HSI AUTOMOTIVES PRIVATE LIMITED,KANCHIPURAM V. THE ASSESSING OFFICER, DELHI

ITTPA 28/CHNY/2021

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The case involves M/s. HSI Automotives Pvt. Ltd., which appealed against the final assessment order passed by the Deputy Commissioner of Income-tax, Corporate Circle-2(2), Chennai. The primary issues in the appeal were the treatment of foreign exchange losses and product development expenses in the computation of the Profit Level Indicator (PLI) for transfer pricing purposes. The assessee argued that the foreign exchange losses were extraordinary and should be treated as non-operative, while the product development expenses were claimed to be non-operative as they were not linked to the revenues of the year. The Tribunal's decision partly favored the assessee by directing a re-evaluation of the product development expenses but upheld the treatment of foreign exchange losses as operating items.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 632996 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 13-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR
• Assessee Lawyers: K. SENGUTTUVAN
• Keywords: Transfer pricing; International transaction; Reasonable cause; Depreciation; Rectification of order

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखा सद क े सम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER IT (TP) A No.28/Chny/2021 िनधा\u000eरणवष\u000e/Assessment Year: 2016-17 M/s. HSI Automotives Pvt. Ltd., Survey o.73, No.100, A Block, Thandalam Post, Mevalurkuppam, Sriperumbudhur Taluk, Kanchipuram-600 102. v. The DCIT, Corporate Circle-2(2), Chennai. [PAN: AAACH 2804 E] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.K. Senguttuvan, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr. A. Sasikumar, CIT सुनवाईक\u001aतारीख/Date of Hearing : 02.04.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 13.06.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This appeal preferred by the assessee is against the order passed by the Ld. Deputy Commissioner of Income-tax, Corporate Circle 2(2), Chennai [in short ‘AO’] u/s 144C/143(3) of the Act dated 30.03.2021 [which was rectified by the order dated 23.07.2021] pursuant to the directions dated 01.03.2021 issued by the Dispute Resolution Panel (hereinafter referred to as ‘DRP‘), Bengaluru, for AY 2016 2. At the outset, the is a delay of ‘10’ days in filing of t delay is mainly due to the lockdown imposed by the Government account of spread of Covid contents of the affidavit, we find that there was a reasonable delay and hence, we cond adjudicate the appeal on merits. 3. The brief facts of the case incorporated on 21.11.1997 with its parent company in South Korea. The assessee is engaged in manufacturing hose, rubber profile car roof sealing layout parts, power steering parts, fuel hose, brake hose, intercooler hose, water hose, radiator hose, weather strips and aircon hose Sriperumbudur. The assessee manufacturers [in short ‘OEMs’] in India materials, consumables and capital goods [AE] abroad which it has benchmarked by f IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 2 :: directions dated 01.03.2021 issued by the Dispute Resolution Panel (hereinafter referred to as ‘DRP‘), Bengaluru, for AY 2016-17. At the outset, the Ld.Counsel for the assessee submitted that there ’ days in filing of this appeal and the reason for cause of to the lockdown imposed by the Government account of spread of Covid-19 pandemic. Having gone through the contents of the affidavit, we find that there was a reasonable condone the delay of ‘10’ days and adjudicate the appeal on merits. The brief facts of the case are that the assessee incorporated on 21.11.1997 with its parent company in South Korea. The is engaged in manufacturing products such as low hose, rubber profile car roof sealing layout parts, power steering parts, fuel hose, brake hose, intercooler hose, water hose, radiator hose, weather strips and aircon hose having its manufacturing assessee caters mostly to original equipment [in short ‘OEMs’] in India. The assessee imports raw materials, consumables and capital goods from its Associated Enterprise [AE] abroad which it has benchmarked by following the Transactio /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. directions dated 01.03.2021 issued by the Dispute Resolution Panel 17. Ld.Counsel for the assessee submitted that there appeal and the reason for cause of to the lockdown imposed by the Government on . Having gone through the contents of the affidavit, we find that there was a reasonable cause for s and proceed to are that the assessee-company was incorporated on 21.11.1997 with its parent company in South Korea. The products such as low pressure hose, rubber profile car roof sealing layout parts, power steering parts, fuel hose, brake hose, intercooler hose, water hose, radiator hose, manufacturing facility in caters mostly to original equipment The assessee imports raw from its Associated Enterprise the Transactional Net Margin Method [TNMM] as calculating the Arm’s Length Price [ALP]. 