2019 (12) TMI 1280 - ITAT COCHIN

TP Adjustment - consideration of SEZ Unit setting up expenses and Ireland branch expenses as operating in nature while computing the margin of the assessee and consideration of unrealized foreign exchange gain/loss while computing the margin of the assessee - HELD THAT:- The issue with regard to foreign fluctuation expenses, the Chennai Bench in the case of Infac India Pvt. Ltd. vs. DCIT [2018 (10) TMI 1814 - ITAT CHENNAI] , we direct the Assessing Officer to exclude the loss on account of foreign fluctuation from the operating expenses for computing the PLI (Profit Level Indicator). This ground of appeal of the assessee is allowed.

Companies not passing the forex filter and the employee cost filter need to be deselected as comparable.

Assessee is engaged in product engineering services thus companies functionally dissimilar with that of assessee need to be deselected from final list.

TPO had applied related party filter of greater than 25%

Disallowance of working capital adjustment - We are inclined to direct the Assessing Officer to consider the working capital adjustment as computed by him while determining the ALP of international transactions of the assessee with its AEs. Thus, this ground of appeal of the assessee is partly allowed.

Erroneous imputation of interest on recovery of expenses - HELD THAT:- As relying on M/S. ALLIANZ CORNHILL INFORMATION SERVICES PRIVATE LIMITED VERSUS THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 2 (1) TRIVANDRUM [2018 (6) TMI 279 - ITAT COCHIN] we direct the Assessing Officer to adopt interest at the rate of 8.15% p.a. while computing the ALP. This ground of the assessee is partly allowed.

Disallowance of finance lease payments u/s. 37 - HELD THAT:- Assessee is entitled for financial lease charges as revenue expenditure only if it has not claimed depreciation on the leased asset. The assessee had not explained whether it claimed depreciation on the leased asset or not. In other words, the assessee is entitled to financial lease charges only in the event if it does not claim depreciation on such leased asset since depreciation on such leased asset is to be claimed by the lessor only. The assessee is not the owner of the leased assets. Once the assessee proves that it has not claimed depreciation on the assets taken on lease, the assessee is entitled for lease rentals paid by the assessee as a revenue expenditure. With this observation, we remit this issue to the file of the Assessing Officer to examine the assessee’s Profit and Loss account and balance sheet with reference to the agreements entered into by the assessee with the lessor. This ground of appeal of the assessee is partly allowed for statistical purposes.

Disallowance of interest expenses on account of interest free loans advanced to related parties - HELD THAT:- Since this ground of appeal of the assessee is allowed since the assessee was having sufficient funds in the form of reserves for granting loans to its sister concerns.

Disallowance of additional expenditure incurred owing to the misconduct of the employees u/s. 37 - HELD THAT:- The assessee has neither produced any documents before the Assessing Officer nor produced before the DRP nor even before us. The nature of the expenditure has not been substantiated by the assessee. Hence, we do not find any infirmity in the order of the CIT(A) and confirm the ground. Thus, this ground of appeal of the assessee is dismissed.

Non consideration of inadvertent disallowance of the same expense twice - HELD THAT:- This issue is remitted to the file of the Assessing Officer to ascertain the correct position of the disallowance. Thus, this ground of appeal of the assessee is partly allowed for statistical purposes.