TMI Blog2017 (8) TMI 1700X X X X Extracts X X X X X X X X Extracts X X X X ..... as operating expenditure. This year assessee has shifted its stand and claimed it as non operating expenditure. There is no consistency in its approach and also no reason has been given for such a change. Being so, in our opinion, foreign exchange loss is to be treated as operating nature only. Hence, this ground is dismissed. - ITA No. 2560/Mds/2016 - - - Dated:- 18-8-2017 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For the Appellant : Shri S.P.Chidambaram, Advocate For the Respondent : Dr. Milind Madhukar Bhusari, CIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the assessee is filed against the final assessment order dated 29.06.2016 passed u/s.143(3) r.w.s.144C r.w.s.92CA of the Act consequent to the directions of the Dispute Resolution Panel dated 13.6.2016 under sec.144C(5) of the Income-tax Act, 1961. 2. The assessee has raised the following grounds for our consideration. 1. The directions of the Dispute Resolution Panel (DRP), the consequential transfer pricing order and the final assessment order is erroneous in so far as determining and quantifying a downward adjustment to the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude import cost which constitute a major cost and claim adjustment of custom duty (non-cenvatable) before TPO. We rely on co-ordinate bench decision of Motonic India Automotive Pvt. Ltd Vs. ACIT, ITA No. 741/Mds/2014 dated 17.08.2016 at page 5 Para 6 which read as under:- 6. The ld. AR submitted that in respect of custom duty component suitable adjustment to be made while determining the ALP. In our opinion, the plea of the assessee is justified. The TPO has not considered the custom duty adjustment on the reason that it is equivalent to central excise in commercial market. This is not correct. The Tribunal consistently holding that while determining ALP, there should be suitable adjustment in respect of custom duty, which was considered in the following cases : i) Skoda Auto India (P) Ltd. v. ACIT, Aurangabad (30 SOT 319)[Pune] ii) Toyota Kirloskar Motors Pvt. Ltd. v. ACIT, Bangalore ITA No. 828/Bang/2010 iii) Putzmeister Concrete Machines Pvt. Ltd. v. DCIT, Panaji ITA No. 107/PNJ/2012 iv) Demag Cranes Components (India) Pvt. Ltd. v. DCIT, Pune in ITA No.120/PN/2011 6.1 At this stage, it is pertinent to mention the finding of the Pune Bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the business models of the comparables that the TPO has adopted in this case. The adjustments then are required to be made for functionally differences. The other way of looking at the present situation is to accept that business model of the assessee company and the comparable companies are the same and it is on account of initial stages of business that the unusually high costs are incurred. The adjustments are thus required either way. It is, therefore, permissible in principle to make adjustments in the costs and profits in fit cases. We also do not agree with the authorities below that the onus is on the assessee to get all such details of the comparable concerns so as to make this comparison possible. The assessee cannot be expected to get the details and particulars which are not in public domain. In such a situation, i.e. when information available in public domain is not sufficient to make these comparisons possible, it is inevitable that some approximations are to be made and reasonable assumptions are to be made. The argument before us was that it was first year of assessee s operations and complete facilities ensuring a reasonable indigenous raw material content was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in ITA No.692/Mds./2016 for assessment year 2011-12 vide order dated 25.01.2017 wherein it was held as follows:- 7. The Ld. AR argued that the Assessing Officer/DRP has confirmed the action of the TPO in not providing working capital adjustment while determining net profit margin of the assessee. In the assessee's own case in the assessment year 2009-10, DRP in its order dated 20.12.2013 has directed the TPO to examine the issue and consider working capital adjustment. Whereas, the Ld. TPO observed that the assessee company is actually buying the parts from the AE and working capital adjustment to be allowed if the assessee demonstrates with AE of allowing the credit period to the assessee and DRP confirm the action of the TPO and the Ld. AR demonstrated the Arithmetic Mean of 4.58% of seven comparables selected at Page 41 of paper book and referred to the working capital adjustment PLR of 12.26% with the comparables current assests being sundry creditors, sundry debtors and inventories at Page 42 and supported working capital adjustment of comparables company based on the financial statements. The Ld. DR relied on the order of TPO and prayed for no adjustment is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No.03 of 2010, Marked to Market losses are notional and contingent despite that Marked to Market settlement is a transparent accounting practice. In terms of this Instruction even actual losses i.e. hedge loss are allowable as nonspeculative only if the transaction quality under clause (d) of the proviso to section 43(5). Marked to Market losses claimed as notional losses prior to settlement has to be treated as speculative loss in terms of section 43(5). In case forward contract is not present, the decision of Bangalore Bench of ITAT in the case of SAPLab India Pvt. Ltd. Vs. ACIT (2011) 44 SOT 156 (Bang.) is applicable. Following the same, objection of the assessee is to be accepted and Assessing Officer / TPO is directed to consider the foreign exchange fluctuation in respect of the assessee as well as the comparables as operating in nature while determining the ALP in the case of the assessee . 8.3 The TPO has observed that in fact, in the cash flow statement, it is admitted by the assessee under head Cash flow from financing activity , the entire forex loss of 13.84 crores. The long term loss as on 31/03/11 was only 1,10,73,388 and as on 31/03/12 it is 2,22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the ITAT, Chennai (2015) 61 taxmann.com 49 / 70 SOT 410 in the case of Deputy Commissioner of Income-tax, Co. Circle-II(3), Chennai v. Infac India (P.) Ltd. is applicable. The same is extracted as under:- 2. The Revenue has raised three elaborate grounds in its appeal; however the crux of the issue is that the Revenue is aggrieved by the direction of the DRP who had directed the TPO to exclude the forex loss from the computation of operating cost of the assessee.------- 7. We have heard the rival submissions, carefully perused the decisions cited by both the parties and arguments advanced by them. In transfer pricing matters, comparisons are drawn in regard to transactions made by the assessee with its Associated Enterprises (AE) and transactions between the business entities who are unrelated parties. In that context operating cost of the assessee company which has transactions with its AEs is compared with operating cost of business entities that are not related to each other. While determining the operating cost, various factors come into play, which may be both internal as well as external. The decisions of each entity in respect of various factors contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exchange fluctuation gains computed by an assessee in a relevant previous year should be treated as part of the operating income and thereby it would contribute to the operating margin of the assesseecompany. The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee-company. This contention of the assessee is accepted. Therefore following the decision of the Tribunal and the Special Bench of the Tribunal and for the reasons discussed hereinabove, we hereby hold that profits or loss arising out of foreign exchange fluctuations has to be taken into consideration while arriving at the operation cost in transfer pricing matters. Accordingly, we hereby set aside the order of the Ld.DRP and uphold the order of the Ld. Assessing Officer who has only adopted the order of the Ld.TPO. 8. In the result, the appeal of Revenue is allowed. Against this, the assessee is in appeal before us. 9. We have heard both the parties and perused the material on record. We are of the opinion that the similar issue came up for consideration before this Tribunal in the case of M/s.Motonic India Automotive Pvt. Ltd. in ITA No.741/Md ..... X X X X Extracts X X X X X X X X Extracts X X X X
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