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2023 (11) TMI 588 - AT - Income Tax


Issues Involved:
1. Transfer pricing adjustment on account of mark-up on third-party costs.
2. Treatment of foreign exchange loss as operational or non-operational in nature.

Summary:

1. Transfer Pricing Adjustment on Account of Mark-Up on Third-Party Costs:

The Revenue contested the deletion of Rs. 1,09,56,542/- made on account of transfer pricing adjustment. The core argument was whether the assessee, BBC World (India) Private Limited, should include certain expenses incurred on behalf of its associated enterprises (AEs) in its cost base and apply a mark-up. The assessee argued these expenses were reimbursed at cost and did not involve additional services. The Transfer Pricing Officer (TPO) opined that all activities were covered under the service agreement and should be marked up. The CIT (A) agreed with the TPO but allowed certain expenses like advertisement and publicity, business promotion, and participation in trade events to be treated as pass-through costs due to their direct relation to third parties and minimal effort required by the assessee. The Tribunal upheld the CIT (A)'s decision, agreeing that these specific expenses should be excluded from the cost base and not marked up.

2. Treatment of Foreign Exchange Loss as Operational or Non-Operational in Nature:

The TPO included foreign exchange loss and interest expenses in the Profit Level Indicator (PLI) calculation, considering them operational costs. The assessee argued that these should be excluded as they are financial charges, typically excluded in comparable company analyses. The CIT (A) agreed with the assessee, referencing a previous year's decision that foreign exchange loss is non-operational, akin to interest costs. The Tribunal upheld this view, agreeing that these items should be excluded from the PLI calculation.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross objection, upholding the CIT (A)'s decisions on both issues. The order was pronounced on November 10, 2023.

 

 

 

 

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