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2016 (8) TMI 1423 - AT - Income TaxTP adjustment - non adjustment against the custom duty component while determining the ALP - HELD THAT - TPO has not considered the custom duty adjustment on the reason that it is equivalent to central excise in commercial market. This is not correct. The Tribunal consistently holding that while determining ALP there should be suitable adjustment in respect of custom duty. Accordingly we direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP. Air freight charges adjustment while computing the ALP - HELD THAT - Assessee is in the field of manufacturing and testing of throttle body rocker arm solenoid valve LPG gas mixer vaporizer LPG Tank etc. and the assessee has to transport the raw materials very urgently to meet the end of the customers. The assessee is importing the entire various components which is required to manufacture its final products. In the course it incurred air freight charges which is abnormal expenses and adjustments to be made while determining the ALP as it is affecting the operating profits. The plea of the assessee is to be accepted more so following case of Transwitch India Pvt. Ltd. V. DCIT 2012 (5) TMI 314 - ITAT DELHI wherein the adjustments towards abnormal expenses incurred by the assessee to be considered while determining the ALP. Accordingly we direct the TPO to consider the same while determining the ALP. Variation in exchange rate adjustment while determining the ALP - assessee entered into contract in adverse prices fixed on the prevailing exchange rate and due to fluctuation in exchange rate there is loss and that exchange fluctuation to be considered while determining the ALP - HELD THAT - It is normal that exchange rate is subject to fluctuation due to economic conditions. While determining the ALP one has to consider these factors more so our view is fortified by cases of Honda Trading Corp. India Pvt. Ltd. V. ACIT 2013 (6) TMI 184 - ITAT DELHI for the assessment year 2007-08 and DHL Express (India) Pvt. 2011 (4) TMI 856 - ITAT MUMBAI for the assessment year 2006-07. Accordingly we direct the TPO to provide considerable exchange fluctuation adjustment while determining the ALP - issue is remitted to the file of the TPO for determining the ALP after considering the above three components i.e. customs duty adjustment air freight adjustment and foreign exchange fluctuation adjustment. - Appeal of the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Rejection of economic analysis by the appellant. 2. Non-recognition of market penetration strategy. 3. Rejection of custom duty adjustment. 4. Levying of interest under section 234B. 5. Initiation of penalty proceedings under section 271(1)(c). 6. Non-adjudication on working capital adjustment. 7. Use of FY 2008-09 data for determining arm’s length margin/price. 8. Non-allowance of benefit under the proviso to section 92C(2). 9. Additional grounds related to purchase price, foreign exchange losses, and extraordinary expenses. Detailed Analysis: 1. Rejection of Economic Analysis: The appellant contested the upward adjustment of INR 27,368,690/- to its total income by the TPO/AO/DRP, which was based on re-determining the arm's length price (ALP) of international transactions. The Tribunal noted that the appellant did not press these grounds during the hearing but reserved the right to pursue them in the future. Consequently, these grounds were dismissed as not pressed, with the liberty to file an appeal after considering the Tribunal's order. 2. Market Penetration Strategy: The appellant argued that the TPO/AO/DRP failed to consider its market penetration strategy. This ground was also dismissed as not pressed, similar to the first issue, with the appellant retaining the right to pursue it later if necessary. 3. Custom Duty Adjustment: The appellant claimed that the TPO/AO/DRP erred in rejecting the custom duty adjustment. The Tribunal found merit in this argument, referencing consistent Tribunal decisions that support suitable adjustments for custom duty when determining the ALP. The Tribunal directed the AO to provide suitable adjustments against the custom duty component. 4. Levying of Interest under Section 234B: The appellant contended that the interest levied under section 234B was erroneous due to unanticipated additions to income. As with the earlier grounds, this issue was dismissed as not pressed, allowing the appellant to revisit it if necessary. 5. Initiation of Penalty Proceedings under Section 271(1)(c): The appellant argued against the initiation of penalty proceedings, stating that the additions arose from differences of opinion on transfer pricing matters. This ground was also dismissed as not pressed, with the appellant retaining the right to appeal later. 6. Non-Adjudication on Working Capital Adjustment: The appellant claimed that the TPO/DRP failed to adjudicate on working capital adjustments. This issue was dismissed as not pressed, similar to the other grounds. 7. Use of FY 2008-09 Data: The appellant argued that the TPO/AO/DRP erred in using only FY 2008-09 data, which was not available at the time of transfer pricing documentation. This ground was dismissed as not pressed, with the appellant retaining the right to appeal later. 8. Non-Allowance of Benefit under Section 92C(2): The appellant claimed that the TPO erred in not allowing the benefit under the proviso to section 92C(2). This issue was dismissed as not pressed, similar to the other grounds. 9. Additional Grounds: The Tribunal admitted additional grounds related to the purchase price from AE, foreign exchange losses, and extraordinary expenses, considering the bona fide explanation provided by the appellant. a. Purchase Price from AE: The appellant argued that the TPO/DRP should have accepted the purchase price from the AE as at arm's length due to the price being negotiated with an unconnected party. The Tribunal directed the AO to consider this while determining the ALP. b. Foreign Exchange Losses: The appellant contended that losses due to adverse foreign exchange rates should be excluded while determining the ALP. The Tribunal found merit in this argument and directed the TPO to consider exchange fluctuation adjustments. c. Extraordinary Expenses: The appellant argued that extraordinary expenses, such as customs duty and air freight charges, should be excluded while computing the ALP. The Tribunal agreed and directed the TPO to consider these adjustments. Conclusion: The Tribunal directed the AO to provide suitable adjustments for custom duty, air freight charges, and foreign exchange fluctuations while determining the ALP. The appeal was partly allowed for statistical purposes, with the appellant retaining the right to pursue dismissed grounds if necessary.
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