that may be filed. We are of the view identical order would meet the ends of justice in the present AY also. - IT(TP)A No.2750/Bang/2017 - - - Dated:- 6-9-2021 - SHRI N.V. VASUDEVAN, VICE PRESIDENTAND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For the Appellant : Shri. Tanmayee, Advocate For the Respondent : Shri. Pradeep Kumar, CIT(DR-III)(ITAT), Bengaluru ORDER Per N. V. Vasudevan, Vice President: This is an appeal by the assessee against the final Order of the Assessment dated 27.10.2017 passed by the DCIT, Circle 3(1)(1),Bengaluru, u/s.143(3) read with Sec.144C (13) of the Income Tax Act,19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd management services were treated as inextricably linked the to activity of licensed manufacturing activity and hence closely linked and considered to be included in the manufacturing activity by adopting a combined transaction approach. The approach of the Assessee was accepted by the Transfer Pricing Officer(TPO) to whom the question of determination of ALP was referred to by the Assessing Officer (AO) u/s.92CA of the Act. 4. The Profit Level Indicator (PLI) chosen for the purpose of comparison of Assessee s profit margin with that of the comparable companies was Operating profit on Operating Revenue i.e., OP/OR The OP/OR as per the TP study was as follows: Operating Income Rs. 2,05,65,88,838/- Operating Cost Rs.1,93,84,70,013/- Operating Profit (Op. Income Op. Cost) Rs. 1,18,118,825/- Net mark-up (OP/Sales) 5.74% The TPO computed OP/OR as follows: Operating Income (OR) Rs. 2,05,65,88,838/- Operating Cost(OC) Rs.2,08,92,67,136/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that gains/losses arising from fluctuation of foreign currency ought to be considered as non-operating in nature. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 27.10.2017 against which the assessee is in appeal before the Tribunal. 8. As far as Gr.No.3 raised by the assessee is concerned, the learned counsel for the assessee submitted that the assessee shifted its manufacturing facility from Bangalore (Hosur) to Vadodara in the financial year 2012-13 relevant to the assessment year in question. It was the contention of the assessee that Vadodara was a new market for the assessee and it was in the process of gaining market in the new place.Moreover, as result of this relocation, the assessee was not able to operate at its optimum capacity and could not recoup its fixed costs from out of the production during the year under consideration. This resulted in significant underutilization of the production capacity in the factory, resulting in low utilization of the available capacity to manufacture the products, which in turn resulted in non-absorption of various costs. It was submitted that during the year, the manufacturing facility of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that there was under-utilisation of the capacity of the assessee. It was brought to our notice that the Tribunal in the assessee s own case for AY 2014-15 (order dated 31.10.2019 in IT(TP)A No. 3285/Bang/2018) remanded identical issue to the TPO with a direction to grant an adjustment on account of capacity utilisation by calling for relevant information on capacity utilisation in the case of comparable companies by exercising his powers in law. The Tribunal also held that if challenges on the lack of information / data are accepted then the adjustment should be made to the tested party. 10. The learned DR while placing reliance on the directions of the DRP submitted that an adjustment for underutilization of capacity is to be made to the margins of the comparable companies and not the tested party and that the assessee had not furnished details with regard to the capacity utilization of the comparable companies and that comparable companies were working at 100% capacity 11. We have considered the rival submissions and we notice that this Tribunal has in assessee s own case for AY 2014-15 (order dated31.10.2019 in IT(TP)A No. 3285/Bang/2018) set aside the issue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority of its transactions are with third parties. Therefore, in such a scenario, it is even more imperative to not consider the foreign exchange fluctuations as operating in nature. On the above argument, the learned counsel admitted that the assessee is not in a position to bifurcate transactions with AE and third parties and quantify the loss/gain in foreign currency fluctuation/restatement. The learned counsel placed reliance on the decision of the Hon ble Tribunal in the case DHL Express (India)Private Limited v. ACIT (order dated 27.04.2011 in ITA No.7360/Mum/2010) wherein the Tribunal agreed with the assessee that interest income, rent receipts, dividend receipts, penalty collected, rent deposits returned back, foreign exchange fluctuations and profit on sale of assets do not form part of the operational income because these items have nothing to do with the main operations of the assesse. This decision is distinguishable as the finding is that the foreign exchange fluctuation did not arise out of the international transaction of the assessee for which ALP was being determined. 14. Reliance was placed on Rule 10TA(j) of the Safe Harbour Rules as notified by the Central Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions should not form part of operating incomes/expenses even in case of risk mitigated tested parties. 15. The learned DR reiterated the stand of the revenue that the net loss/gain on account of fluctuation/restatement foreign exchange currency has to be treated as part of the operating expenses/gain respectively. 16. We have carefully considered the rival submissions. In the context of transfer pricing, the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. Vs ACIT (2011) 44 SOT 156 (Bangalore) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. In the light of above judgement, which is being followed consistently by the various Benches of ITAT, we hold that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both of the assessee as well as comparables. Hence, the AO was justified in considering forex loss as operating cost. 17. The AO/TPO will compute the ALP of the international transaction in question in accordance with the directions given above after affording assessee opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 37 of the Act are satisfied.In terms of Rule 9 of the Cenvat Credit Rules 2004, the assessee would not be able to claim credit on the basis of photocopies of invoices. The Chandigarh Bench of ITAT in the case of Mohan Spinning Mill v. ACIT(order dated 25.04.2012 in ITA No. 1212/Chd/2011) allowed CENVAT credit written off by the assessee as a business expenditure under the provision of Section 37 of the Act. The DRP held that cases cited by the learned counsel for the assessee were cases where either the registration certificate was surrendered or the business itself was closed. The DRP directed the AO to examine whether the credits were actually written off and if so allow the claim as bad debt. In our view, the sum in question can be regarded as loss incidental to business. It is no doubt true that in the event of loss, the year in which the loss crystallized is important. The assessee s claim that the original invoices were lost and hence the assessee could not claim credit for duty paid is not disputed. In such circumstances, to allow the claim as loss incidental to the business in year of write off ought to have been accepted. We therefore direct that the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employee. The employer having met those expenses, the employer should regard is as a perquisite in the hands of the employee. Admittedly, the sum in question has not been regarded as perquisite in the hands of the employee and therefore the sum in question was rightly disallowed by the AO. We find no grounds to interfere with the order of the DRP. Reliance placed by the learned counsel for the assessee on the decision of the ITAT Kolkata Bench in the case of Gopalpur Tea Company Limited v. ITO reported in12 ITD 259 (Calcutta) is on payment of bonus over and above the statutory limit and that ratio cannot be applied to the facts of the present case. Hence, we dismiss Gr. No. 6 raised by the assessee. 23. In Ground No. 7, the assessee has challenged the action of the DRP in upholding disallowance of irrecoverable insurance claim. As a policy, the assessee accounts for transit damage losses in the account Claim Recoverable Insurance and inventory is adjusted accordingly. Thereafter, claims are filed with the insurance company. Based on the approval letters received from the insurance company, any amount of claim rejected is charged off to Insurance irrecoverable account. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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