4. The assessee had filed Return of Income (RoI) on 23.11.2016 declaring total income at Rs.15,86,22,452/ brought forward business losses and depreciation. The case of the assessee was selected for scrutiny. The AO is noted to have made a reference to the TPO for determination of ALP of the international transactions with its AE and the TPO vide o u/s.92CA(3) of the Act made downward adjustment to the tune of Rs.3,39,28,213/- to the purchases made from AE. Thereafter, the TPO passed a rectification order on 17.12.2019 wherein the computation of TP adjustment was rectifi Aggrieved by the draft assessment order passed by the AO u/s 144C of the Act, the assessee filed its objections before the DRP which was rejected vide order dated 01.03.2021. Thereafter, the AO passed the final assessment order dated 30.03.3021 making downward adjustment of Rs.3,39,28,213/-, which was rectified by passing rectification order on 23.07.2021 in which the downward adjustment was reduced to Rs.2,52,45,912/-. Aggrieved by this order, the assessee is now i before us. IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 3 :: Margin Method [TNMM] as the Most Appropriate Method [MAM] for calculating the Arm’s Length Price [ALP]. The assessee had filed Return of Income (RoI) on 23.11.2016 declaring total income at Rs.15,86,22,452/-, which was set brought forward business losses and depreciation. The case of the assessee was selected for scrutiny. The AO is noted to have made a reference to the TPO for determination of ALP of the international transactions with its AE and the TPO vide order dated 31.10.2019 passed u/s.92CA(3) of the Act made downward adjustment to the tune of to the purchases made from AE. Thereafter, the TPO passed a rectification order on 17.12.2019 wherein the computation of TP adjustment was rectified and brought down to Rs.2,52,45,912/ Aggrieved by the draft assessment order passed by the AO u/s 144C of the Act, the assessee filed its objections before the DRP which was rejected vide order dated 01.03.2021. Thereafter, the AO passed the final essment order dated 30.03.3021 making downward adjustment of , which was rectified by passing rectification order on 23.07.2021 in which the downward adjustment was reduced to . Aggrieved by this order, the assessee is now i /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. the Most Appropriate Method [MAM] for The assessee had filed Return of Income (RoI) on 23.11.2016 , which was set off against brought forward business losses and depreciation. The case of the assessee was selected for scrutiny. The AO is noted to have made a reference to the TPO for determination of ALP of the international rder dated 31.10.2019 passed u/s.92CA(3) of the Act made downward adjustment to the tune of to the purchases made from AE. Thereafter, the TPO passed a rectification order on 17.12.2019 wherein the computation of TP ed and brought down to Rs.2,52,45,912/-. Aggrieved by the draft assessment order passed by the AO u/s 144C of the Act, the assessee filed its objections before the DRP which was rejected vide order dated 01.03.2021. Thereafter, the AO passed the final essment order dated 30.03.3021 making downward adjustment of , which was rectified by passing rectification order on 23.07.2021 in which the downward adjustment was reduced to . Aggrieved by this order, the assessee is now in appeal 5. At the time of hearing, the Ld. AR for the assessee pointed out that the primary grievance in this appeal relates to the computation of PLI of the assessee. According to him, the Ld. DRP/TPO erred in holding that, (a) the foreign exchange fluctuation loss was operative in nature without appreciating the assessee’s claim was that the forex loss was extraordinary and thus ought to be treated as non and (b) the product development expenses was non and therefore the assessee had rightly adjusted the same while computing the PLI. 6. The Ld. AR first addressed the adjustment relating to foreign exchange loss. Assailing the action of the lower authorities, the Ld. AR submitted that they had failed to a loss (net) of Rs.2,31,20,681 in nature. According to him, there was sharp volatility in transacting currencies during the period for FY 2011 that, there was a low forex rate of Rs.47.94/USD when the prices were negotiated and finalized with customers in FY 2011 rates had