2019 (10) TMI 1537 - AT - Income Tax

Operating income for the purpose of PLI - Exclusion of loss on foreign exchange fluctuation from the operating expenditure - HELD THAT - D.R. very fairly submitted that this Tribunal in the case of Infac India Pvt. Ltd 2018 (10) TMI 1814 - ITAT CHENNAI found that the profit or loss due to foreign exchange fluctuation has to be excluded from operating income for the purpose of PLI. In view of the decision of co-ordinate Bench of this Tribunal, the loss on account of foreign exchange fluctuation in this case has to be excluded from operating expenditure. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to exclude the foreign exchange fluctuation from operating income / expenditure. Adjustment of working capital for determining the arm's length price - CIT(Appeals) confirmed the order of the Assessing Officer on the ground that the assessee has not filed any material to establish that it is operating in an environment of negative working capital - HELD THAT - From the material available on record it appears that the assessee has filed the material to indicate / establish the working capital involved in the functioning of the assessee. In those circumstances, this Tribunal is of the considered opinion that it may not be correct to say that the assessee has not submitted relevant facts before the CIT(Appeals). Therefore, the matter needs to be remitted back for re-examination. Accordingly, orders of both the authorities below are set aside and the issue of working capital adjustment is remitted back to the file of the CIT(Appeals). CIT(Appeals) shall examine the material filed by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. The assessee is also at liberty to file necessary material once again before the CIT(Appeals) so that the working capital adjustment can be made. Non-consideration of miscellaneous income - Assessee submitted that amount is part of Other Income and operating in nature - HELD THAT - When the assessee has raised a specific ground, this Tribunal is of the considered opinion that the CIT(Appeals) is expected to dispose the same in accordance with law. Since such an exercise was not done by the CIT(Appeals), this Tribunal is of the considered opinion that the matter has to be considered by the CIT(Appeals). Accordingly, the issue in respect of other income is remitted back to the file of the CIT(Appeals) for consideration. Appeal filed by the assessee is allowed.

Summary

Issues:
1. Exclusion of loss on foreign exchange fluctuation from operating expenditure.
2. Adjustment of working capital for determining the arm's length price.
3. Non-consideration of miscellaneous income in the assessment.

Exclusion of Loss on Foreign Exchange Fluctuation:
The appeal dealt with the exclusion of loss on foreign exchange fluctuation from operating expenditure for the assessment year 2014-15. The counsel for the assessee argued that a previous Tribunal decision supported excluding such losses from operating income for the purpose of Profit Level Indicator (PLI). The Departmental Representative acknowledged this stance, leading to the direction to exclude the foreign exchange fluctuation loss from operating expenditure, overturning the decisions of the lower authorities.

Adjustment of Working Capital:
The issue of working capital adjustment for determining the arm's length price was raised. The assessee's counsel contended that the working capital adjustment was necessary under the Income-tax Act, citing a previous Tribunal decision to support their claim. Despite the material being filed before the authorities, they did not consider it, prompting the Tribunal to remit the issue back to the CIT(Appeals) for re-examination. The CIT(Appeals) was directed to review the material and decide the matter afresh, allowing the assessee to submit additional evidence if needed.

Non-Consideration of Miscellaneous Income:
Another issue raised was the non-consideration of miscellaneous income amounting to a specific sum. The counsel argued that this income was part of Other Income and operating in nature, which was not addressed by the CIT(Appeals). Consequently, the Tribunal remitted this issue back to the CIT(Appeals) for proper consideration and disposal in accordance with the law. As a result, the appeal filed by the assessee was allowed, and the decision was pronounced in Chennai on 21st October 2019.

This summary provides a detailed analysis of the judgment, addressing each issue raised in the appeal comprehensively while preserving the legal terminology and significant phrases from the original text.