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TMI Blog2022 (11) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... ce it is operating cost then in the year under consideration it would also draw the same colour viz. it would be operating in nature and would constitute operating income. This ground of the assessee is therefore, allowed. Payment of intra group services - HELD THAT:- Tribunal for A.Y. 2013-14 [ 2021 (2) TMI 1146 - ITAT PUNE ] has observed that since T.P.O determined NIL ALP on the preliminary premises that there was no evidence of receipt of services and that the Tribunal has noticed the fact of receipt of services, therefore, this issue was set aside and the matter was remanded back to the file of the A.O./TPO for determining the ALP of the international transaction of intra group services as per law after allowing reasonable opportunity of hearing to the assessee. Therefore, following the same parity of reasoning for this year also and on the same premises that on one hand the revenue states that no evidence was furnished regarding receipt of intra group services and on the other hand the Tribunal has noticed the fact of receipt of services, as per the aforestated order in assessee s own case (supra) and also considering the submissions of the ld. D.R on this issue, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Keyur Patel CIT DR ORDER PER PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER This appeal preferred by the assessee emanates from findings of the Ld. Disputes Resolution Panel-3, Mumbai-2, (hereinafter referred to as the DRP ) dated 20-08-2018 for A.Y. 2014-15 u/s 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) as per the following grounds of appeal. Being aggrieved by the assessment order finalized u/s 144C(3) r.w.s.143(3) of the Income `Tax Act, 1961 by the learned Deputy Commissioner of income Tax, Circle 1 (2), Pune (AO) consequent to the directions of the Hon'ble Dispute Resolution Panel-3,Mumbai (DRP) in the case of Dana India Private Limited (the appellant), your appellant submits following grounds which are without prejudice to each other for Your due and sympathetic consideration: On the facts and circumstances of the case and in law I. Transfer Pricing ( TP) adjustments: Against the adjustments made under Transfer Pricing assessment The learned TPO/AO erred in making aggregate upward adjustment of Rs. 13.06 crores ( Page 7 Para 6 of A O's final order) to the Arm's Length Price (ALP) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 7. The learned AO erred in disallowing the contribution made to gratuity fund OF Rs. 23,30,000 and superannuation fund amounting to Rs 2,37,000 under the provisions of section 40A(7) of the Act. The Appellant prays that the learned AO be directed to allow deduction for contribution of Rs 25,57,000 made to gratuity fund and superannuation fund which are pending-for approval before the Income Tax department. 8. The learned AO erred in facts and in law in adding the interest amount of Rs. 1,70,316 to the income of the appellant corresponding to the tax deducted of Rs. 11,534 ( on Rs. 1,15,336) by Maharashtra State Distribution Company Ltd. and Rs. 5,498 ( on Rs. 54,980) by Tamilnadu Generation and Distribution Corporation Ltd. and treating it as not being recorded in the books of accounts of the appellant even though the same were netted off and reduced from the power expenses incurred in the year under consideration. The Appellant prays that the learned AO be directed to delete the said addition made. The appellant craves leave to add to, alter, delete, raise any of the grounds at the time of hearing. 2. At the outset, the ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the PLI of the tested party and the comparables for facilitating a reliable comparability analysis. This issue of treatment of foreign exchange loss/gain is operating or non-operating for the purpose of computing the PLI of the assessee and the comparables has been a subject matter of various decisions of Hon ble tribunals. The assessee has relied on many decisions wherein various benches of the Hon ble SITAT have held that the foreign exchange fluctuation gain/loss should be treated as Operating income/cost. However, we find that in the case of M/.s. DHL Express (India) )(P).Ltd. (2011) 11 taxman.com 40, the Hon ble ITAT Mumbai laid down the principles that the foreign exchange gain/loss has nothing to do with the main operations of the assessee and therefore the same represents a non-operating income/loss which needs to be excluded for the purpose of benchmarking the international transactions . Thus, we find that there is no judicial consensus on the issue of treatment of gain/loss arising from foreign exchange rate fluctuation in respect of transactions carried out during the course of business. As the issue is pending before the higher courts for adjudication and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is found to be in affirmative, then naturally, their reversal in the year under consideration would also lead to operating revenue. Similarly, if the amount of sales tax was taken as operating cost at the time of payment, then receipt of its refund in the year in question would also give rise of the operating revenue and vice-versa. IV. Foreign exchange fluctuation gain 13. The next item is foreign exchange fluctuation gain. The assessee treated this amount as operating revenue. The TPO, again relying on the definition of operating revenue under Rule 10TA, did not accept the assessee s contention. We have held above that Rule 10TA is not applicable and as such the determination of the character of foreign exchange gain will have to be guided by the normal business understanding and commercial principles. It is fairly settled that foreign exchange gain/loss arising from business transactions is operating revenue/cost. Several benches of the Tribunal including a recent decision of the Pune Benches in Delval Flow Controls Pvt. Ltd. Vs. DCIT (ITA No.640/PUN/2017) dated 20-01-2021 have laid down to this extent. We, therefore, direct to take foreign exchange gain