Infac India Pvt. Ltd., Kancheepuram V. DCIT, CHENNAI

ITA 3182/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7791 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 19-01-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 18-11-2016
• Court: TRIBUNAL
• Department Lawyers: M M BHUSARI
• Keywords: Depreciation; Transfer pricing; International transaction

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.3182/MDS./2016 / ASSESSMENT YEAR : 2012-13 M/S.INFAC INDIA P. LTD., 113,ELLAIMMAN KOIL STREET, PADAPPAI, 601 301. VS. THE DCIT, COMPANY CIRCLE II(2), CHENNAI-34. [PAN AADCS 4890 C ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.RAGHUNATHAN SAMPATH, ADVOCATE /RESPONDENT BY : MR.M.M.BHUSARI, CIT D.R / DATE OF HEARING : 19 - 0 1 - 201 7 / DATE OF PRONOUNCEMENT : 17 - 02 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE DIRECTION OF THE DISPUTE RESOLUTION PANEL-2, BANGALORE DATED 11.09.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO3182./ 16 :- 2 -: 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS. 1. ASSESSMENT AND REFERENCE TO TRANSFER PRICING OF FICER (TPO) ARE BAD IN LAW. 2. TPO/DRP ERRED IN DISALLOWING THE TECHNICAL AND MANAGEMENT COSTS TO THE EXTENT OF 20,463,035/-( THE DETAILS OF THE SAME IS ANNEXED AS BRIEF FACTS- TABLE-A) WITHOUT CONSIDERI NG THE SUBMISSIONS MADE. 3. THE LD. DRP ERRED IN NOT CONSIDERING THE SUBMIS SION THAT COMPARABLE COMPANY SUPRAJIT ENGINEERING LTD., CANNO T BE CONSIDERED AS COMPARABLE COMPANY UNLESS RISK RELATE D ADJUSTMENT IS CONSIDERED. 4. TPO/DRP ERRED IN NOT CONSIDERING THE PURCHASE PRICE ADJUSTMENT OF RS.38,617,716/- DIFFERENCE BETWEEN TH E CONSTANT PRICE AND CURRENT PRICE DUE TO EXCHANGE FLUCTUATION . 5. WITHOUT PREJUDICE TO OUR SUBMISSION MADE IN GRO UND NO.4 ABOVE, TPO/DRP ERRED IN NOT REMOVING THE LOSS ON F OREX FLUCTUATION AMOUNTING TO RS.30,403,593/- FROM THE OPERATING EXPENDITURE, WHICH HAS ARISEN DUE TO REINSTATEMENT OF FOREIGN CURRENCY DONE ACCORDANCE WITH THE ACCOUNTING STANDA RDS. 6. THE TPO/DRP ERRED ON FACTS AND IN LAW IN NOT AD DING BACK DEPRECIATION OF TESTED PARTY AS WELL AS COMPARABLE COMPANIES SINCE EACH COMPANIES FOLLOWED DIFFERENT METHODS. ITA NO3182./ 16 :- 3 -: 7. THE TPO THOUGH REMOVED FINANCE CHARGES OF RS.6 ,248,428/-, NOT REMOVED THE BANK CHARGES OF RS.941,599/- SITTIN G IN THE ADMINISTRATIVE EXPENSES SCHEDULE. 7. TPO/DRP ERRED IN NOT CONSIDERED THE WORKING CA PITAL ADJUSTMENT FOR DETERMINATION OF ALP BY THE TPO. 8. TPO/DRP ERRED IN NOT CONSIDERING THE POWER R ELATED ADJUSTMENT FOR PROVIDING FOR ECONOMIC DIFFERENCES IN DETERMINATION OF ALP. 9. THE AO OMITTED TO CONSIDER ADVANCE TAX PAYMENT OF RS.12,000,000/- WHILE PASSING THE FINAL ORDER. 