substantially gone up to Rs.65.43/USD when it actually imported goods in the AY 2015 the assessee sold its products in FY 2015 upon in FY 2011-12 and due to the currencies of about 17.49% during period IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 4 :: At the time of hearing, the Ld. AR for the assessee pointed out that the primary grievance in this appeal relates to the computation of PLI of the assessee. According to him, the Ld. DRP/TPO erred in holding that, hange fluctuation loss was operative in nature without appreciating the assessee’s claim was that the forex loss was extraordinary and thus ought to be treated as non-operative in nature and (b) the product development expenses was non-operative in nature and therefore the assessee had rightly adjusted the same while The Ld. AR first addressed the adjustment relating to foreign exchange loss. Assailing the action of the lower authorities, the Ld. AR submitted that they had failed to appreciate that the foreign exchange loss (net) of Rs.2,31,20,681/- incurred during the year was extraordinary in nature. According to him, there was sharp volatility in transacting currencies during the period for FY 2011-12 to FY 2015-16. He submitted at, there was a low forex rate of Rs.47.94/USD when the prices were negotiated and finalized with customers in FY 2011-12, whereas the forex rates had substantially gone up to Rs.65.43/USD when it actually imported goods in the AY 2015-16. It was the Ld. AR’s case that, though the assessee sold its products in FY 2015-16 but their prices were agreed 12 and due to the sharp volatility in the transacting of about 17.49% during period 2011-12 to 2015 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. At the time of hearing, the Ld. AR for the assessee pointed out that the primary grievance in this appeal relates to the computation of PLI of the assessee. According to him, the Ld. DRP/TPO erred in holding that, hange fluctuation loss was operative in nature without appreciating the assessee’s claim was that the forex loss was operative in nature operative in nature and therefore the assessee had rightly adjusted the same while The Ld. AR first addressed the adjustment relating to foreign exchange loss. Assailing the action of the lower authorities, the Ld. AR ppreciate that the foreign exchange incurred during the year was extraordinary in nature. According to him, there was sharp volatility in transacting 16. He submitted at, there was a low forex rate of Rs.47.94/USD when the prices were 12, whereas the forex rates had substantially gone up to Rs.65.43/USD when it actually AR’s case that, though 16 but their prices were agreed sharp volatility in the transacting 12 to 2015-16, the assessee had incurred si conversion of foreign exchange fluctuation loss. The Ld. AR also furnished a written note explaining the basis for arriving at such foreign exchange loss and why the same should be treated as non-operative in nature. He pointed out that, similar issue was involved in their own case for AYs 2012 Tribunal had remitted the matter back to the AO/TPO for de novo consideration and thus urged us to do the same. Per c DR relied upon the order of the lower authorities and urged us not to give a second innings to the assessee. 7. Heard both the parties. We find that this issue is no longer res integra. It is noticed by us that, this identical issue had later on come up for consideration in assessee’s own case for AY 2014 No.66/Chny/2018 dated 12.06.2024 and same line of argument was put forth by the assessee. Having considered the assessee, this Tribunal is noted to have held that foreign exchange loss was not an extraordinary item and therefore no adjustment was warranted in this regard. The relevant findings taken note of by us is as follows:- “8. The assessee contends that adjustment of forex loss is to be treated as non-operating in nature. The same is on the ground that purchases were primarily in US dollars and there was fluctuation in currency rates. The Ld. AR has submitted that forex loss of compara low and huge variation was to be factored in. However, we are of the IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 5 :: incurred significant loss on account of difference in conversion of foreign exchange, which resulted in impugned f The Ld. AR also furnished a written note explaining the basis for arriving at such foreign exchange loss and why the same should operative in nature. He pointed out that, similar issue was involved in their own case for AYs 2012-13 & 2013 Tribunal had remitted the matter back to the AO/TPO for de novo consideration and thus urged us to do the same. Per contra, the Ld. CIT, DR relied upon the order of the lower authorities