9911796707
Advanced Search 
TMI Blog2017 (7) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... process of advance pricing agreements, the definition has been provided under Rule 10TA which may not be adopted for the purpose of taking the actual margins of the assessee as well as the comparable companies for the purpose of determining the ALP under TNMM method. Thus, in view of the above facts, where the gain earned by the assessee due to foreign exchange fluctuation on the receivables which are revenue in nature, the claim of the assessee is allowed and consequently, the A.O./TPO is directed to compute the margins of the assessee as well as the comparable by considering the loss or gain arising due to foreign exchange fluctuation on revenue receivables as part of the operating cost or operating revenue as the case may be. This ground of the assessee appeal is allowed. Adjustment claimed by the assessee on account of idle personnel and rent paid in respect of new office as an abnormal cost to be excluded from the operating cost for the purpose of computing the margins of the assessee - The assessee is a wholly owned subsidiary of VTC Varginia, USA. The assessee is engaged in designing transformer components etc., under the projects provided by its A.E. VTC USA. Since the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the TPO s own finding in respect of other Government of India undertaking. Hence, we direct the TPO/A.O. to exclude this company WAPCOS Ltd., from the set of comparable. L T Ramboll Cons. - maximum tolerance range on related party transaction should not exceed 25%. Though the assessee has not disputed the filter of 25% applied by the TPO regarding related party transaction however, once the TPO has applied this filter for the purpose of selecting the comparable companies it is incumbent upon TPO to verify the relevant record of each and every company considered for the selection in the set of comparable to see whether the related party transactions of the comparable companies are within the tolerance raised as applied by the TPO. We do not find any force in the contention of the Ld. D.R. that assessee has failed to produce the authentic record and complete details of this company because of the reason that it is the duty of the TPO to verify the relevant record at the time of selection of comparable companies. Therefore, once the Ld. A.R. of the assessee has filed the details of related party transaction of this company which show more than 25% then this issue requires a proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble DRP erred in not allowing benefit of variation of 5% while determining the adjustments of ₹ 41,59,420/- on the basis of arm's length price of international transaction, which is allowable as per Proviso to. section 92C (2) of the Income Tax Act, 1961". 2. The first issue raised by the assessee in this appeal is regarding foreign exchange gain claimed as revenue in nature which was disallowed by the TPO as well as DRP. The Ld. A.R. of the Assessee submitted that the gain arising due to foreign exchange fluctuation is on the receivables from A.E. on account of export/rendering of services. Therefore, the said gain due to foreign exchange fluctuation is part and parcel of the revenue earned by the assessee from the activity of rendering services to the A.E. and cannot be excluded from the revenue for the purpose of computing margins of the assessee while comparing the same with the comparables. Thus, Learned Counsel for the Assessee has contended that the authorities below are not justified in excluding the foreign exchange gain on the receivables from the A.Es. He has relied upon various decisions of this Tribunal as under : 1. Cisco Systems Services B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue of the assessee as well as comparable companies. Though the Ld. D.R. has placed reliance on Rule 10TA however, we find that the definition as provided under Rule 10TA of the Income Tax Rules are only for specific purpose to consider the price under Advance Price Agreement. Therefore, to avoid any further ambiguity and uncertainty in the process of advance pricing agreements, the definition has been provided under Rule 10TA which may not be adopted for the purpose of taking the actual margins of the assessee as well as the comparable companies for the purpose of determining the ALP under TNMM method. Thus, in view of the above facts, where the gain earned by the assessee due to foreign exchange fluctuation on the receivables which are revenue in nature, the claim of the assessee is allowed and consequently, the A.O./TPO is directed to compute the margins of the assessee as well as the comparable by considering the loss or gain arising due to foreign exchange fluctuation on revenue receivables as part of the operating cost or operating revenue as the case may be. This ground of the assessee appeal is allowed. 