10. THE APPELLANT PRAYS CONSEQUENTIAL RELIEF OF INT EREST U/S.234B AND 234C OF THE ACT. 2.1 AT THE TIME OF HEARING, THE LD. AR SUBMITTED T HAT THE ASSESSEE IS NOT INTERESTED TO PRESS GROUND NOS.4, 6, 7 & 8. ACC ORDINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 3. NOW, THE GROUND NO.2 FOR OUR CONSIDERATION IS T HAT THE TPO/DRP ERRED IN DISALLOWING THE TECHNICAL AND MANAGEMENT C OSTS TO THE EXTENT OF ` 20,463,035/-. ITA NO3182./ 16 :- 4 -: 4. THE BRIEF FACTS OF THE ISSUE ARE THAT DURING TH E ASSESSMENT YEAR 2012-13, THE ASSESSEE HAD INCURRED PAYMENTS TO ITS A.E A SUM OF ` 20,463,035/- TOWARDS THE TECHNICAL SERVICES FEES. B ASED ON THE DETAILS OF SERVICES AND VARIOUS DOCUMENTARY EVIDENC ES FURNISHED, THE TPO CONSIDERED PART OF SUCH SUM AT ARMS LENGTH. HO WEVER, TPO REFUSED TO CONSIDER THE FOLLOWING CATEGORIES OF SER VICES FROM THE TOP MANAGEMENT OF M/S.INFAC CORPORATION, KOREA, THE HOL DING COMPANY:- WORK PERFORMED AMOUNT IN USD TECHNICAL DEVELOPMENT AND PRODUCTION SUPPORT QUALITY AND OTHER SUPPORTING WORD 58,625 NEW CARE DEVELOPMENT WORK SUPPORT 85,000 MACHINERY EXPANSION/SOURCING SUPPORT 38,500 RAW MATERIAL PROCUREMENT FROM KOREA AND OTHER COUNT RY- SUPPORT 106.150 TEST WORK SUPPORT 14,400 TECHNICAL MARKETING SUPPORT RESPONSE COST SHEET PREPARED FOR NEW ORDER PROCUREMENT/ENGINEERING ORDER CHANGE 13,975 OTHER MARKETING WORK SUPPORT 40,800 OTHER ADMIN SUPPORT ECB LOAN RELATED WORK- TIME COST OF FINANCE TEAM 8, 520 TOTAL 20,959,067 4.1 THE DRP OBSERVED THAT ACCORDING TO THE TPO, T HERE ARE NO SPECIFIC SERVICES PROVIDED BY THE AE AND THE ALP OF ALL SERVICES WAS DETERMINED TO BE NIL EXCEPT THE SERVICE OF ECB LOAN RELATED WORK AMOUNTING TO US$ 8520. BEFORE THE DRP,IT WAS CONTEN DED THAT THE ASSESSE HAS INCURRED PAYMENTS TO ITS AL TOWARDS THE TECHNICAL SERVICES ITA NO3182./ 16 :- 5 -: FEE AND MANAGEMENT COST BASED ON THE DETAILS OF SER VICES AND VARIOUS DOCUMENTARY EVIDENCES SUBMITTED TO THE TPO AND THE LD.A.R OBJECTED TO THE ACTION OF THE TPO. 4.2 THE DRP OBSERVED THAT THE TP0 HAS CONSIDERED T HE SUBMISSION OF THE ASSESSEE AND DISCUSSED THIS ISSUE FROM PAGE 17 TO 21 OF HIS ORDER AND HAS EXAMINED AND DISCUSSED EACH COMPONENT OF WORK CLAIMED TO HAVE BEEN PERFORMED UNDER TECHNICAL SERV ICES / MANAGEMENT SERVICES. THE TPO HAS ALSO REFERRED TO T HE SIMILAR SERVICES CLAIMED AND DEALT FOR THE Y 2011 -12 IN T P ORDER FOR THAT YEAR WHERE FOR EACH COMPONENT TP0 HAD RECORDED HIS CATEGORICAL FINDINGS ABOUT THE AVAILABILITY OR LACK OF THE DETA ILS AND EVIDENCE. THEREAFTER, THE TPO CAME TO A CONCLUSION THAT THE A LP FOR ENTIRE EXPENSES NIL EXCEPT THE SERVICE OF ECB LOAN RELATED WORK AMOUNTING TO USD 8520. 