and urged us not to give a second innings to the assessee. Heard both the parties. We find that this issue is no longer res integra. It is noticed by us that, this identical issue had later on come up for consideration in assessee’s own case for AY 2014 No.66/Chny/2018 dated 12.06.2024 and same line of argument was put forth by the assessee. Having considered the nature of business of the assessee, this Tribunal is noted to have held that foreign exchange loss was not an extraordinary item and therefore no adjustment was warranted in this regard. The relevant findings taken note of by us is as essee contends that adjustment of forex loss is to be treated operating in nature. The same is on the ground that purchases were primarily in US dollars and there was fluctuation in currency rates. The Ld. AR has submitted that forex loss of comparable entities is very low and huge variation was to be factored in. However, we are of the /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. gnificant loss on account of difference in , which resulted in impugned forex The Ld. AR also furnished a written note explaining the basis for arriving at such foreign exchange loss and why the same should operative in nature. He pointed out that, similar issue 13 & 2013-14 and this Tribunal had remitted the matter back to the AO/TPO for de novo ontra, the Ld. CIT, DR relied upon the order of the lower authorities and urged us not to give Heard both the parties. We find that this issue is no longer res- integra. It is noticed by us that, this identical issue had later on come up for consideration in assessee’s own case for AY 2014-15 in IT(TP) No.66/Chny/2018 dated 12.06.2024 and same line of argument was put nature of business of the assessee, this Tribunal is noted to have held that foreign exchange loss was not an extraordinary item and therefore no adjustment was warranted in this regard. The relevant findings taken note of by us is as essee contends that adjustment of forex loss is to be treated operating in nature. The same is on the ground that purchases were primarily in US dollars and there was fluctuation in currency rates. ble entities is very low and huge variation was to be factored in. However, we are of the opinion that forex gains / losses are part of normal business operations only. Further, the assessee is engaged in export of goods also and is having earnings in fore losses could not be treated as extraordinary in nature. No such adjustment could be granted to the assessee. 8. Following the above decision (supra) and in line with judicial consistency, we do not see any i authorities holding the foreign exchange loss to be an operating item. 9. The next adjustment relates to the product development expenses. According to the Ld. DRP/TPO, the product development expenses were in the nature of operating item, whereas it was the assessee’s case that these expenses were neither incurred during the year and nor were linked to its revenues and therefore it was rightly adjusted/excluded from the computation of their PLI. We find that, this identi by this Tribunal in assessee’s own case for AY 2014 No.66/Chny/2018 dated 12.06.2024 wherein it was held as under: “10. The assessee also seeks adjustment of product development expenses. The Ld. TPO has treated the Ld. AR has stated that product development expenses are not incurred for this year. The expenses is incurred for extending support services rendered during the development of new model car by HMIL, the benefit of which may or may not occur and would not have any direct link with the revenue of this year. It has been submitted that this adjustment has been granted by Ld. TPO in AY 2012 we direct Ld. TPO to consider the same. The assessee is d provide the data to substantiate the same. 10. According to the Ld. AR, pursuant to the above directions, the TPO has allowed adjustment of the product development expenses in 2014 IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 6 :: opinion that forex gains / losses are part of normal business operations only. Further, the assessee is engaged in export of goods also and is having earnings in foreign currency. Therefore, the resultant gains or losses could not be treated as extraordinary in nature. No such adjustment could be granted to the assessee.” Following the above decision (supra) and in line with judicial consistency, we do not see any infirmity in the order of the lower authorities holding the foreign exchange loss to be an operating item. The next adjustment relates to the product development expenses. According to the Ld. DRP/TPO, the product development expenses were in of operating item, whereas it was the assessee’s case that these expenses were