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TMI Blog2018 (6) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider view that the assessee has changed method of treating foreign exchange fluctuation as non-operating item for bona-fide reasons. Hence, ground No. 1 raised in appeal by assessee is allowed. Entire RTS segment for calculation of PLI - HELD THAT:- The assessee has prayed for restricting the adjustment on the basis of value of international transactions only. It has been brought to our notice that identical grounds were raised in the appeal for assessment year 2008-09. The Co-ordinate Bench of Tribunal in assessee s own appeal [ 2016 (4) TMI 1125 - ITAT PUNE] remitted the issue back to the file of Assessing Officer for recomputation. The Tribunal in principle accepted that transfer pricing adjustment has to be made with respect to international transaction only and not on the entire sale of RTS segment. We remit the issue back to the file of Assessing Officer/TPO to decide the issue de-novo on similar lines. Accordingly, ground Nos. 2 3 raised in appeal by the assessee are allowed for statistical purpose. Rejection of comparables by TPO by applying export turnover filter - AR contended before us that export turnover filter of 75% has been applied by the TPO for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of manufacturing and sale of Ready -to-serve (in short RTS ) food products. The assessee company is a part of Preferred Brands International Inc., USA. During the period relevant to assessment year under appeal, the assessee entered into various international transactions with its Associated Enterprises (AEs) i.e. Preferred Brands International Inc. USA and Preferred Brands Australia Pty. Ltd. The details of international transactions undertaken by the assessee with its AEs during the relevant period in respect of RTS food segment are as under: Sr. No. Description of transaction Amounts (Rs.) Name of the AE 1. Sale of ready to serve foods 30,07,10,326 Preferred Brands International Inc. USA 5,37,35,302 Preferred Brands Australia Pty Ltd., Australia Total 35,44,45,628 The assessee applied Transactional Net Margin Method (TNMM) to benchmark its international transactions wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect operating margin of a comparable company i.e. ADF Foods Limited. 6. The learned DCIT pursuant to the directions of Hon'ble DRP has erred in law and on the facts and in circumstances of the case in not granting the benefit of +/-5 percent as per proviso to section 92C(2) of the Act. 7. The learned DCIT has erred on the facts and in law by levying interest under section 234B of the Act, on account of the unanticipated adjustments made by the learned Transfer Pricing Officer. 8. The learned DCIT erred on the facts and in law in proposing to initiate penalty proceedings section 271(1) read with section 274 of the Act, without considering the facts of the case. 9. Each one of the above grounds of appeal is without prejudice to the other. 10. The appellant reserves the right to amend, alter or add to the grounds of appeal. 4. Shri Arvind Sonde appearing on behalf of assessee submitted that in TP study, assessee excluded non-operating expenses on account of foreign exchange loss from total cost to arrive at the Operating Cost. However, TPO took a view that foreign exchange loss is operating expenses and included the said amount while arriving at operating m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two companies i.e. M/s. Haldiram Bhujiawala Ltd. and M/s. Capital Foods Ltd. as functionally comparables. However, in the assessment year under appeal, both the companies have been rejected by applying export turnover filter. The only company, on the basis of which TPO has determined ALP, is ADF Foods Ltd. The ld. AR prayed that TPO may be directed to consider at least Haldiram Bhujiawala Ltd. and Capital Foods Ltd in the list of comparables for determining ALP. The ld. AR placed reliance on the following decisions to contend that the Tribunal accepted comparable companies that were selected by the DRP/TPO in the subsequent years: i) Bobst India Private Limited Vs. DCIT, in ITA No. 1380/PN/2010, for assessment year 2006-07 decided on 29.01.2018. ii) Jacobs Engineering India Private Limited Vs. DCIT, in ITA No.7194/Mum/2012 for assessment year 2008-09, decided on 17.05.2017. iii) Tamasek Holdings Advisors India P. Ltd. Vs. DCIT, in ITA No.776/Mum/2015, for assessment year 2010-11, decided on 25.02.2016. 7. In respect of ground No. 5, the ld. AR submitted that TPO erred in computing operating margin of ADF Foods Ltd. The correct operating margin of ADF Foods Ltd. for asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly comparable and determined ALP of the international transaction of the assessee with its AEs. 10. We have heard the submissions made by representatives of rival sides and have perused the orders of Authorities below. We have also considered the decisions on which both the sides have placed reliance in support of their contentions. 11. In ground No.1 of appeal, the assessee has assailed the directions of DRP in not accepting gain/loss arising from foreign exchange fluctuations as non-operating in nature. It is an undisputed fact that in the past assessee has been treating foreign exchange fluctuation as operating expenditure. However, in the assessment year under appeal, the assessee shifted his stand and treated foreign exchange loss as non operating expenses. The contention of assessee is that the change has been made in treating foreign exchange fluctuations as non operating expenditure in line with various orders of the Tribunal. We find that the Co-ordinate Bench of Tribunal in the case of BNY Mellon International Operations (India) Pvt. Ltd. Vs. ACIT (supra.) held foreign exchange gain as non operating income. Similar view has been expressed by Mumbai Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e carried out, we remit this issue back to the file of Assessing Officer/TPO with a direction to re-compute the adjustment, if any, in line with directions given by the Tribunal in assessment year 2007-08. The Assessing Officer /TPO shall afford a reasonable opportunity of hearing to the assessee. The grounds of appeal No. 2 and 3 raised by the assessee are thus, allowed for statistical purposes. Thus, in view of the above decision of the Co-ordinate Bench, we remit the issue back to the file of Assessing Officer/TPO to decide the issue de-novo on similar lines. Accordingly, ground Nos. 2 3 raised in appeal by the assessee are allowed for statistical purpose. 13. In ground No. 4 of appeal, the assessee has assailed rejection of all comparables by TPO by applying export turnover filter. The ld. AR contended before us that export turnover filter of 75% has been applied by the TPO for the first time in the assessment year under appeal. Neither the filter was applied in earlier assessment years nor it is applied in the subsequent assessment year. We observe that after applying export turnover filter of 75%, out of total ten comparables selected by assessee in TP study, nine c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhujiawala Ltd. and M/s.Capital Foods Ltd. as comparables along with ADF Foods Ltd and thereafter, determine ALP of the international transactions entered into by assessee with its AEs. Accordingly, ground No. 4 raised in appeal by assessee is allowed for statistical purpose. 14. In ground No. 5 of the appeal, the assessee has assailed incorrect computation of operating margin of ADF Foods Ltd. It has been pointed that the correct operating margin of ADF Foods Ltd is 10.31%, whereas the TPO computed the same as 13.83%. This issue requires verification of the calculations. Accordingly, we remit this issue back to the file of Assessing Officer/TPO to correctly compute the operating margin of the said company before applying the same for determining ALP. Accordingly, ground No. 5 raised in appeal by assessee is allowed for statistical purpose. 15. In ground No. 6 of appeal, the assessee has prayed for granting benefit of 5% variation. The Assessing Officer/TPO is directed to allow benefit of 5% tolerance to the assessee in accordance with law. Thus, ground No. 6 raised in appeal by assessee is allowed. 16. In ground No. 7 of appeal, the assessee has assailed charging of int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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