4.3 ACCORDING TO THE DRP, THIS AMOUNT OF RS 209,59 ,067 HAS BEEN DEBITED IN P&L A/C AS MANAGEMENT SERVICES FEE UNDER THE HEAD ADMINISTRATIVE SERVICES. IT IS SEEN FROM THE RECORD THAT THE SUBMISSION OF THE ASSESSEE BEFORE THIS PANEL IS SIMILAR IN SU BSTANCE AS MADE BEFORE THE TP0. IT IS OBSERVED THAT THE ASSESSEE HA S CLAIMED EXPENDITURE AMOUNTING TO RS 1.54,17.137 FOR TECHNIC AL SERVICE AND RS 3,24.54,364 FOR ROYALTY SEPARATELY IN THE P&L ACCOU NT. THE DRP WAS OF THE OPINION THAT FIRSTLY IT WILL BE RELEVANT TO EXA MINE THE MAIN FEATURES ITA NO3182./ 16 :- 6 -: OF THE TECHNICAL ASSISTANCE AGREEMENT BETWEEN TH E ASSESSEE AND THE AE, M/S.INFAC CORPORATION, KOREA DATED 1ST JANU ARY 2011, WHOSE TERMS AND CONDITIONS GOVERN ALL THE TRANSACTIONS BE TWEEN THEM. 4.4 THUS, IT IS SEEN THAT VARIOUS ARTICLES IN AGREE MENT SPECIFY THE NATURE OF SERVICE AND SUPPORT TO HE RENDERED BY THE AE TO THE ASSESSEE AND THE RELATED TERMS FOR PAYMENT IN RETUR N BY THE INDIAN COMPANY. ARTICLE 1.1 LISTS OUT LICENSED PRODUCTS ( EXIBIT A) FOR WHICH THE ASSESSEE GETS RIGHT TO MANUFACTURE, PRODUCE, US C AND SELL UTILIZING THE TECHNICAL INFORMATION AND INDUSTRIAL PROPERTY R IGHTS. ARTICLE 1 .2. DEFINES TECHNICAL INFORMATION MEANING TECHNICAL K NOWLEDGE, KNOWHOW, STANDARD CALCULATIONS, DATA AND INFORMATIO N DEVELOPED/AVAILABLE WITH LICENSOR (EXIBIL 13) PERTA INING TO MANUFACTURE, PRODUCTION, USE AND SALE THAT THE ASSE SSEE CAN AVAIL FOLLOWING THE AGREEMENT, ARTICLE 3 EXPLAINS THE SCO PE OF LSCHNICAL ASSISTANCE AND SERVICE WHILE ARTICLE 4 PROVIDES THE NATURE AND TERMS OF PAYMENT. THE ENTIRE COMPENSATION TO BE PAID BY THE ASSESSEE TO ITS KOREAN AE IS CATEGORISED IN ARTICLE 4. 1 AND 4.2 , THAT IS REPRODUCED UNDER: I. TECHNICAL DISCLOSURE FEE: A FIXED AMOUNT IS TO H E PAID FOR CONTROL CABLE, BATTERY CABLE SPARK PLUG CABLE ( USD 15000/ 23000/23000) WHENEVER A NEW CAR MODEL IS DEVELOPED. II. ROYALTY 5% OF SALES NET OF MATERIAL COST IMPOR TED FROM LNFAC KOREA. ITA NO3182./ 16 :- 7 -: III. TECHNICAL ASSISTANCE FEE: PAYMENT AT A FIXED R ATE (AS PER EXHIBIT C) TO THE VISITING TECHNICAL PERSONNEL FROM AE TO RENDER ASSISTANCE AND SERVICE IN CONNECTION WITH MANUFACTURE, PRODUCTION, USE, SELL AND OPERATION OF THE LICENSED PRODUCTS. IV. TECHNICAL EVALUATION FEE: FOR THE TESTING AND T ECHNICAL EVALUATION OF SUCH NEW MODELS OF LICENSED PRODUCTS ASSEMBLED BY THE ASSESSEC. ( RATE AS PER EXIBIT C) 4.5 THE DRP OBSERVED THAT THE AGREEMENT PROVIDES ONLY FOR PAYMENT OF ROYALTY AND FEES OF TECHNICAL NATURE AS LISTED ABOVE BY THE ASSESSEE TO ITS AE. OF COURSE, THE ASSESSEE CIN PUR CHASE PARTS, COMPONENTS, EQUIPMENTS AND MACHINERY FOR WHICH SEPA RATE SALES AGREEMENTS HAVE TO BE EXECUTED ( ARTICLE 5). THE AS SESSEE HAS CLAIMED EXPENDITURE AMOUNTING TO RS 1,54,17,137 FOR TECHNIC