neither incurred during the year and nor were linked to its revenues and therefore it was rightly adjusted/excluded from the computation of their PLI. We find that, this identical issue was adjudicated by this Tribunal in assessee’s own case for AY 2014 No.66/Chny/2018 dated 12.06.2024 wherein it was held as under: 10. The assessee also seeks adjustment of product development expenses. The Ld. TPO has treated the same as operating in nature. The Ld. AR has stated that product development expenses are not incurred for this year. The expenses is incurred for extending support services rendered during the development of new model car by HMIL, the benefit or may not occur and would not have any direct link with the revenue of this year. It has been submitted that this adjustment has been granted by Ld. TPO in AY 2012-13. Accepting the plea of Ld. AR, we direct Ld. TPO to consider the same. The assessee is d provide the data to substantiate the same.” According to the Ld. AR, pursuant to the above directions, the TPO has allowed adjustment of the product development expenses in 2014 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. opinion that forex gains / losses are part of normal business operations only. Further, the assessee is engaged in export of goods also and is ign currency. Therefore, the resultant gains or losses could not be treated as extraordinary in nature. No such Following the above decision (supra) and in line with judicial nfirmity in the order of the lower authorities holding the foreign exchange loss to be an operating item. The next adjustment relates to the product development expenses. According to the Ld. DRP/TPO, the product development expenses were in of operating item, whereas it was the assessee’s case that these expenses were neither incurred during the year and nor were linked to its revenues and therefore it was rightly adjusted/excluded from the cal issue was adjudicated by this Tribunal in assessee’s own case for AY 2014-15 in IT(TP) No.66/Chny/2018 dated 12.06.2024 wherein it was held as under:- 10. The assessee also seeks adjustment of product development same as operating in nature. The Ld. AR has stated that product development expenses are not incurred for this year. The expenses is incurred for extending support services rendered during the development of new model car by HMIL, the benefit or may not occur and would not have any direct link with the revenue of this year. It has been submitted that this adjustment has 13. Accepting the plea of Ld. AR, we direct Ld. TPO to consider the same. The assessee is directed to According to the Ld. AR, pursuant to the above directions, the TPO has allowed adjustment of the product development expenses in 2014-15. Having gone through the material placed before us and foll decision (supra), we find merit in the plea of the assessee. The TPO is directed to consider the same in light of the view taken in earlier AYs 2012-13 & 2014-15; and the assessee is directed to provide the relevant data to substantiate the same. 11. No other grounds or plea has been urged before us. directions, this appeal is accordingly disposed off. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced on the Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA लेखासद\u0007य/ACCOUNTANT MEMBER चे\u0003ई/Chennai, \u0005दनांक/Dated: 13th June, 20 TLN आदेशक \u000eितिलिपअ\u0014ेिषत/Copy to 1. अपीलाथ /Appellant 2. \u000e\u000fथ /Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड फाईल/GF IT (TP) A No.28/Chny/20 M/s. HSI Automotives Pvt. Ltd. :: 7 :: Having gone through the material placed before us and foll decision (supra), we find merit in the plea of the assessee. The TPO is directed to consider the same in light of the view taken in earlier AYs 15; and the assessee is directed to provide the relevant data to substantiate the same. No other grounds or plea has been urged before us. directions, this appeal is accordingly disposed off. In the result, the appeal of the assessee is partly allowed. Order pronounced on the 13th day of June, 2025, in Chennai. AMITABH SHUKLA) /ACCOUNTANT MEMBER Sd/ (एबी टी. (ABY T. VARKEY याियकसद\u0007य/JUDICIAL MEMBER , 2025. Copy to: , Chennai / Madurai / Salem / Coimbatore. /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. Having gone through the material placed before us and following the decision (supra), we find merit in the plea of the assessee. The TPO is directed to consider the same in light of the view taken in earlier AYs 15; and the assessee is directed to provide the relevant With the above In the result, the appeal of the assessee is partly allowed. , in Chennai. Sd/- . वक ) ABY T. VARKEY) /JUDICIAL MEMBER , Chennai / Madurai / Salem / Coimbatore. "