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TMI Blog2021 (9) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... e is engaged in the business of manufacturing and trading of printing ink in India. The assessee entered into a technical know-how agreement with Flint Group whereby Flint Group provides the assessee with technical information and processes for manufacturing printing inks. The assessee functions as a licenced manufacturer manufacturing ink products based on the technical know-how information provided by the Flint Group. The Assessee had the following international transactions with the Flint group: S.No. Description of the Transactions Amount (Rs.) 1. Purchase of Raw Materials 11,63,67,584 2. Purchase of Traded Goods 1,21,53,520 3. Purchase of Capital Assets 2,87,13,977 4. Payment of Management Fees 1,43,00,423 5. Interest on term loan 67,40,696 6. Reimbursement of Expenses Paid 7,08,321 7. Reimbursement of Expenses received 55,16,941 3. In terms of Sec.92(1) of the Act which provides that any income arising from an international transaction shall be computed having regard to the arm's length price the Assessee filed Transfer pricing analysis justifying the payments made to the Associated Enterprises (AE) adopting the Transaction Net Margin Method (TNMM) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the dispute in Gr.No.4 is with regard to action of the assessee in treating net loss on foreign currency transactions and translation as non- operating expenditure which is item No.(i) given above. 6. The TPO rejected the contention of the assessee on the adjustment to assessee's margin for underutilization of capacity by reducing certain expenses and depreciation which were unabsorbed, from the operating costs and he recomputed the operating cost by disallowing the adjustment made towards underutilized capacity. According to the TPO, the assessee did not furnish any evidence in support of its contentions. The TPO also considered the loss arising from fluctuation of foreign currency as being operating in nature and included the same in the operating cost base and this is subject matter of Gr.no.4 in this appeal, which will be dealt with in the later part of this order. 7. Against the draft order of assessment, the assessee filed objections before the Dispute Resolution Panel (DR) which rejected the same on the basis that Appellant had not furnished any evidence in support of its contentions. It also rejected the contention of the assessee that gains/losses arising from fluctua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation on account of the significant under-utilisation of capacity. The TPO/DRP rejected the claim of the assessee primarily on the ground that (i) an adjustment for underutilization of capacity is to be made to the margins of the comparable companies and not the tested party and(ii) the Appellant had not furnished details with regard to the capacity utilization of the comparable companies and that comparable companies were working at 100% capacity. It was submitted that the revenue authorities did not dispute that there was under-utilisation of the capacity of the assessee. It was brought to our notice that the Tribunal in the assessee's own case for AY 2014-15 (order dated 31.10.2019 in IT(TP)A No. 3285/Bang/2018) remanded identical issue to the TPO with a direction to grant an adjustment on account of capacity utilisation by calling for relevant information on capacity utilisation in the case of comparable companies by exercising his powers in law. The Tribunal also held that if challenges on the lack of information / data are accepted then the adjustment should be made to the tested party. 10. The learned DR while placing reliance on the directions of the DRP submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price, it is not possible for the assessee to anticipate the variation in the forex fluctuations. In such situations, forex variation can never be taken in to account by the assessee while determining the arm's length price. Therefore, the loss or gains arising from forex fluctuations is not in the control of the assessee or the comparable companies. 13. It was submitted that the assessee is not a captive service provider but a licensed manufacturer, i.e., revenue is earned from third parties and majority of its transactions are with third parties. Therefore, in such a scenario, it is even more imperative to not consider the foreign exchange fluctuations as operating in nature. On the above argument, the learned counsel admitted that the assessee is not in a position to bifurcate transactions with AE and third parties and quantify the loss/gain in foreign currency fluctuation/restatement. The learned counsel placed reliance on the decision of the Hon'ble Tribunal in the case DHL Express (India)Private Limited v. ACIT (order dated 27.04.2011 in ITA No.7360/Mum/2010) wherein the Tribunal agreed with the assessee that interest income, rent receipts, dividend receipts, penalty collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) interest income; (ii) income arising on account of foreign currency fluctuations; (iii) income on transfer of assets or investments; (iv) refunds relating to income-tax; (v) provisions written back; (vi) extraordinary incomes; and (vii) other incomes not relating to normal operations of the assessee. It was argued that when the CBDT itself has recognised the fact that gains/losses arising on account of foreign exchange fluctuations should not form part of operating incomes/expenses even in case of risk mitigated tested parties. 15. The learned DR reiterated the stand of the revenue that the net loss/gain on account of fluctuation/restatement foreign exchange currency has to be treated as part of the operating expenses/gain respectively. 16. We have carefully considered the rival submissions. In the context of transfer pricing, the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. Vs ACIT (2011) 44 SOT 156 (Bangalore) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. In the light of above judgement, which is being followed consistently by the various Benches of ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty by debiting its profit and loss account to the extent it was ineligible to claim the duty credit and consequently claimed the same as a deduction under Section 37(1) of the Act. Since the credit cannot be claimed by the assessee and the said amount was written off, the same ought to be allowable as business expenditure under Section 37(1) of the Act more so, when the conditions specified for claim for expenditure under Section 37 of the Act are satisfied.In terms of Rule 9 of the Cenvat Credit Rules 2004, the assessee would not be able to claim credit on the basis of photocopies of invoices. The Chandigarh Bench of ITAT in the case of Mohan Spinning Mill v. ACIT(order dated 25.04.2012 in ITA No. 1212/Chd/2011) allowed CENVAT credit written off by the assessee as a business expenditure under the provision of Section 37 of the Act. The DRP held that cases cited by the learned counsel for the assessee were cases where either the registration certificate was surrendered or the business itself was closed. The DRP directed the AO to examine whether the credits were actually written off and if so allow the claim as bad debt. In our view, the sum in question can be regarded as los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the expenditure supersedes the nomenclature given to it, while determining its deductibility.It was argued that the expenses have been incurred in the interest of the business and should be allowed as a deduction under Section 37 of the Act. The learned DR relied on the order of the DRP. 22. We have carefully considered the rival submissions and are of the view that the sum in question is personal expenditure of the employee. The employer having met those expenses, the employer should regard is as a perquisite in the hands of the employee. Admittedly, the sum in question has not been regarded as perquisite in the hands of the employee and therefore the sum in question was rightly disallowed by the AO. We find no grounds to interfere with the order of the DRP. Reliance placed by the learned counsel for the assessee on the decision of the ITAT Kolkata Bench in the case of Gopalpur Tea Company Limited v. ITO reported in12 ITD 259 (Calcutta) is on payment of bonus over and above the statutory limit and that ratio cannot be applied to the facts of the present case. Hence, we dismiss Gr. No. 6 raised by the assessee. 23. In Ground No. 7, the assessee has challenged the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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