AL SERVICE AND RS 3,24,54,364 FOR ROYALTY DURING THE YEAR. BUT, THERE IS NO SCOPE FOR PAYMENT FOR ANY OTHER SERVICE NOT MENTIONED IN THIS AGREEMENT AS THE ARTICLE 15 DECLARES THAT THIS AGREEMENT CONSTITUTES THE ENTIRE AND ONLY AGREEMENT BETWEEN THE PARTIES RELATING TO TH SUBJEC T MATTER. THEREFORE, THE CLAIM OF ASSESSEE FOR PAYMENT OF THE SE EXPENSES UNDER THE HEAD TECHNICAL DEVELOPMENT AND PRODUCTION SUPP ORT AND TECHNICAL MARKETING SUPPORT AND DEBITED IN P&L A CCOUNT AS MANAGEMENT SERVICE FEES ARE BEYOND THE SCOPE OF TH IS AGREEMENT, CONSEQUENTLY NOT PAYABLE AND HENCE, COULD NOT HAVE BEEN PAID. ITA NO3182./ 16 :- 8 -: HENCE, THE DRP CAME TO A CONCLUSION THAT THE CLAIM OF THE ASSESSEC COULD NOT BE ACCEPTED. AGAINST THIS, THE ASSESSEE I S IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2011-12 IN ITA NO.633/MDS./2016 WHEREIN THE TRIBUNAL HELD AS UNDER:- 4. THE SIMILAR ISSUE CAME FOR CONSIDERATION BEFOR E THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 IN ITA NO.745/MDS./2015 DATED 12.08.2015. THE TRIBUNAL OB SERVED AS FOLLOWS:- 6. AFTER HEARING BOTH SIDES, WE ARE OF THE CONSIDE RED VIEW THAT THE ENTIRE MATTER HAS TO BE REMITTED BACK TO THE FILE OF LD. TPO FOR DENOVO CONSIDERATION BECAUSE BOTH TH E ASSESSEE AS WELL AS THE REVENUE HAS NOT EXAMINED TH E ISSUE WITH RESPECT TO THE CORRECT FACTUAL MATRIX. MANA GEMENT SERVICES AND TECHNICAL SERVICES FALSE UNDER DIFF ERENT FIELD AND THE NATURE OF WORK INVOLVED BOTH THESE SERVICES ARE DIFFERENT. FURTHER, WHEN THE ASSESSEE HAS MADE PAYM ENTS TO ITS PARENT COMPANY IT HAS TO ESTABLISH AND JUSTIFY THE NATURE OF PAYMENT AND THE NATURE OF SERVICE RECEIVED FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE IN TRANSFER PRICING M ATTERS. THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. JUST BECAUSE THE OPERATING COST INCURRED BY THE ASSESSEE COMPANY IS LESS THAN THE OPERATING COST OF THE COMPARABLE C OMPANIES, THE CLAIM OF EXPENSES INCURRED TOWARDS PAYMENT MADE TO ITS PARENT COMPANY ON AN ADHOC BASIS CANNOT BE JUSTIFIE D. IN MODERN MANAGEMENT AND TECHNICAL FIELD THERE ARE SUF FICIENT ITA NO3182./ 16 :- 9 -: WAYS AND MEASURES TO MEASURE THE SERVICES RENDERED BY ONE ENTITY TO OTHER ENTITY. THEREFORE, AS REQUIRED BY T HE REVENUE, THE ASSESSEE IS BOUND TO PRODUCE SATISFACTORY EVIDE NCE BEFORE THE REVENUE TO ESTABLISH ITS STAND. IN FACT IN THI S INSTANCE CASE THE ENTIRE CONFUSION HAS ARISEN BECAUSE THE AS SESSEE COMPANY HAS NOT SUBMITTED THE EVIDENCE FOR THE SERV ICE RENDERED BY THE PARENT COMPANY TO THE ASSESSEE COMP ANY AGAINST WHICH THE PAYMENTS ARE MADE TO THE PARENT C OMPANY BY THE ASSESSEE COMPANY. WITH THESE OBSERVATIONS WE REMIT THE MATTER BACK TO THE FILE OF LD.TPO FOR FRESH CON SIDERATIONS. