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TMI Blog2025 (1) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... (TPO)-2(1), Chennai (TPO) for determination of Arm's Length Price (ALP). The Ld. TPO passed an order u/s 92CA (3) on 25-10-2016 proposing certain Transfer Pricing (TP) adjustment. Incorporating the same, a draft assessment order was passed on 16-11-2016 which was subjected to assessee's objections before Ld. DRP. Pursuant to the directions of Ld. DR, Ld.AO passed final assessment order dated 18-05-2017 which is in further appeal before us. 1.2 The grounds raised by the assessee read as under:- The grounds of appeal stated hereunder are independent of, and without prejudice to one another: GROUNDS OF APPEAL 1. General On the facts and the circumstances of the case, the impugned order passed by the learned Deputy Commissioner of Income Tax / Assessing Officer ('AO') is erroneous and contrary to the principles of natural justice and bad in law. 2. Grounds in relation to transfer pricing adjustment The learned Transfer Pricing Officer ('TPO') and the learned AO, under the directions issued by the Hon'ble Dispute Resolution Panel ('DRP"): 2.1 Erred in law and on facts in rejecting the Transfer Pricing (TP") Study maintained by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on buyer's credit amounting to INR 16,435,794 disregarding the fact that the Appellant had earned an unrealized profit of INR 430,820. 4.4 Failed to appreciate that forex loss of INR 109,085,767 is allowable under section 37(1) of the Act. 5. Erred in law and on facts in initiating penalty u/s 271(1)(c) of the Act 5. 1 The learned AO erred in levying penalty on an adjustment which has resulted from a mere difference of opinion between the learned AO I TPO and the Appellant. 5.2 The Learned AO has failed to appreciate that there was neither any concealment of particulars of income nor furnishing of any inaccurate particulars of such income by the Appellant. 5.3 The learned AO has failed to appreciate that a mere disallowance of a claim does not automatically result in levy of penalty. 5.4 The learned AO has failed to appreciate that the Appellant had acted in good faith and with due diligence, and therefore it was not a case of deemed concealment in terms of Explanation 7 to section 271(1)(c) of the Act. 1.3 The Ld. AR placed on record ground-wise chart and advanced arguments by referring to the findings of lower authorities. Our attention has been drawn to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts and parts which could be said to be functionally comparable to the assessee. Under TNMM, strict product comparability was not necessity but broad functional comparability was the requirement. The assessee objected to rejection of comparable entities viz. M/s Automotive Stamping and Assemblies Ltd and M/s Majestic Auto Ltd. The same was rejected on the ground that these were loss making entities. The Ld. TPO reported that these two entities had negative PLI during this year only and these were not persistent loss making entities. However, these entities did not appear in the product filter. Considering the same, Ld. DRP upheld the exclusion of both these entities. The forex loss adjustment as claimed by the assessee was rejected considering the decision of Hon'ble High Court of Madras in the case of Pentasoft Technologies Ltd. (347 ITR 578) holding that foreign exchange was directly related to exports sales and therefore, it cannot be treated as other than part of profit from export. The custom duty adjustment was also not accepted on the ground that the assessee did not provide any such adjustment in its own TP study. Finally, the adjustments were upheld against which the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. However, this argument could not be accepted since the assessee has carried out import transactions and forex loss has direct linkage with the international transactions as carried out by the assessee. Therefore, forex losses / gains have to be considered as operating in nature. 2.6 The Ld. AR has sought various economic adjustments. However, it was admitted position that these adjustments were not granted by Tribunal in earlier years. Therefore, no indulgence is required on the same. 2.7 No other ground has been urged in the appeal. All the corresponding grounds stands disposed-off accordingly, 3. Disallowance as per the provisions of Sec.43A 3.1 The assessee claimed forex loss of Rs. 1257.76 Lacs and accordingly it was directed to provide the working thereof. Upon perusal of the same, the Ld. AO observed that the assessee, following AS-11, made adjustment of Rs. 14.33 Crores for foreign exchange loss by making addition to the fixed assets. The Ld. AO held that since there were unrealized amounts, the said adjustment could not be allowed u/s 43A. As per Sec. 43A, as amended w.e.f. 01-04-2003, where capital asset is acquired from a foreign country, the adjustment of actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has failed to provide the requisite details of forex loss before lower authorities. The Ld. AR has submitted that the impugned loss has two components i.e., ECB Loan which is capital in nature and second component is forex on Buyer's credit which is revenue in nature. Since adequate details thereof were not filed before lower authorities, we restore this issue back to the file of Ld. AO for fresh adjudication with a direction to the assessee to substantiate its case. The corresponding grounds stand allowed for statistical purpose. 4. Claim of Additional Depreciation 4.1 The assessee claimed additional depreciation of Rs. 134.26 Lacs which was not allowed by Ld. AO in the absence of revised return. The Ld. DRP upheld the action of Ld. AO against which the assessee is in further appeal before us. 4.2 It is admitted position that the assessee has claimed depreciation in subsequent years on WDV of the assets. The additional depreciation was neither provided in the books nor claimed in the return of income. In such a case, the allowance of claim would disturb the working of depreciation in all the subsequent years which could not be permitted at this stage. Even otherwise als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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