5. The second issue raised by the assessee is regarding the adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unutilised due to the initial training of the engineers and therefore, the services of the engineers could not be gain fully utilised. Thus, Learned Counsel for the Assessee has submitted that the cost during the period from date of employment of various employees to 30th September, 2008 amounting to ₹ 23,93,164 as well as rent paid during April, 2008 to September, 2008 of ₹ 5,10,000 should be treated as abnormal cost. 6. On the other hand, the Ld. CIT-DR has submitted that the employment of the engineers is not an exceptional activity of the assessee rather it is a normal business activity of the assessee to carry out the manufacturing, marketing and services to be rendered to the A.E. The Ld. D.R. has further submitted that when the assessee was not forced by any exceptional circumstances or other compulsion to keep the facility idle then this claim of the assessee cannot be accepted as an abnormal cost. He has referred to the agreement dated 27th September, 2012 and submitted that as per clause-13 of the agreement, the A.E. of the assessee is responsible for any loss of profit or business due to exclusive use of the such personnel. Thus, it was the obligation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executing the designing contracts on behalf of VTC. Even though VTC has no control over the appointment policies of VTIPL, VTC shall be entitled to screen the names of the personnel designated by VTIPL to execute the VTC contracts (reason being the confidentiality and proprietary nature of the designs.) 9. Exclusive License : VTC's license in respect of the designs created by VTIPL from VTC under agreements to VTIPL shall be an exclusive license,. VTC may license the designs to any third party. 10. Remuneration : In consideration of the designs services rendered by VTIPL to VTC, VTC shall remit to VTIPL 250% of remuneration of service engineers who are assigned to work on VTC projects. VTIPL shall forward to VTC debit notes quantifying the work done and the corresponding Schedule of charges to VTC on a periodical basis. 13. Secondment : VTC if so desires shall be entitled to seek on an availability basis secondment of VTIPL employees to USA or anywhere else in the world for training and upgrade of their knowledge. Costs of such secondment including salaries of the seconded personnel shall be to VTC's account. VTC shall also reimburse VTIPL as to loss of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remuneration paid to the service engineers then this cost of the salary paid to the trainee engineers cannot be considered as an abnormal cost. Assessee is being remunerated by the A.E. on the basis of 250% of the cost of salary paid to the service engineer therefore, this is a normal business expenditure of the assessee to pay salary to the hired employees. Further, it is not a case of giving a training to the personnels prior to hiring them on permanent basis for rendering of services but the nomenclature given as trainee engineers who continue even after 30th September, 2008 and were rendering services in the projects of the A.E. Thus, trainee engineers who were doing the same job and work on the execution of the projects of the A.E. then the salary paid to these engineers from 1st April to 30th September, 2008 cannot be considered as an abnormal cost. Similarly when the assessee is not charging its A.E. on the basis of cost of the services rendered by the assessee but the assessee is charging A.E. at 250% of the remuneration of the service engineer then the other cost which are other than the salary are not relevant and subsumed in the payment which is based on 250% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, cannot be considered as a good comparable of the assessee for the purpose of determining the ALP. He has referred to the annual report of this company at page 114 of the paper book and submitted that this company has clearly mentioned that it is a Government of India undertaking. The Ld. A.R. of the assessee then referred to the order of the TPO and submitted that the TPO has accepted the objections of the assessee in respect of two other companies namely the RITES & Engineers India Ltd., a Government of India enterprise. Therefore, on the same analogy and maintaining consistency, this company cannot be considered as a good comparable. 11. The Ld. D.R. on the other hand, has submitted that though the TPO has excluded the Government of India undertaking from the set comparables, however, as far as WAPCOS Ltd., is concerned, the assessee did not raise this objection before the authorities below and therefore, the TPO was not having any occasion to examine this objection of the assessee. He has relied upon the orders of the authorities below. 12. We have considered the rival contentions as well as relevant material on record. We find that the assessee raised the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied filter of 25% RPT while selecting the comparable companies. Even otherwise, the tolerance raised of 25% of the related party transaction is an extreme limit and therefore, if the company having more than 25% of related party transaction cannot be considered as an uncontrolled price and consequently, not a good comparable for the purpose of determining ALP of the international transaction. Though as per the provisions of T.P. the uncontrolled and unrelated transaction has to be compared with the controlled transaction however, it is not feasible to find out the comparable company having 0% related transaction. Therefore, in due course of deliberations and considering this issue the Tribunal has taken a consistent view that the related party tolerance raised can be considered ranging from 5% to 25% of the total sales. Thus the maximum tolerance range on related party transaction should not exceed 25%. Though the assessee has not disputed the filter of 25% applied by the TPO regarding related party transaction however, once the TPO has applied this filter for the purpose of selecting the comparable companies it is incumbent upon TPO to verify the relevant record of each and ever ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