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF TPO FOR FRESH CONSIDERATION. 6. THE NEXT GROUND NO.3 FOR OUR CONSIDERATION IS T HAT THE LD. DRP ERRED IN NOT CONSIDERING THE SUBMISSION THAT COMPAR ABLE COMPANY SUPRAJIT ENGINEERING LTD., WHICH CANNOT BE CONSIDER ED AS COMPARABLE COMPANY UNLESS RISK RELATED ADJUSTMENT IS CONSIDERE D. 7. THE FACTS OF THE ISSUE ARE THAT ON THIS ISSUE T HEREBY OBSERVED THAT THE COMPARABLES HAVE BEEN SELECTED BY THE ASSE SSEE AND ASSESSEE IN ITS TP STUDY DID NOT ALLOW ANY RISK ADJ USTMENT. THE RULES PROVIDE FOR ADJUSTMENTS ONLY WHEN THEY CAN BE MEASU RED ACCURATELY. ADJUSTMENTS CANNOT BE GIVEN AS A GENERAL RULE UNLES S IT IS CLEARLY SHOWN THAT THE COMPARABLES HAD ACTUALLY UNDERTAKEN SUCH RISK AND ITA NO3182./ 16 :- 10 - : HOW THE SAME MATERIALLY AFFECTED THEIR MARGINS. TH E REVISED OECD GUIDELINES OF 2010 STATES IN PARA 3.54 THAT: ENSURING THE NEEDED LEVEL OF TRANSPARENCY OF COMPA RABILITY ADJUSTMENT MAY DEPEND UPON AVAILABILITY OF AN EXPLA NATION OF ANY ADJUSTMENTS PERFORMED, THE REASONS FOR ADJUSTMENTS BEING CONSIDERED APPROPRIATE, HOW THEY WERE CALCULATED, H OW THEY CHANGED THE RESULTS OF EACH COMPARABLE AD HOW ADJUS TMENT IMPROVES COMPARABILITY. FROM THE ABOVE GUIDELINES, IT CAN BEEN THAT UNLESS IT IS SHOWN THAT HOW THE ADJUSTMENT WOULD CHANGE THE RESULT OF EACH COMPARABLE AND HOW THE SAME WOULD IMPROVE THE COMPARABILITY AND UN LESS ADEQUATE REASONS ARE GIVEN FOR SUCH ADJUSTMENTS, NO ADJUSTME NT CAN BE ALLOWED TO THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED WITH FACTS THE JUSTIFICATION FOR THESE ADJUSTMENTS IN ITS CASE VIS--VIS THE COMPARABLES. THEREFORE, THE DRP OBSERVED THAT T HE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 8. BEFORE US, THE LD.A.R SUBMITTED THAT IT IS INTO SUP PLY OF AUTOMOTIVE PRODUCTS (4 WHEELERS) TO SINGLE ORIGINAL EQUIPMENT MANUFACTURER (OEM), WHERE AS SUPRAJIT ENGINEERING LTD IS HAVING PRODUCTS SCATTED INTO BOTH AUTOMOTIVE AND NON AUTOMOTIVE MARKETS TO MANY OEM(S) AND OTHERS. THE NON AUTOMOTIVE SEGMENT COMMAND HIGHER M ARGINS. FURTHER, ACCORDING TO LD.A.R, THE ASSESSEE IS NOT INTO REPL ACEMENT MARKET AND ITA NO3182./ 16 :- 11 - : THERE ARE NO DEALERS OF ITS PRODUCTS AND SUPPLIES O NLY TO, WHERE AS SUPRAJIT ENGINEERING LTD IS HAVING MORE THAN 200 STOCKISTS/ DEALERS (160 DEALERS IN 2009 TO 300 IN 2013) . THE REPLACEMENT MARKET CO MMANDS A HIGHER PROFIT. REF: A. ASSESSEES TP DOCUMENTATION: REFER PAPER BOOK 2 OF 2 PAGE NO 118 (PARA NO 6.7) 131-132 (SEEKING RISK ADJUSTME NT OF 5% AND ADJUSTMENT IN RESPECT OF REPLACEMENT MARKET 5%) B. TPOS ORDER: PAPER BOOK 1 OF 2 PAGE 52-53 (PARA 4.1- INTERNAL PAGE NO: 5-6) AND PAPER BOOK PAGE 59 (PARA 5INTERN AL PAGE NO: 