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TMI Blog2025 (4) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ") in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-II, Delhi ("DRP") on the following grounds of appeal, which are without prejudice to each other: A. General ground 1. The Learned Additional / Joint Commissioner of Income-Tax, Transfer Pricing Officer, 2(3), Delhi, (hereinafter referred to as "TPO"), The Hon'ble DRP and Learned Assessing Officer (following the directions of the Hon'ble DRP) erred on facts and in law, in making addition of Rs. 6,24,92,982/- to the value of international transactions undertaken by KCPL. B. Relating to transfer pricing adjustment of Rs. 5,61,68,896/- on international transactions of Sale/ Purchase of Jewellery/ Diamonds 2. The learned AO / TPO erred in facts and in law by not taking into consideration the segmental profitability submitted by the Assessee (certified by statutory auditor) between jewellery manufacturing and diamond trading activity separately and incorrectly adopted entity level margins to test the arm's length price of international transactions pertaining to jewellery manufacturing and diamond trading activity. 3. The learned AO/TPO erred in facts and in law by ignoring the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,94,086/- on international transactions of charging interest on overdue receivables 9. The learned TPO/AO, on the facts and in the circumstances of the case and in law, erred in making an adjustment by considering overdue receivables as a separate international transaction and erred in re-characterizing overdue receivables as interest bearing loans and proposing an interest thereof. 10. Without prejudice to above, on the facts and in the circumstances of the case and in law, the learned TPO/AO erred in ignoring the fact that the assessee has not charged any interest on delayed export realization from AE and non-AE both which can be seen as an internal comparable for the realization policy of the assessee. 11. The learned TPO/AO erred in facts and in law by inappropriately adopting an ad-hoc 60 days as an arm's length credit period to determine overdue receivables from associated enterprises without providing any basis for the same and disregarding the actual credit period of 180 days by the assessee. 12. The learned TPO/AO, on the facts and in the circumstances of the case and in law, erred in not appreciating the fact that the assessee does not have a policy to eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... study report, reporting transaction with its Associated Enterprises (AE) Arm's Length Price (ALP). The Assessing Officer (AO) made reference to Transfer Pricing Officer (TPO) for determination of Arm's Length Price in respect of transactions reported by assessee in its transfer pricing report (TPSR). During the proceedings before Transfer Pricing Officer (TPO) the assessee furnished required information along with which its Transfer Pricing Study Report. The Transfer Pricing Officer (TPO) was of the view that price charge by the assessee from its AE is not at Arm's Length and made recommendation of adjustment of Rs. 6.28 crore while passing his order dated 30/10/2023, passed under section 92(C)(A)(3) of the Act on account of sale and purchase of jewellery and diamonds with its Associated Enterprises (AE). The Transfer Pricing Officer (TPO) also recommended adjustment of Rs. 62.94 lakhs on account of delay in receivable from AE. The Assessing Officer on the basis of report/order of Transfer Pricing Officer (TPO) made addition in draft Assessment Order passed on 18/12/2023. The draft assessment order was served on the assessee. The assessee exercised its option to filed objection bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules are optional and the same is applicable only in case where the assessee has opted for it. Various Higher Courts had taken view that the Foreign Exchange gain or loss arising out of normal business operation is to be considered as operating in nature. Such view has been taken by Courts after considering effect of Safe Harbor Rule to support his contention the Ld. AR. of the assessee relied upon the decision of: * Delhi High Court in Pr. CIT v. Ameriprise India Private Limited (ITA No. 206 of 2016), * Delhi High Court in the Pr. CIT v. Freescale Semiconductor India Private limited (ITA No. 19 of 2019), * Delhi High Court in Pr. CIT v. Samsung India Electronic Private Limited (ITA No. 453 of 2024), * Karnataka High Court in the Pr. CIT v. Subex Limited (ITA No. 492 of 2016) and * Chennai Tribunal in LS Automotive India Private Limited v. ACIT and others A.Y. 2012-13 and others in (ITA No. 585/Chny/2017)." 6. The ld AR of the assessee submits that in series of decision, it has been held than foreign exchange gain or loss to be operating in nature including by Bombay High Court in CIT Vs. Tetra Pak India Private Limited (ITA No. 876 of 2016). The assessee was consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange fluctuation either gain or loss is an operating item. Further, Hon'ble Delhi High Court in Pr CIT Vs Ameriprise India Pvt Ltd in ITA No. 206/2016 also held that foreign exchange fluctuation loss or gain is to be considered as item of revenue/ cost. It was also held that foreign exchange fluctuation loss directly resulted from trading item, it could not be considered as non-operating loss. Similar View was taken by Karnataka High Court in PCIT Vs Subex Ltd in ITA No. 492/2016 dated 01.10.2021. Thus, in view of aforesaid legal position, we direct the AO/ TPO to treat foreign exchange fluctuation loss/ gain as operating in nature. Turning to the items of reversal of provisions of leave encashment and gratuity, we find that both the items are revenue items. Furthermore, ld AR of the assessee vehemently argued that both these items in earlier years were allowed as operating items, such fact is not controverted by the revenue. Therefore, we direct the AO /TPO to treat both these items as operating items. In the result, Ground no. 3 of the appeal is partly allowed. 9. Considering the facts that we have accepted the primary submissions of the ld AR of the assessee on adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-5(3), in ITA No.79 of 2015 (Mum)(Tribunal) 11. On the other hand, the learned Sr. DR for the Revenue supported the order of TPO/DRP. The learned Sr. DR for the revenue submitted that non charging interest from AEs the assessee has extended benefit to its AE. The TPO has thus rightly computed interest which is on Arms' Length. 12. We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the TPO suggested adjustment by taking view that there is delay in receivable from AEs. The TPO was of the view that amount should be realised within 60 days from issuance of invoice. The TPO worked out the notional interest and suggested adjustment. Ld DRP confirmed the action of AO/TPO. Before us, the ld AR of the assessee vehemently argued that the assessee was not charging any interest either from its AEs or from non-AEs as per their practice. Such contention of the assessee was not refuted by TPO. We find that before TPO, the assessee specifically contended that there was average delay of 185 days in realization of sale proceed in case of AEs, whereas in cases of non-AEs it is 545 days. The assessee has not cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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