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TMI Blog2020 (2) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... ign exchange fluctuation loss in respect of raw materials and finished goods. Noticing this, the Assessing Officer called upon the assessee to file the details of foreign exchange fluctuation gain. After perusing the response filed by the assessee, the Assessing Officer was of the opinion that such loss constitutes cost of purchase. Therefore, following the preceding year's assessment order i.e., A.Y. 2004-05, the Assessing Officer held that the foreign exchange loss of Rs. 6,71,080, is attributable to closing stock, hence, should be added to the value of closing stock. Further, noticing that the assessee had foreign exchange fluctuation gain in the preceding assessment year amounting to Rs. 51,55,312, and the closing stock of the preceding assessment year was reduced to that extent, the Assessing Officer held that the opening stock of the impugned assessment year needs to be reduced by Rs. 51,55,312. Thus, on both the counts he made total addition of Rs. 58,26,392. The aforesaid addition was contested by the assessee before the first appellate authority. 4. Following the order passed by his predecessor-in-office, in the assessment year 1996-97 onwards, learned Commissioner (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made on account of adjustment made to the closing stock. The same view was reiterated by the Tribunal over and again while deciding assessee's appeal in the assessment year 2004-05, in ITA no.1630/Mum./ 2009, dated 17th November 2014. Thus, following the consistent view of the Tribunal in the preceding assessment years, as referred to above, the addition made by the Assessing Officer on account of adjustment to the opening and closing stock has to be deleted. Further, the Assessing Officer is directed to verify the value of closing stock as determined in the assessment year 2004-05 add the amount of Rs. 51,55,312, to the opening stock of inventories. These grounds are allowed. 8. In grounds no.4, 5 and 6, the assessee has challenged the disallowance of Rs. 5,00,000, under section 14A r/w rule 8D. 9. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee in the year under consideration, has earned exempt income of Rs. 46,20,800, called upon the assessee to explain as to why disallowance under section 14A of the Act should not be made. Though, the assessee objected to the proposed disallowance, however, rejecting the objections of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost. However, the assessee expressed its inability to furnish any supporting evidence on the plea that such evidences are in possession of third party service provider. Thus, in the absence of any evidence furnished by the assessee, the Transfer Pricing Officer came to a conclusion that an independent enterprise would have charged a mark-up on any amount of support service provided to an unrelated enterprise. Further, stating that companies engaged in providing support service generally earn a cost plus mark-up of 10% to 15% with an average of 12.5%, he proceeded to determine the arm's length price of the provisions of service to the AEs by applying the rate of 12.5% on the cost incurred and made an adjustment of Rs. 43,64,399. The aforesaid amount was added back to the income of the assessee. Though, the aforesaid addition was contested before learned Commissioner (Appeals), however, observing that the assessee failed to furnish any supporting evidence, learned Commissioner (Appeals) sustained the addition made on account of transfer pricing adjustment. 16. The learned Authorised Representative submitted, the assessee has no written agreement with the AEs towards cost reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds are allowed for statistical purpose. 19. In view of our decision in grounds no.7 and 8, ground no.9, which is a without prejudice issue raised by the assessee, is also restored back to the Assessing Officer for fresh adjudication if warranted. These grounds are allowed for statistical purposes. 20. In the result, assessee's appeal is partly allowed. ITA no.4398/Mum./2010 Revenue's Appeal - A.Y. 2005-06 C.O. no.65/Mum./2011 By Assessee 21. We propose to take the aforesaid appeal by the Revenue and the cross objection by the assessee together, as the issues are overlapping. While the issue in Revenue's appeal is relating to selection of certain comparables, the issue raised in the cross objection also relates to inclusion of certain comparables. However, in an additional ground raised in the cross objection, the assessee has also raised the issue of adjustment made by the Transfer Pricing Officer at entity level instead of restricting it to the AE transactions. 22. The learned Authorised Representative submitted, while making adjustment to the international transaction in the manufacturing segment, the Transfer Pricing Officer has made adjustment at entity level by conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE has to be made qua the international transaction and cannot be made at the entity level. We, in principle, agree with the aforesaid submissions of the learned Authorised Representative. It is the contention of the learned Authorised Representative that if the arm's length price is computed purely on the basis of transaction with the AE, the margin will fall within +/-5% of the margin of the comparables requiring no further adjustment. Therefore, the issues raised regarding acceptability or otherwise of certain comparables may not have to be decided in the impugned assessment year. Keeping in view the aforesaid submissions of the assessee, we restore the issue back to the file of the Assessing Officer for computing the margin of the assessee by taking into consideration only the transaction with the AE and not at entity level. In case, it is found that assessee's margin falls within +/-5% of the margin of the rest of the selected comparables, there may not be any need for adjudicating the dispute relating to the comparables in the impugned assessment year. However, the issues relating to the comparables are kept open for adjudication if they arise in any other assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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