59) C. DRPS ORDER: PAPER BOOK 1 OF 2 PAGE 40 (PARA 9.1 - INTERNAL PAGE NO 12 OF THE LD.A.R ALSO SUBMITS THAT (I) COPY OF THE RESEARCH REPORT OF KM GLOBAL FINSER V INVESTMENT RESEARCH- 24 TH FEB 2012- GROWTH IN HIGH MARGIN NON AUTOMOTIVE AND REPLACEMENT MARKET- PROVIDING THAT SUPRAJIT IS GROWING QUIET AG GRESSIVELY IN THE NON- AUTOMOTIVE AND REPLACEMENT MARKET SEGMENT WHER E THE MARGINS ARE ALSO HIGHER AS COMPARED SEGMENT. IN THE NON- AUTOMOTIVE SEGMENT THE COMPANY COMMANDS 18% OPERATI NG MARGINS AND IN REPLACEMENT MARKET IT ENJOYS 5% HIGH ER MARGIN THAN IN AUTOMOTIVE SPACE. ITA NO3182./ 16 :- 12 - : (II) COPY OF RESEARCH REPORT OF DOLAT CAPITAL JUN E 11, 2014- IN PAGE 8 COMMENTING ON AFTER MARKET CONTRIBUTION OF SUPRAJIT-PROVIDING SEL (SUPRAJIT ENGINEERING LTD) HAS A 10% MARKET SHARE IN THE AFTER MARKETS. THE LD.A.R PLEADED THAT CONSIDERING ABOVE FACTS, AN ADJUSTMENT OF 5% OF THE OPM OF SUPRAJIT ENGINEERING LTD. AND SUBMITTED THAT IF SUCH ADJUSTMENT IS NOT POSSIBLE, THE COMPANY CANNOT BE TAKEN AS A C OMPARABLE. 9. ON THE OTHER HAND, THE LD.D.R RELIED ON THE DIR ECTION OF DRP. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT CORRECT TO OBSERVE BY THE DRP THA T THE ASSESSEE HAS NOT CLAIMED THIS ADJUSTMENT IN ITS TP STUDY. ADMIT TEDLY, THE ASSESSEE CLAIMED THIS ADJUSTMENT IN ITS TP STUDY @ 10% AS RE FLECTED IN PAPER BOOK-II (RISK ADJUSTMENT AT 5% AND REPLACEMENT ADJU STMENT AT 5%), SINCE M/S.SUPRAJIT ENGINEERING LTD., WHICH IS IN NO N-AUTOMOTIVE SEGMENT WHICH COMMANDS HIGHER MARGIN OF PROFIT. IT IS ALSO BROUGHT TO OUR NOTICE THAT M/S.SUPRAJIT ENGINEERING LTD., H AS SET UP MANUFACTURING FACILITY AT EIGHT DIFFERENT LOCATION ACROSS THE COUNTRY TO BE CLOSE TO ITS MAIN CUSTOMERS IN THE NORTH, WEST A ND SOUTHERN BELTS. HARIDWAR PLANT EXT TO HERO HONDA,PANTNAGAR PLANT NE XT TO BAJAJ, THE PLANNED SANAND PLANT NEXT TO TATA NANO ETC. WHICH G IVES SUPRAJIT A LOGISTIC ADVANTAGE. ITA NO3182./ 16 :- 13 - : IN TWO WHEELERS SPACE THE COMPANYS MAJOR CUSTOMER S ARE TVS, BAJAJ AUTO AND HERO MOTO. IN THE FOUR WHEELER SEGME NT, THE COMPANYS CUSTOMERS ARE TATA MOTORS, MAHINDRA AND M AHINDRA, HYUNDAI, FORD AND GENERAL MOTORS. THE MAJOR EXPORT S CUSTOMERS ARE GENERAL MOTORS, SUZUKI AND PIAGGIO. BEING SO, THE A O REQUIRED TO RE- EXAMINE THE CLAIM OF RISK ADJUSTMENT AND REPLACEMEN T ADJUSTMENT CLAIMED BY THE ASSESSEE AND SUITABLE ADJUSTMENTS TO BE GIVEN AFTER APPRISING THE TP DOCUMENTS SUBMITTED BY THE ASSESSE E. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO FOR THE PURPOSE OF DETERMINATION OF RISK ADJUSTMENT TO BE GRANTED TO T HE ASSESSEE. 