2016 (5) TMI 1434 - HC - Income Tax

TPA - comparable selection revenue urges that some of the comparables were wrongly rejected and some comparables suggested by the Assessee wrongly accepted by the ITAT - Held that - ITAT has given detailed reasons. The Revenue is unable to demonstrate that the said reasons qua any of the comparables or the conclusion of the ITAT thereon is perverse. The Court does not find the said issue giving rise to any substantial question of law. Foreign exchange fluctuation loss being considered as part of the operative expenses, the issue stands covered against the Revenue and in favour of the Assessee by the decision of the Supreme Court in Commissioner of Income-tax v. Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT ). Rate of interest for capital adjustment is covered against the Revenue and in favour of the Assessee in terms of the decision of this Court in Cotton Natural (P) Ltd. v. CIT (2015 (3) TMI 1031 - DELHI HIGH COURT). No substantial question of law arises

Summary

Issues:
1. Correctness of additions made by the Transfer Pricing Officer (TPO) regarding Arms Length Price (ALP).
2. Rejection and acceptance of comparables by the Income Tax Appellate Tribunal (ITAT).
3. Consideration of foreign exchange fluctuation loss as part of operative expenses.
4. Rate of interest for capital adjustment.

Analysis:

1. The appeal by the Revenue challenges the ITAT's decision on the correctness of additions made by the TPO concerning the ALP for the Assessment Year 2010-11. The ITAT allowed the Assessee's appeal, disputing the TPO's adjustments, which resulted in an increased total income assessment. The ITAT concluded that the TPO erred in rejecting the Assessee's comparability analysis for determining the ALP.

2. The Revenue contends that certain comparables were wrongly rejected, and others suggested by the Assessee were incorrectly accepted by the ITAT. However, the ITAT provided detailed reasons in the impugned order, and the Revenue failed to demonstrate that these reasons or the ITAT's conclusions were unjustified. Consequently, the Court found no substantial question of law arising from this issue.

3. Regarding the treatment of foreign exchange fluctuation loss as part of the operative expenses, the Court referred to the decision in Commissioner of Income-tax v. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC), which favored the Assessee. Similarly, the issue of the rate of interest for capital adjustment was addressed in favor of the Assessee by the decision in Cotton Natural (P) Ltd. v. CIT (2015) 276 CTR 445. As a result, the Court concluded that no substantial question of law emerged from these issues.

4. Ultimately, the Court dismissed the appeal, upholding the ITAT's decision on the various issues raised by the Revenue. The judgment highlighted the importance of comparability analysis in determining the ALP and referenced relevant legal precedents to support the decisions made in favor of the Assessee regarding foreign exchange fluctuation loss and interest rate adjustments.