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TMI Blog2017 (1) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... fically in judgments relied upon by assessee, wherein it has been held that forex gain/loss form part of the operating margin of the assessee as well as comparables. Further, we find that the assessee suffered net forex loss in AY 2010-11 and reflected the same as part of operating expenses under Schedule-12 which gives strengths to the arguments of Ld. AR. Since TPO has excluded forex gain / loss from operating margin, the same is not in line with these judicial pronouncements. Therefore, we find that matter is pure legal issue and do not raise any fresh issue and do not require investigation of additional facts and hence admit the same for adjudication by following apex court judgment in National Thermal Power Co. Ltd. [ 1996 (12) TMI 7 - SUPREME COURT ] Sole comparable left out was selected by the TPO himself and not by the assessee and this comparable was never disputed before DRP and DRP also did not find the same as non-comparable. Hence, at this stage it would be very difficult to accept this plea of Ld. DR to undo the comparable selected by the revenue and never challenged at any stage. However, we are of the considered opinion that proper benchmarking of the margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transactions. Transfer Pricing Officer suggested TP adjustment of ₹ 5,11,86,725/- vide order dated 21/01/2013 and following the same, draft assessment order dated 26/03/2013 was sent to Dispute Resolution Panel [DRP] for its directions u/s 144C(5). Being aggrieved, the assessee filed objections before DRP but DRP finding TPO method reasonable acceptable and did not disturb the proposed adjustment in the draft assessment order vide its order dated 13/12/2013. This resulted in the assessing officer passing a final order dated 15/01/2014 u/s 143(3) r/w Section 144C(13) of the Act wherein total income was determined at ₹ 6,53,87,460/-. Aggrieved by the same, the assessee is in appeal before us where assessee has mainly assailed TP adjustment made by TPO and confirmed by DRP. 3. Hapag Lloyd AG [HLAG] is among the leading supplier in the global door-to-door container transport industry. Hapag Lloyd Global Services Pvt. Ltd. [HLGS] is a 100% subsidiary of Hapag-Lloyd AG and provides IT enabled back officer services relating to documentation processing to Hapag-Lloyd. The assessee reported following international transaction in Form 3CEB: No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantitative filters in addition to the filters selected by the assessee. TPO also proposed to exclude foreign exchange loss / gain from operating margin on the premises that such gains / losses were not dependent upon the operations carried out by the company but arose as a result of various extraneous factors and these fluctuations had nothing to do with the business operations of the assessee. TPO further noted that the assessee, in its study, excluded seven comparables, which were otherwise includible. Thereafter, TPO rejected all the filters adopted by the assessee except turnover filter and proceeded to apply various filters as suggested by TPO. Applying the same, TPO found that only one comparable namely Cosmic Global Ltd. out of 11 comparables selected by assessee could pass the filters. Further, assessee accepted another comparable namely Aditya Birla Minacs Worldwide Ltd. as suggested by TPO which could pass the said filters. Finally, selecting these two comparables, TPO worked out average PLI of these two comparable as 36.02% and determined the TP adjustment of Rs. 5.11 crores in the following manner:- No. Name of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the premises that it has outsourced its activities and therefore, functionally different from the assessee and hence, should not be considered as proper comparable. Reliance has been placed on the decision of Mumbai Tribunal in Aegis Ltd. Vs. ACIT [ITA No. 1213/Mum/2014 dated 27/07/2015]. Further, Ld. AR, by drawing our attention to Page 58 163 of the paper-book, contended that the assessee sought working capital adjustment and provided working thereof before TPO but the same has not been granted by the TPO. Hence, the assessee is entitled for working capital adjustment in terms of decision of Mumbai Tribunal in Capgemini India Pvt. Ltd. (ITA No. 7861/Mum/2011) where in similar circumstances, Tribunal directed TPO to make this adjustment. 7. Per Contra , Ld. CIT DR, by drawing our attention to Schedule-10 of financial statements of the assessee for impugned AY, opposed additional grounds of appeal on the premises that the assessee always treated forex gains / loss as part of non-operating incomes and hence, could not raise altogether new contentions so as to disturb the whole TP study. If the said contention of the assessee is accepted, this will require adjustment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt to rectify the flaws in AO s order. 9. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record including the cited case laws for different propositions. The undisputed facts are that TNMM method has been used to benchmark the TP transactions by using data of impugned assessment year. After applying the various filters, TPO arrived at two comparables, the average PLI of which stood at 36.02% which resulted into impugned additions. Rule 10B(1)(e) deals with TNMM method which calls for suitable adjustment to net profit margins to make the two data comparable. We are unable to accept the contention of the Ld. DR that suitable adjustments could be made only in the margins of comparables and not in the margins of the Tested Party. Without making suitable adjustments in the margin, proper comparison could not be drawn. We find that the in case law relied upon by Ld. DR, the Tribunal had many alternative reason not to tinker with the PLI of the tested party. Further, the issue of treatment of forex gain / loss is now well settled by various judicial pronouncements and more specifically in judgments relied upon by assessee, wherein it has been held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the authorities below having held that M/s Spinco's operations are functionally different than the assessee, in our considered view, M/s Spinco cannot be taken as a comparable. When M/s Spinco ceases to be a comparable, the TPO should look for external comparables which he has rightly adopted some of the external comparables. Therefore, following the decision of the Ahmedabad Bench of the Tribunal in the case of Fortune Infotech Ltd.(supra), we restore the matter to the file of the TPO who shall consider the external comparables and determine the ALP by taking the segmental financials after providing adequate opportunity of being heard to the assessee. We have considered these assertions but we find that the sole comparable left out was selected by the TPO himself and not by the assessee and this comparable was never disputed before DRP and DRP also did not find the same as non-comparable. Hence, at this stage it would be very difficult to accept this plea of Ld. DR to undo the comparable selected by the revenue and never challenged at any stage. However, we are of the considered opinion that proper benchmarking of the margin is not possible with this single comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Accentia Technologies Ltd. 43.06 Arithmetical Mean Margin 29.75 Operating Cost (a) ₹ 23,36,50,414/- Arm s Length Mean Margin 29.75% of operating cost Total Arm s Length Price (b) 136.02% of item (a) ₹ 30,31,61,412/- Operating Revenue (c) ₹ 26,75,64,886/- Shortfall being adjustment u/s 92CA (b)-(c) ₹ 3,55,96,526/- 17. The assessee has filed additional grounds of appeal vide letter dated 02/08/2016 on similar lines as in ITA 2300/Mum/2014 wherein it has pleaded for treating the forex gains/loss as part of operating operations. Following the same view as in ITA 2300/Mum/2014, the same are admitted. 18. Further, the assessee was not granted working capital adjustment. Following our observation in preceding para-11, the same is admissible to the assessee. 19. The Ld. AR has assailed all the three ..... X X X X Extracts X X X X X X X X Extracts X X X X
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