11. THE NEXT GROUND NO.5 FOR OUR CONSIDERATION IS THAT WITHOUT PREJUDICE TO OUR SUBMISSION MADE IN GROUND NO.4 ABO VE, TPO/DRP ERRED IN NOT REMOVING THE LOSS ON FOREX FLUCTUATI ON AMOUNTING TO RS.30,403,593/- FROM THE OPERATING EXPENDITURE, WHI CH HAS ARISEN DUE TO REINSTATEMENT OF FOREIGN CURRENCY DONE ACCORDANC E WITH THE ACCOUNTING STANDARDS. 12. THE FACTS OF THE ISSUE ARE THAT ACCORDING TO L D.A.R THIS IS AN EXTRAORDINARY NON-OPERATING EXPENDITURE. THE LD.A.R SUBMITTED THAT OUT OF ` 3,04,03,592, DEBITED AS FOREIGN EXCHANGE LOSS DURIN G THE YEAR, A SUM OF ` 1,52,78,072 IS UNREALIZED (ARISING OUT OF YEAR END TRANSLATION OF THE ITA NO3182./ 16 :- 14 - : CREDITORS FOR FOREIGN SUPPLIES). FURTHER, LD.A.R RE LIED ON THE JUDGEMENT OF THE TRIBUNAL, BANGALORE IN THE CASE OF AIRBUS INDIA OPERATIONS PRIVATE LTD (ITA NO: IT(TP)A NO 35/BANG/2014) DATED 10.10.2014. 13. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE I SSUE WAS SQUARELY COVERED IN THE CASE OF PEROFAC ENGINEERING SERVICES INDIA (P.) LTD., VS. ITO IN [2014] 46 TAXMANN.COM 126 (CHENNAI-TRIB) WHEREIN HLED THAT IN CASE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS AE, FOREIGN EXCHANGE GAIN/LOSS IS A RELEVANT FACTOR IN COMPUTAT ION OF ASSESSEES ALP. THE MADRAS HIGH COURT IN THE CASE OF CIT VS. PENTASOFT TECHNOLOGIES LTD. [2012] 347 ITR 578 HELD THAT GAINS DUE TO FLUCTUATION IN F OREIGN EXCHANGE IS DIRECTLY RELATED TO EXPORT SALES OF THE ASSESSEE AND THEREFO RE, IT CANNOT BE TREATED AS OTHER THAN PART OF PROFIT FROM EXPORT. SO COROLLARY OF THIS IS THAT THE LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE IS ALSO DIRECTLY RELATED TO EXPENSES OF THE ASSESSEE AND THUS FORM PART OF ITS OPERATING EXPENS ES. IN THE CASE OF SAP LABS INDIA (P.) LID. V. ASSTT. CIT[2011] 44 SOT 15 6 (BANG.), THE ITAT HELD THAT THE FOREIGN EXCHANGE LLUCTUAON INCOME CANNOT BE EXCLUDED FROM THE COMPUTATION OF THE OPERATING MARGIN OF THE ASSESSEE -COMPANY. THUS SIMILAR LOSS WILL ALSO HAVE TO BE CONSIDERED WHILE DETERMIN ING PROFIT MARGIN AND THUS IS PART OF OPERATING EXPENSES. IN THE CASE OF DY CI T .V. WELSPUN ZUCCHI TEXTILES LTD. [2013/ 38 TAXMANN.COM 243 (MUMBAI - T RIB.) WHEREIN IT WAS HELD THAT LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCT UATION LOSS WAS TO BE TREATED AS BUSINESS LOSS. IN THE CASE OF CORDYS R & D (INDIA,) (P.) LTD. V. DY. CIT [2014] 43 TAXMANN. COM 64 (HYDERABAD - TRIB.), ALSO IT WAS HELD THAT IN ITA NO3182./ 16 :- 15 - : COMPUTING NET MARGIN, FOREX FLUCTUATION GAIN-LOSS I S TO BE TREATED AS PART OF OPERATING INCOME OF COMPARABLE COMPANIES. