9911796707
TMI Blog2014 (12) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for allowing adjustment for the rupee depreciation. The assessee company has not produced any sort of evidence to show that the assessee had pre-determined the sale price - when advance fixation of sale price is not proved by any documentary evidence, it is not possible to accept the contention of the assessee that the de-valuation loss is a fait accompli that foreign exchange fluctuation loss could be adjusted in the hands of the assessee company, only if the assessee company has successfully proved with documentary evidence that the sales were made against predetermined rates – DRP rightly was of the view that it is not possible to accept the adjustment of that loss – thus, the order of the DRP is upheld – Decided against assessee. Transfer pricing adjustment – Held that:- Assessee pleaded that it is not possible for a company in the first year of its operation to achieve the optimum possible return of profits – CA rightly contended that this is the first year of the assessee’s business operation - it is understandable that the assessee cannot jump into full swing operation and achieve the optimum level of profit in the first year - a reasonable amount of adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n loss between INR and Japanese Yen. The assessee company has claimed this foreign exchange loss as an item of adjustment inducing the financial result into an operating loss. But the TPO did not accept the said adjustment as claimed by the assessee company. 5. As already mentioned earlier, the TPO has followed the Berry Ratio to work out the PLI. The Berry Ratio is Operating Profit/Value Added Expenditure(VAE) . Accordingly, he worked out the Berry Ratio of the assessee company at 0.84. He has also considered the Berry Ratio of comparables. The comparables are four companies, namely, M/s. George Oaks, India Motor Parts, Jullundur Motor and Sri Aruna Auto. The arithmetic mean of VAE was worked out by the TPO at 1.54. The VAE of the assessee company has been adopted by the TPO at ₹ 9.67 crores. The difference in Berry Ratio worked out at 0.7. Therefore, the product of VAE and the difference in Berry Ratio came to ₹ 6.76 crores. The actual purchases of the assessee from the AEs amounted to ₹ 20.26 crores. Accordingly, the TPO has deducted an amount of ₹ 6.76 crores from the actual AE purchases of ₹ 20.26 crores. The TPO thus, worked out the ALP of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence, the DRP held that it is not possible to allow the adjustment for the foreign exchange fluctuation loss as claimed by the assessee company. But the DRP accepted the contention of the assessee that foreign exchange fluctuation loss will not form part of the operating expenses and, therefore, the said loss needs to be excluded while computing the PLI of the assessee and other comparables. 9. The effective directions given by the DRP are that the ALP is to be worked out applying TNMM. The comparables were applied TNMM and the same should be accepted by the TPO in his order. The foreign exchange fluctuation loss should be excluded in computing the operating income of the assessee company as well as the comparable entities and also interest and finance charges should be excluded from the PLI. 10. The comparables selected by the TPO are M/s. George Oaks, India Motor Parts, Jullundur Motor and Sri Aruna Auto. The operating profit ratio of the above comparables are 3.32, 7.45, 5.24 and 1.87, respectively. The average comes to 4.47. This is against the margin of (-) 4.04% reported by the assessee. The TPO made re-adjustment in the light of the directions given by the DRP and det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable, which is reproduced below: We have considered the assessee s arguments. The assessee has worked out the adjustment on the premise that he fixes the sale and purchase in advance and the forex fluctuation loss has to be borne by him. We do not find any documentary evidence in support of the claim that price negotiations had happened in advance. It appears that the assessee has to sell the AEs goods at the list price decided by the AE. If this is so, then the AE must bear the forex loss, because the prices are fixed in advance by the AE. But the assessee has argued above that sale price is fixed by him and the list price of the AE is no restriction on the assessee as far as pricing is concerned. In such circumstances we would expect the assessee to establish with documentary evidence that he had fixed the sale price in the beginning of the year itself, that assessee was to bear the forex risk alone and that he could not have passed on the effect of Rupee depreciation to the customers. We therefore do not see enough justification for allowing adjustment for the rupee depreciation. 16. The argument of the assessee regarding the advance pricing of sales is somewhat a propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficulty for us in accepting the contention of the assessee that the revised computation made by the TPO and followed by the Assessing Officer is not proper. 20. At the time of hearing, for the sake of convenience and clarity, the learned chartered accountant appearing for the assessee company has placed before us the computation of correct adjustment to be made in the light of the directions given by the DRP. The said computation is as follows : Particular Reference Amount in INR Operating Income A 247,871,973 Operating Margin (OP/Sales) of comparable Companies as per TPO s order B 4.47% Expected operating Profit/(Loss) C=A*B 11,079,877 ALP of AE s Total Cost D=A-C 236,792,096 Actual total operating cost of the Appellant E 257,452,704 Correct Adjustment F=D-E 20,660,608 21. On dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