as part of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27 para 11.3 onwards. The main objection of the department regarding this issue is that the assessee has not submitted any documents to prove the actual receipt of services. The H.R functions including employee revenue policy, job evaluation, hiring and recruitment, etc. None of these services have been proved by the assessee as received from A.E. 9. At the time of hearing, the ld. .A.R for the assessee reiterated the submissions placed before the subordinate authorities and vehemently contended that the services were actually received and that they have submitted detailed evidences before the Department evidencing such receipt of intra group services. That even before us, in the paper book at page 70 to 253 they have annexed all the said evidences. The ld. A.R further submitted that in assessee s own case for A.Y. 2013-14 (supra) on the identical facts situation where the assessee was called upon by the department to file details for proving receipt of services and benefits derived, in absence of any satisfactory explanation tendered by the assessee, the T.P.O had determined the ALP at NIL of the international transactions regarding intra group services cost. In such scenario, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar contention was also advanced before the DRP as has been recorded at page 32 of its direction. In our view, the factum of acceptance of payment for the intra-group services at ALP for the preceding years is simply relevant but not decisive. ITA No.473/PUN/2018 Dana India Private Limited 27 The international transactions need to be independently proved at ALP every year. 17.6. On a specific query as to the amount of intra-group expense incurred by the assessee in the year under consideration and in the earlier years, the ld. AR could give the amount of intragroup services expense only for the immediately preceding year at Rs.2.74 crore as against cost for the year under consideration at Rs.11.71 crore. Considering the difference in the figures of revenue on one hand and inter-group services on the other for the current year vis-a-vis the preceding year, ex facie, the transaction cannot be declared at ALP, unless a detailed examination is carried out. As the TPO has determined Nil ALP on the preliminary premise that there was no evidence of receipt of services and we have noticed above the fact of receipt of services, we set-aside the impugned order on this score and remit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le jurisdictional High Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. (2019) 414 ITR 704 (Bom.) holding that the transfer pricing adjustment should be restricted only to the international transactions and not the entity level transactions. The Hon ble High Court in has held that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. Here, it is pertinent to mention that the Department s SLP against the judgment in the case of Phoenix Mecano (India) Pvt. Ltd. has since been dismissed by the Hon ble Supreme Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. (2018) 402 ITR 32 (St.). Similar view has been taken by the Hon ble Bombay High Court in CIT Vs. Thyssen Krupp Industries Pvt. Ltd. (2016) 381 ITR 413 (Bom.) and CIT Vs. Tara Jewels 7 Exports (P). Ltd. (2010) 381 ITR 404 (Bom.). We, therefore, set aside the impugned order on this score and direct that the transfer pricing adjustment should be restricted only to the extent of the international transactions. 16. Respectfully following the aforetated judicial pronouncement we set aside the findings of the ld. D.R.P on this issue and direct that the transfer pricing adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the assessee corresponding to the tax deducted of Rs., 11,534/- (on Rs. 1,15,336/-) by Maharashtra State Distribution Company Ltd., and Rs. 5,498 (on Rs. 54,980/-) by Tamilnadu Generation and Distribution Corporation Ltd., treating it as not being recorded in the books of accounts of the assessee even though the same were netted off and reduced from the power expenses incurred in the year under consideration. The A.O has dealt with this issue at page 8 para 14 of his order which is as follows: 14. During the course of assessment proceedings, on verification of records, it is found the assessee has received an amount of Rs. 1,15,336/- from Maharashtra State Distribution Co. Ltd. (MSDCL) on which TDS of Rs. 11,534/- was deducted u/s 194A. Further, the assessee has also received an amount of Rs. 54,980/- from Tamilnadu Generation and Distribution Corporation Ltd. (TGDCL) on which TDS of Rs. 5,498/- was deducted u/s 194A. The authorised representative of the assessee was asked to reconcile receipts and TDS captured in the ITS data with the books of accounts of the assessee company. The AR of the assessee submitted reconciliation of 26AS on 21-11-2017. On perusal it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellant had not opted for the SHR and Rule 10TA was not at all applicable in its case. It is prayed that the foreign exchange gain/loss having arisen from the exports/imports of products/material in the ordinary course of conduct of business be directed to be included in the operating profit. Your appellant craves leave to ad, modify or raise ground at the time of hearing. 23. We observe that we have held in the case of the assessee that foreign exchange gain/loss which has arisen from exports/imports of the product/materials which are in the ordinary course of business of the assessee are included as operating cost. This is in conformity with the decision of the Tribunal in earlier year (supra) orders of the assessee and following the same parity of reasoning and in the same set of facts and circumstances the same is allowed for this year also. In view of these findings, the additional ground filed by the assessee is therefore, rendered academic in nature. 24. The appeal of the assessee is decided as directed hereinabove. 25. In the combined result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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