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF WESIFALIA SEPARATOR INDIA (I) LTD. V S. ACIT [2014] 52 TAXMANN.COM 381 HELD AS UNDER:- IN CONTRAST TO THE ABOVE, WE FIND THAT THERE IS A PLETHORA OF DECISIONS RENDERED BY VARIOUS BENCHES OF THE TRIBUN AL ACROSS THE COUNTRY HOLDING THAT FOREX GAIN/LOSS IS PART OF OPE RATING REVENUE/COST. TO CITE A FEW, THE DELHI BENCH OF THE TRIBUNAL IN TECHBOOKS INTERNATIONAL (P.) V ,ACIT (TO WHICH ONE OF US, NAMELY, THE AM IS PARTY) HAS HELD VIDE ITS ORDER DATED 28-0 4-2014 THAT FOREIGN EXCHANGE GAIN OR IS A PART AND PARCEL OF OP ERATING REVENUE/OPERATING COST. THE BANGALORE BENCH OF THE TRIBUNAL IN SAP LABS INDIA (P.) LTD. V ACIT (2010,) 6 ITR (TRIB ) 81 (BANG) HAS ALSO HELD THAT FOREIGN EXCHANGE GAIN SHOULD HE ADDE D TO THE OPERATING REVENUE. THE MUMBAI BENCH OF THE TRIBUNAL IN RUSHABH, DIOAMONDS. MUMBAI, VS. ACIT IN ITA NO 7217 VIDE ITS ORDER DATED 26-04-2013 (TO WHICH THE AM IS PARTY,) HAS ALSO HEL D FOREIGN CHANGE GAIN AS A PART OF OPERATING PROFIT. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COVE RED BY THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. PENTASO FT TECHNOGIES LTD. IN (2012) 347 ITR 578 WHEREIN HELD THAT: ITA NO3182./ 16 :- 16 - : IN ORDER TO ALLOW A CLAIM UNDER SECTION 10A OF THE ACT, WHAT ALL IS TO BE SEEN IS WHETHER SUCH BENEFIT EARNED BY THE AS SESSEE WAS DERIVED BY VIRTUE OF EXPORT MADE BY THE ASSESSEE. T HE EXCHANGE VALUE BASED ON UPWARD OR DOWNWARD OF THE RUPEE VALU E IS NOT IN THE HANDS OF THE ASSESSEE. IN OTHER WORDS, THE ASSE SSEE DOES NOT DETERMINE THE EXCHANGE VALUE OF THE INDIAN RUPEE. I T HAS TO BE REMEMBERED BUT FOR THE FACT THAT THE ASSESSEE IS AN EXPORT HOUSE, THERE WAS NO QUESTION OF EARNING ANY FOREIGN EXCHAN GE. THEREFORE, WHEN THE FLUCTUATION IN FOREIGN EXCHANGE RATE WAS SOLELY RELATABLE TO THE EXPORT BUSINESS OF THE ASSE SSEE AND THE HIGHER RUPEE VALUE WAS EARNED BY VIRTUE OF SUCH EXP ORTS CARRIED OUT BY THE ASSESSEE, THERE IS NO REASON WHY THE BEN EFIT OF SECTION 10A SHOULD NOT BE ALLOWED TO THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE INCLINED TO DECIDE TH E ISSUE AGAINST THE ASSESSEE HOLDING THAT FOREIGN EXCHANGE LOSS IS A PA RT OF OPERATING EXPENDITURE. FURTHER, IN VIEW OF ABOVE JUDGEMENT OF MADRAS HIGH COURT CITED SUPRA, WE ARE NOT IN A POSITION TO FOLL OW THE ORDER OF TRIBUNAL, BANGALORE BENCH IN THE CASE OF M/S.AIRBUS INDIA OPERATIONS PVT. LTD. FOR ASSESSMENT YEAR 2009-10 VIDE ORDER DA TED 10.10.2014(SUPRA). ITA NO3182./ 16 :- 17 - : 15. THE LAST GROUND FOR OUR CONSIDERATION IS NON-C ONSIDERATION OF ADVANCE TAX PAYMENT OF 12,000,000/-. IN OUR OPINION , IF IT IS DULY PAID, AS AN ADVANCE TAX RELEVANT TO THE ASSESSMENT YEAR D UE CREDIT TO BE GIVEN AND THEREAFTER THE INTEREST U/S.234B & 234C O F THE ACT TO BE COMPUTED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 17 TH FEBRUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 17 TH FEBRUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF