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TMI Blog2014 (12) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomers are unrelated to the assessee company. In certain cases, the AEs also make direct sales to the customers procured by the assessee, in India. 3. For the impugned assessment year, the assessee company filed its return of income declaring a loss of Rs. 1,09,38,208/-. The return was filed on September 30, 2009. The assessment proceedings were initiated by issuing notice under sec.143(2). In view of the related party transactions, the Assessing Officer made a reference under sec.92CA(1) to the Transfer Pricing Officer(TPO) to determine the Arm's Length Price(ALP). On the basis of the Transfer Pricing documentation filed by the assessee company and other details furnished thereon, the TPO proceeded to make certain adjustments. 4. The assessee company characterized its business as that of Normal Risk. But the TPO held that the functional characterization adopted by the assessee company is without basis. The TPO characterized the business of the assessee as that of a Limited-Risk Distributor(LRD). In the matter of deciding the Profit Level Indicator(PLI), the TPO followed Berry Ratio. The assessee has accounted for a loss of Rs. 2,45,12,653/- in the nature of foreign exchange ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO to apply TNMM to work out the ALP in the present case. The DRP also considered the claim of the assessee company against foreign exchange losses totaling to Rs. 2,45,12,653/-. The assessee has accounted the loss as cost of goods sold. The argument of the assessee including before the DRP was that the assessee fixes the sale and purchase price in advance and, therefore, the foreign exchange fluctuation loss has to be borne by the assessee. The DRP held that the contention of the assessee company is not supported by any documentary evidence. The DRP also held that there are no materials to support the contention of the assessee that price negotiations has taken place in advance. Further, the DRP held that when the assessee sells the AEs goods at the list price decided by the AEs, then the AEs must bear foreign exchange loss, as the prices are fixed in advance by the AEs. Against this, the contention of the assessee company was that selling price is not fixed by the AEs but fixed by the assessee company itself. The DRP held that for this proposition, the assessee could not produce any documentary evidence. In the absence of documentary evidence, the DRP held that it is not poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various submission made to the TPO and the Hon'ble DRP 3. The Ld. TPO has grossly erred in fact and in law in calculating the transfer pricing adjustment and rejecting the rectification petition filed by the assessee under section 154 of the Act." 14. We heard Shri Kunj Vaidya, the learned chartered accountant appearing for the assessee company and Smt. V.S.Sreelekha, the learned Commissioner of Income-tax, appearing for the Revenue. 15. We may consider ground Nos.1 & 2, together. The DRP has accepted the classification of business as proposed by the assessee that the business carried on by the assessee is that of a routine risk and not that of a limited risk as contemplated by the TPO. The DRP also accepted the contention of the assessee that the proper method to be adopted in the present case is TNMM. Therefore, the assessee, as fairly stated, does not have any grievance on these fundamental issues. The only dispute, in fact, to be considered is on the adjustment of foreign exchange fluctuation loss of Rs. 2,45,12,653/-. In page 12 of the order of the DRP, the discussion of the issue is available, which is reproduced below: "We have considered the assessee's arguments. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraph 2 that AEs also make direct sales to the customers procured by the assessee, in India. In the case of such direct sales, the exchange fluctuation loss are naturally loaded to the price and borne by the customers. The loss is not absorbed either by the AEs or the customers only in the case of import sales made by the assessee. This contradictory position has not been explained before us. 18. We confirm the finding of the DRP and the orders of the TPO and the assessing authority, on this issue. Accordingly, the first two grounds raised by the assessee are liable to be dismissed. 19. We find much force in the third ground raised by the assessee company. In the re-computation of ALP, the TPO has worked out the upward adjustment to Rs. 3,14,30,933/-. As argued by the learned chartered accountant appearing for the assessee, if that volume is accepted, the operating margin of the assessee company would be boosted 8.82%, which is almost double of the operating margin of -4.04% to 4.47% of the comparables worked out by the TPO, himself. Therefore, at the outset itself, there is no difficulty for us in accepting the contention of the assessee that the revised computation made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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