TMI Blog2024 (5) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... as revenue in nature and also operating in nature - loss arisen on account of fluctuation in foreign currency for payment made to suppliers of materials or receipts from buyer of assessee product is also arisen out of main business activity of the assessee and thus, same cannot be considered as non- operating in nature. In so far as Safe Harbor Rules is concerned, Rule 10TA has notified Safe Harbor Rules for international transactions and as per said Rules, operating expenses and operating income has been defined, which excludes loss arising on account of foreign currency fluctuations and said Rules has been notified w.e.f. assessment year 2013-14. In the present case, the assessee could not furnish any evidences to prove that it has opted for Safe Harbor Rules for determining ALP of international transactions. Unless, the assessee opts for Safe Harbor Rules for international transactions, the cherry picking of definition provided in Safe Harbor Rules cannot be considered to determine forex loss/gain as operating in nature or not. Since, the appellant itself has treated forex loss/gain as operating in nature for earlier years and also the Tribunal has considered in assessee s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising from an international transaction shall be computed having regard to arm s length price alone, which means, very purpose of said provision is to establish arm s length nature of the international transactions only. The transactions with Non- AE have to be presumed to be at arm s length price because, there is no relationship which is likely to influence pricing. See case of High Court of Madras in the case of M/s. Hyundai Motor India Ltd [ 2021 (9) TMI 1013 - ITAT CHENNAI] - Thus TPO/CIT(A) erred in making downward adjustment on entity level including transactions with non-AE. We direct the AO/TPO to make adjustment to international transactions of the assessee alone in all cases. TDS u/s 195 - disallowance u/s. 40(a)(i) of the Act for non-deduction of tax on interest payable to foreign company on delayed payment of import payables - whether said interest is taxable on accrual basis or receipt basis? - HELD THAT:- As per the provisions of section 195 of the Act, any person responsible for paying to a non-resident, shall at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very nature of credits written back is such that it is not peculiar to all the business transactions and so it cannot be considered as normal and direct income. Therefore, in our considered view while working out operating margin, only items of receipts and expenditure, which have direct relation for determining the operating profit have to be taken into account. Since, the assessee could not provide any details with regard to nature of credits write off, in our considered view merely because the assessee has treated it as other income, said write off of creditors cannot be treated as operating in nature, for the purpose of computing operating margin. Therefore, we are of the considered view that there is no error in the reasons given by the Ld. TPO/DRP to exclude creditors write off for the purpose of computation of operating margin - Decided against assessee. Disallowing set off of brought forward losses - as argued assessee has filed necessary evidences to prove that it has satisfied conditions prescribed for set off of brought forward losses - HELD THAT:- We set aside the issue to the file of the AO and direct the AO to verify the claim of the assessee with reference to necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 1365/Chny/2019, is treatment of forex loss for the purpose of computation of operating margin and also in the case of M/s. Myunghwa Automotive India Pvt Ltd, the revenue challenged exclusion of comparable M/s. Pricol Ltd and working capital adjustment. Therefore, we deem it not necessary to reproduce grounds of appeal filed by the revenue in both cases. 4. The first issue that came up for our consideration from this batch of appeals filed by the assessee s, as well as the revenue is exclusion of forex loss/forex gains as non-operating for the purpose of computation of operating margin. The assessee s had excluded forex loss/forex gain from operating cost and claimed that it is non-operating in nature, when it comes to computing PLI. The TPO and CIT(A) rejected the arguments of the assessee s on the ground that, forex loss/forex gains relating to revenue items is operating in nature because it has direct and inextricable link to business activities of the assessee s. The TPO/CIT(A) also rejected the arguments of the assessee s for applying Safe Harbor Rules on the ground that said rules should be applied as a whole and not with specific reference to forex loss or gains. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available on record and gone through orders of the authorities below. Admittedly, the assessee itself has considered forex loss/forex gains as operating in nature while computing operating margin for earlier years. In fact, in assessee s own case, the ITAT Chennai Benches has considered the issue and held that forex loss is operating in nature. To this extent there is no dispute. Further, the ld. Counsel for the assessee is also not disputing this aspect up to assessment year 2008-09. However, the arguments of the ld. Counsel for the assessee in light of certain subsequent decisions of various benches and also Safe Harbor Rules for international transactions as notified by Rule 10TA of Income-tax Rules, 1962, forex loss/gain should be treated as non-operating in nature because as per the definition of operating income or operating expenditure, forex loss/gain has been specifically excluded within the ambit of operating expenditure or operating income. We find that in order to consider any items of expenditure/income as operating or non-operating in nature, mere treatment of the assessee in its books of accounts is not a sufficient reason for treating a particular item of expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration from assessee s appeal and revenue s appeal is not providing working capital adjustment. The ld. Counsel for the assessee submitted that, the ld. TPO/CIT(A) both are erred in not providing working capital adjustment even though the assessee demonstrate with evidences that the working capital position of the assessee when compared to comparable companies is different and suitable adjustments needs to be provided on par with working capital level of comparable companies. The ld. Counsel for the assessee submitted that, the assessee has filed a computation explaining working capital adjustment, but the TPO and CIT(A) are summarily rejected the claim of the assessee. Therefore, the matter may be set aside to the file of the TPO to verify the claim of the assessee and provide working capital adjustment in accordance with law. 9. The ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that, in order to provide working capital adjustment, the assessee should first explain that it has not factored working capital impact on pricing of products or services and further the margin of assessee company and margin of comparable companies is having an impact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm s Length nature of international transactions only. 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. From a plain reading of section 92 of the Act and Rule 10B(1) of IT Rules, 1962, it is very clear that any income arising from an international transaction shall be computed having regard to arm s length price alone, which means, very purpose of said provision is to establish arm s length nature of the international transactions only. The transactions with Non- AE have to be presumed to be at arm s length price because, there is no relationship which is likely to influence pricing. This legal position has been explained by various courts including the Jurisdictional High Court of Madras in the case of M/s. Hyundai Motor India Ltd (Supra). A similar view has been taken by the coordinate bench of ITAT in the case of M/s. Hyundai Motor India Ltd in ITA No. 3192/Chny/2017. Therefore, we are of the considered view that the TPO/CIT(A) erred in making downward adjustment on entity level including transactions with non-AE. Thus, we set aside the order of the ld. CIT(A)/DRP on this issue and direct the AO/TPO to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l services should be taxed on receipt basis, but not on accrual basis. Since, the case law relied upon by the assessee is applicability of DTAA between India and Cyprus and also on payment of royalty and fee for technical services, in our considered view, this issue once again needs to be examined by the Assessing Officer, in light of the decision of Hon ble Bombay High Court and also DTAA between India and Korea. Thus, we set aside the issue to the file of the AO and direct the AO to examine the issue in light of our discussions given herein above. 16. The next issue that came up for our consideration from ITA No. 360/Chny/2018 in the case of Dong A India Automotive Pvt Ltd., is re-computation of book profit with reference to downward TP adjustment. The ld. Counsel for the assessee submitted that, this issue is covered in favour of the assessee by the decision of ITAT Mumbai in the case of GTS e- Services Private Ltd vs ITO, in ITA No. 1231/Mum/2017 dated 03.07.2019, where the tribunal by following certain judicial precedents held that, book profit cannot be recomputed with reference to adjustment made on account of transfer pricing. 17. We have heard both the parties, perused mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition to the amount of profit shown by the assessee in its profit and loss account, for the purpose of computing book profit u/s 115JB. The law in this regard is clear. Reference is made to the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT 255 ITR 273. It is noted from the perusal of the assessment order that the AO has simply made addition by an amount of Rs. 1,30, 72,762/- to the amount of net profit as per profit and loss account for the purpose of computation of income u/s 115JB without even mentioning that under what provisions this addition was being made. Such an approach is highly unfair and brings undue and avoidable hardship to the tax payers and we recommend that such a casual approach should be avoided by the revenue officers, as it may tarnish image of the income tax department, which may in turn discourage voluntarily compliance by the taxpayers. Thus, we delete the addition made by the AO. As a result, additional ground filed by the assessee is allowed. 18. In this view of the matter and by respectfully following the decision of coordinate bench in the case of GTS e-Services Private Ltd vs ITO, in ITA No. 1231/Mum/2017, we direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude creditors write off for the purpose of computation of operating margin and thus, we are inclined to uphold the findings of the Ld. DRP and reject ground taken by the assessee. 21. The next issue that came up for our consideration from ITA No. 585/Chny/2017 is not allowing set off of brought forward losses. The Ld. Counsel for the assessee submitted that, the AO and CIT(A) are erred in not allowing set off of brought forward losses of earlier years, even though the assessee has filed necessary evidences to prove that it has satisfied conditions prescribed for set off of brought forward losses. It was the argument of the ld. DR that, the matter may be set aside to the file of the AO to verify the claim of the assessee with reference to necessary evidences and to decide the issue in accordance with law. 22. We have heard both the sides and considered relevant grounds of the assessee with regard to not allowing set off of earlier year carried forward losses. If the assessee is having brought forward business loss or unobserved depreciation, then said business loss or unabsorbed depreciation should be allowed to set off against subsequent year s income, if the assessee has satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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