DAOMING REFLECTIVE MATERIAL INDIA PRIVATE LIMITED,HARYANA V. DCIT CIRCLE-1(1), HARYANA

ITA 5293/DEL/2024

AI Insights

The case involves Daoming Reflective Material India Private Limited, which appealed against the order of the Deputy Commissioner of Income Tax/Assistant Commissioner of Income Tax, Circle -1(1), Gurgaon, concerning the assessment year 2021-22. The primary issues in the appeal were the treatment of foreign exchange fluctuations and stock revaluation losses in the computation of the arm's length price of international transactions. The Transfer Pricing Officer had made adjustments to the assessee's declared income, which were upheld by the Dispute Resolution Panel. The Tribunal found that the foreign exchange gains should be considered as operating profits, referencing a Delhi High Court decision. The matter of stock revaluation loss was remanded back to the Assessing Officer for a detailed examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 771965 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: PCIT vs. Ameriprise India (P.) Ltd. [2017] 78 taxmann.com373 (Delhi-HC)
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHISHEK DEVAL
• Assessee Lawyers: BALDEV RAJ; MANISH UPNEJA
• Keywords: Transfer pricing; International transaction

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.5293/Del/2024 (ASSESSMENT YEAR 2021-22) Daoming Reflective Material India Private Limited Unit No.435, Udyog Vihar Phase-4, Gurgaon, Haryana-122022. PAN-AAGCD3536P Vs. DCIT/ACIT, Circle -1(1), Gurgaon. (Appellant) (Respondent) Assessee by Shri Baldev Raj, CA & Shri Manish Upneja, CA Department by Shri Abhishek Deval, Sr.DR Date of Hearing 30/07/2025 Date of Pronouncement 28/08/2025 O R D E R PER PRAKASH CHAND YADAV, JM: The present appeal of the assessee is arising out from the order of Ld. Assessing Officer dated 26th September, 2024 having DIN No. ITBA/AST/S/143(3)2024-25/1069109507(1) and relates to Asst. Year 2021-22. 2. Brief facts of the case as coming out from the orders of authorities below are that the assessee is a company and engaged in the sales of multiple products including Reflective Sheeting, Heat Transfer films, FR and non-FR reflective fibers, vehicle safety and road safety signage etc. The assessee company largely import these products from its holding entity in China. For the impugned assessment year, the assessee company has field its return of income declaring an income of Rs.76,09,100/-. Thereafter, the case of the assessee selected for scrutiny. During the course of assessment proceedings, the AO observed that the assessee has entered into international transactions with its Associated Printed from counselvise.com 2 ITA No.5293 /Del/2024 5293 vs. DCIT Enterprises (AE). Accordingly, case of the assessee was referred to the transfer pricing officer(TPO). The transfer pricing officer vide its order dated 28th October, 2023 made adjustment of Rs.4,23,60,826/- and compute the ALP of the international transactions executed by the assessee. Thereafter, the Assessing Officer passed draft assessment order on 17th November, 2023 against which the assessee filed its objections before the DRP and the Ld. DRP vide its order dated 31st August, 2024 upheld the adjustment made by the AO and, accordingly, the Assessing Officer passed the impugned assessment order. 3. Aggrieved with the order of the DRP, the assessee has come up in appeal before us. 4. The assessee has basically challenged two additions (a) addition of Rs.1,92,10,253/- on account of foreign exchange fluctuation (b) addition of Rs.7,86,834/- on account of stock revaluation loss. Ld. Counsel for the assessee appearing on behalf of the assessee and contended that the lower authorities i.e. TPO and DRP have erred in not considering the foreign exchange gain/loss as part of operating profit. It is further contended by the Ld. Counsel for the assessee that they have wrongly treated this gain as non-operating ignoring that the in subsequent and previous years there is no quarrel on this issue. 5. Per contra, Ld. CR relied upon the orders of the authorities below. 6. We have heard the rival submission and perused the material available on record. Perusal of the orders of authorities below would so that they have excluded the foreign exchange the fluctuation gain/loss from the ambit of operating profits while determining the arm’s length price of the international transaction. During the course of hearing, the bench has asked the Counsel for the assessee as regard to the nature of this gain Counsel for the assessee pointed out that this gain is related to such trading activities of the assessee which the assessee has conducted with its associated enterprises. This fact has not been controverted by the Ld. DR. Therefore, in view of the judgment of the Hon’ble Printed from counselvise.com 3 ITA No.5293 /Del/2024 5293 vs. DCIT Delhi High Court in the case of PCIT vs. Ameriprise India (P.) Ltd. reported in [2017] 78 taxmann.com373 (Delhi-HC) the foreign exchange gain would become part of operating profits. In this case also the Hon’ble High Court has held that foreign exchange gain should be considered as “operating profit” of the assessee. In view of this judgment, we are of the firm view that foreign gain/loss which is directly relate to the trading activities of the assessee and form part of the operating income/profit of the assessee. We order accordingly. 7. So far as the next issue is concern i.e., exclusion of stock revaluation of loss from the operating cost is concern, the Counsel for the assessee explained that the assessee has discarded certain goods, self-life of which goods become expired. It is the submission of the Counsel that the assessee has duly return these goods to the parent company and received finished goods from the parent company in subsequent year and the amounts related to these returned goods have been taken care by the assessee in operating income in subsequent years. Therefore, during the year under consideration, this revaluation loss should be excluded from the ambit of operating costs. 8. Ld. DR appearing on behalf of the Revenue and contended that the treatment given by the assessee in subsequent years to the goods return is not coming out from the paper books filed by the assessee and, therefore, matter may be restored to the file of the AO for examining afresh. 9. After considering the rival submissions and perused the materials available on record, the Bench has put a query to the Counsel for the assessee as to whether the assessee will be able to justify the treatment given by the assessee in subsequent years and would be able to reconcile the quantity of goods returned and received back, before the AO. Counsel for the assessee accepted that he will provide all the details of these transactions to the AO. Accordingly, this issue is restored to the file of AO with a direction that in case the assessee would be able to prove the factum of these reversal entries Printed from counselvise.com 4 ITA No.5293 /Del/2024 5293 vs. DCIT undertaken by the assessee in subsequent years then in the impugned year this revaluation amount of Rs.78,68,034/- should be excluded from the ambit of operating costs. With this observation we hereby restore this issue to the file of AO. 10. In the result, the appeal of the assessee is allowed as indicated above. Order pronounced in the open court on 28/08/2025. S d/- Sd/- Sd/- (MANISH AGARWAL) (PRAKASH CHAND YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28/08/2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "