Asst. CI.T., Bangalore V. M/s Denso Kirloskar Industries Pvt. Ltd., Bangalore

ITA 81/BANG/2015

• Counselvise Citation: 8121114 RSA 2015
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 28-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RADHAKRISHNA CITIIIDR
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER IT(TP)A NO.81/BANG/2015 ASSESSMENT YEAR : 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, LTU, BANGALORE. VS. M/S. DENSO KIRLOSKAR INDUSTRIES PVT. LTD., 30 TH K.M. STONE, TUMKUR ROAD, NH-4, VISHVESHWARAPURA, BANGALORE RURAL DISTRICT 562 123. PAN: AABCD 0042P APPELLANT RESPONDENT APPELLANT BY : SHRI S. RADHAKRISHNA, CIT-III(DR) RESPONDENT BY : SHRI K.R. VASUDEVAN, ADVOCATE DATE OF HEARING : 25.05.2015 DATE OF PRONOUNCEMENT : 29.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE DIRECTIO NS OF THE DRP U/S. 144C(5) DATED 27.11.2014. THE GROUNDS RAISED BY TH E REVENUE IN THE APPEAL READS AS FOLLOWS:- IT(TP)A NO.81/BANG/2015 PAGE 2 OF 4 1. THE DIRECTIONS OF DRP IS OPPOSED TO LAW AND FAC TS OF THE CASE. 2. THE HONBLE DRP HAS ERRED IN DIRECTING THE TPO T O INCLUDE FOREX GAIN/LOSS AS OPERATING IN NATURE WITH OUT ASCERTAINING THE NEXUS WITH THE BUSINESS ACTIVITY O F THE TAX PAYER. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE OF ALUMINUM RADIATOR AND AIR-CONDITIONE RS FOR CARS AND MULTI- UTILITY VEHICLES. THE ASSESSEE ENTERED INTO AN INT ERNATIONAL TRANSACTION WITH ITS AE VIZ., DENSO, JAPAN. THE ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESS EE WITH ITS AE HAD TO BE DETERMINED IN VIEW OF THE PROVISIONS OF SECTION 92 OF THE ACT. THE NARROW ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE FOREIGN EXCHANGE GAIN WHICH THE ASSESSEE RECEIVED BY REASON OF FLUCTUATION IN FOREIGN EXCHANGE AT THE TIME OF REALIZATION OF THE SALE PROCEEDS SHOULD BE CONSIDERED AS PART OF OPERATING REVENUE WHILE COMPU TING THE ALP. 3. THERE IS NO DISPUTE THAT TRANSACTION NET MARGIN METHOD (TNMM) WAS THE MOST APPROPRIATE METHOD FOR DETERMINATION O F ALP. THE PROFIT LEVEL INDICATOR (PLI) CHOSEN WAS OPERATING PROFITS TO TOTAL REVENUE. THE AO REFUSED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT FO REIGN EXCHANGE GAIN SHOULD ALSO BE TREATED AS PART OF OPERATING REVENUE FOR THE PURPOSE OF COMPUTING OPERATING MARGIN OF THE ASSESSEE AND THE COMPARABLE IT(TP)A NO.81/BANG/2015 PAGE 3 OF 4 COMPANIES. THE CIT(APPEALS), ON THE OTHER HAND, FO LLOWING THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF SAP LABS INDIA PVT. LTD. V. ACIT (2011) 44 SOT 156 , WHEREIN IT WAS HELD THAT FOREIGN EXCHANGE FLUCTUATION GAIN IS NOTHING BUT INTEGRAL PART OF TH E SALE PROCEEDS OF THE ASSESSEE CARRYING ON EXPORT BUSINESS AND THAT THE S AME SHOULD BE TREATED AS OPERATING INCOME. THE CIT(APPEALS), FOLLOWING T HE AFORESAID DECISION, DIRECTED THE AO TO COMPUTE MARGIN OF THE ASSESSEE A ND COMPARABLE COMPANIES TREATING THE FOREIGN EXCHANGE GAIN/LOSS A S OPERATING IN NATURE. 4. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LD. DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. WE ARE OF THE VIEW THAT THE STAND TAKEN BY THE REVENUE IS UNSUSTAINABLE. IT IS NOT DISPUTED THAT THE FOREIGN EXCHANGE FLUCTUATION AND THE RESULTING GAIN TO THE ASSESSEE WAS IN RESPECT O F THE SALE PROCEEDS WHICH THE ASSESSEE HAD TO REALIZE. IN SUCH CIRCUMS TANCES, IT CANNOT BE CONTENDED BY THE REVENUE THAT THE NEXUS OF THE FORE IGN EXCHANGE GAIN WITH THE BUSINESS ACTIVITY OF THE TAX PAYER HAS NOT BEEN ASCERTAINED BY THE DRP. WE THEREFORE DO NOT FIND ANY MERITS IN THIS AP PEAL BY THE REVENUE. CONSEQUENTLY THE SAME IS DISMISSED. IT(TP)A NO.81/BANG/2015 PAGE 4 OF 4 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF MAY , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 29 TH MAY , 2015 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.