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2021 (9) TMI 1477 - AT - Income TaxTP Adjustment - not providing unabsorbed cost adjustment to the assessee on account of untilized capacity - HELD THAT - We notice that this Tribunal has in assessee s own case for AY 2014-15 set aside the issue to the TPO for consideration afresh and directed the TPO to grant an adjustment on account of capacity utilisation by calling for relevant information on capacity utilisation in the case of comparable company by exercising his power u/s 133(6) of the Act to collate the information on capacity details of the comparable companies such as actual capacity in units installed capacity break up of fixed and variable cost product wise segmental profitability (if any) and provide the assessee an opportunity by sharing the details so obtained on the comparable companies and accordingly grant the adjustment for capacity under-utilized. The Tribunal also held that if challenges on the lack of information / data are accepted than the adjustment should be made to the tested party. Thus set the order of the AO on this issue remand the same to the AO/TPO for consideration afresh as directed by the Tribunal in AY 2013-14. Loss/gains arising from fluctuation and restatement of foreign currency ought to be treated as non-operating in nature - TPO has considered forex fluctuation as being operating in nature while computing the margin of the assessee as well as the comparable companies - HELD THAT - In the context of transfer pricing the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. 2010 (8) TMI 676 - ITAT BANGALORE has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. In the light of above judgement which is being followed consistently by the various Benches of ITAT we hold that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost both of the assessee as well as comparables. Hence the AO was justified in considering forex loss as operating cost. AO/TPO will compute the ALP of the international transaction in question in accordance with the directions given above after affording assessee opportunity of being heard. Claim as loss incidental to the business in year of write off - HELD THAT - It is not in dispute that the assessee wrote off the countervailing and excise duty by debiting its profit and loss account to the extent it was ineligible to claim the duty credit and consequently claimed the same as a deduction under Section 37(1) of the Act. Since the credit cannot be claimed by the assessee and the said amount was written off the same ought to be allowable as business expenditure under Section 37(1) of the Act more so when the conditions specified for claim for expenditure under Section 37 of the Act are satisfied. Chandigarh Bench of ITAT in the case of Mohan Spinning Mill 2012 (4) TMI 781 - ITAT CHANDIGARH allowed CENVAT credit written off by the assessee as a business expenditure under the provision of Section 37 - DRP held that cases cited by the learned counsel for the assessee were cases where either the registration certificate was surrendered or the business itself was closed. The DRP directed the AO to examine whether the credits were actually written off and if so allow the claim as bad debt. In our view the sum in question can be regarded as loss incidental to business. It is no doubt true that in the event of loss the year in which the loss crystallized is important. The assessee s claim that the original invoices were lost and hence the assessee could not claim credit for duty paid is not disputed. In such circumstances to allow the claim as loss incidental to the business in year of write off ought to have been accepted. We therefore direct that the claim of the assessee should be allowed as deduction. Allowable business expenditure - Admission fees paid to employee of the assessee for securing admission for the employees child in a school - HELD THAT - The sum in question is personal expenditure of the employee. The employer having met those expenses the employer should regard is as a perquisite in the hands of the employee. Admittedly the sum in question has not been regarded as perquisite in the hands of the employee and therefore the sum in question was rightly disallowed by the AO. We find no grounds to interfere with the order of the DRP. Reliance placed by the learned counsel for the assessee on the decision of Gopalpur Tea Company Limited. 1985 (2) TMI 78 - ITAT CALCUTTA-C is on payment of bonus over and above the statutory limit and that ratio cannot be applied to the facts of the present case. Hence we dismiss Gr. raised by the assessee. Disallowance of irrecoverable insurance claim - HELD THAT - This Tribunal in assessee s own case for AY 2014-15 remanded the issue to the AO with direction to the assessee to furnish the required details to show that claim made for recovery from the insurance company was rejected to the extent of sum claimed as deduction by the assessee and directed the AO to examine the claim of the assessee in the light of the details that may be filed. We are of the view identical order would meet the ends of justice in the present AY also.
Issues Involved:
1. Unabsorbed cost adjustment due to underutilized capacity. 2. Treatment of foreign currency transaction and translation losses. 3. Disallowance of duty credits written off. 4. Disallowance of admission fees paid for employee's child. 5. Disallowance of irrecoverable insurance claims. Issue-wise Detailed Analysis: 1. Unabsorbed Cost Adjustment Due to Underutilized Capacity: The assessee, a wholly owned subsidiary of Flint Group (Mauritius) Ltd., engaged in manufacturing and trading of printing ink, contested the Dispute Resolution Panel's (DRP) decision upholding the Assessing Officer's (AO) stand on not providing unabsorbed cost adjustment due to underutilized capacity. The assessee argued that the relocation of its manufacturing facility from Bangalore to Vadodara resulted in significant underutilization of capacity, with only 57% of the capacity utilized. The Tribunal noted that in a similar case for AY 2014-15, it had remanded the issue to the Transfer Pricing Officer (TPO) to grant an adjustment for capacity utilization by obtaining relevant information from comparable companies. Following this precedent, the Tribunal set aside the AO's order and remanded the issue for fresh consideration, directing the TPO to gather and share information on capacity utilization of comparable companies and provide the assessee an opportunity to respond. 2. Treatment of Foreign Currency Transaction and Translation Losses: The assessee contended that losses from foreign currency fluctuations should be treated as non-operating expenses. The TPO included these losses in operating costs, which the DRP upheld. The Tribunal referred to the Bangalore Bench's decision in SAP Labs India Pvt. Ltd. vs. ACIT, which held that foreign exchange fluctuation gains are part of operating profit. Consistently followed by various ITAT Benches, this precedent led the Tribunal to conclude that foreign exchange gains/losses arising from revenue transactions should be considered as operating revenue/cost for both the assessee and comparables. Consequently, the AO's inclusion of forex losses as operating costs was upheld. 3. Disallowance of Duty Credits Written Off: The assessee claimed a deduction for duty credits written off due to loss of original invoices during relocation, which prevented claiming countervailing and excise duty credits. The AO disallowed this, holding it claimable only on a payment basis under Section 43B. The DRP directed the AO to verify the write-off and consider it as a bad debt if substantiated. The Tribunal, citing the Chandigarh Bench's decision in Mohan Spinning Mill v. ACIT, concluded that the write-off should be allowed as a business expenditure under Section 37(1), as the loss was incidental to business and crystallized in the year of write-off. The Tribunal directed the AO to allow the deduction. 4. Disallowance of Admission Fees Paid for Employee's Child: The assessee reimbursed an employee's child's school admission fees due to the employee's transfer. The AO disallowed this, considering it personal expenditure and not a business expense. The DRP upheld this view, citing lack of demonstrated business expediency. The Tribunal agreed, noting that the expense should be regarded as a perquisite in the employee's hands, which was not done. Consequently, the disallowance was upheld, and the assessee's reliance on unrelated case law was dismissed. 5. Disallowance of Irrecoverable Insurance Claims: The assessee claimed a deduction for irrecoverable insurance claims related to transit damage losses. The AO disallowed this due to lack of evidence showing rejection of the insurance claim, which the DRP upheld. The Tribunal noted that in a similar case for AY 2014-15, it had remanded the issue for the AO to verify the details of the rejected claim. Following this precedent, the Tribunal remanded the issue to the AO, directing the assessee to furnish the required details and the AO to examine the claim accordingly. Conclusion: The appeal was partly allowed for statistical purposes, with specific issues remanded for fresh consideration and verification, ensuring the assessee is provided an opportunity to present relevant evidence. The Tribunal's directions aimed to ensure a fair and thorough reassessment of the disputed matters.
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