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2014 (12) TMI 382 - ITAT MUMBAITransfer Pricing Adjustments - Treatment of foreign exchange fluctuation – Operating in nature or not – Held that:- The assessee has bought material from its AE and the pricing was done in foreign currency which means that the currency fluctuation is directly related and is inbuilt in the pricing policy which the assessee has been following with its AEs therefore, there is no reason or merit in excluding it from the computation of the operating mark-up earned by the assessee – Decided against assessee. Rejection of comparable companies – Daiichi Karkaria Ltd and NLC Nalco India Ltd. - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the exclusion of Dai-ichi Karkaria Ltd. Is directed from the eventual list of comparable - in so far as the exclusion of NCL Nalco India Ltd., after considering the facts, the DRP has rejected because the RPT is more than 25% - as no distinguishing fact has been brought on record, the order of the DRP is upheld – Decided against assessee. Rejection of Thirumalai Chemicals Ltd. - Functionally different company - Held that:- The factors which have been considered by the DRP are common to the entire industry and the entire industry has been affected because of those factors - the rejection of the comparable is not on the facts of the case - the products of the assessee are dependent on global markets with recession in world market, the business of the assessee has also suffered - if M/s. Thirumalai Chemicals Ltd., was working at 50% of capacity utilization, then the assessee was also working at 46% of its capacity utilization – there was no error in rejecting M/s. Thirumalai Chemicals Ltd., as a comparable – thus, the matter is remitted back to the AO to consider M/s. Thirumalai Chemicals as a comparable case for determining the ALP after giving reasonable opportunity of being heard to the assessee – Decided in favour of assessee. Inclusion of Gwalior Chemical Industries Ltd and Sunshield Chemicals Ltd. as a comparable companies – Held that:- The assessee stated that the restructuring in the case of Gwalior Chemical Industries Ltd has actually taken place in the subsequent year and fairly conceded to its inclusion - so far as M/s. Sunshield Chemicals Ltd., is concerned, in immediately preceding AY i.e. A.Y. 2008-09, this company was included by the assessee but excluded by the TPO in the list of comparables - Since the Tribunal has excluded this company from the final list of comparable in A.Y. 2008-09, the same should be excluded from the final list of comparables for the year under consideration also – the AO is directed to exclude the same – Decided in favour of assessee. Management service charges paid disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that ALP of an international transaction in the nature of expense claimed can be computed at Nil, if the assessee fails to prove the factum of having availed any services from the AE - Even if the services are availed, the consideration paid has to be proved at ALP, failing which adjustment is inevitable - the assessee claims to have availed such services in the past as well for which deduction was not denied - as the assessee failed to substantiate its claim for deduction in this regard before the AO/TPO and it is further claimed that adequate opportunity was not provided by the concerned authorities – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Sundry balance written off – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the sundry balances written back as well as excess provision written back and whether the same amounts to operating revenue - if the uniform approach is adopted, unless any contrary material has been brought on record, there is no infirmity in such basis of the calculation - provisions written back relate to guarantee commissions waived by the AE and provision for inventory is no longer required - these transactions were entered in the usual course of the business activity of the assessee - the miscellaneous income is earned by the assessee out of day to-day operations which consists of sale of scraps and discount received - since the assessee is following consistent accounting standards and policies, there is no reason why this income/write back should not be considered as operating income – Decided against revenue.
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