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

MA 178/CHNY/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 3818 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 01-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2015
• Court: TRIBUNAL
• Department Lawyers: A B KOLI JCIT
• Assessee Lawyers: RAGHUNATHAN
• Keywords: Transfer pricing

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER M.P.NO.178/MDS./2015 (I.T.A.NO.983 /MDS./2014 ASSESSMENT YEAR :2009-10) M/S.INFAC INDIA PVT. LTD., 113,ELLAIMMAN KOIL STREET, PADAPPAI, 601 301. VS. THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE- II(3), ROOM NO.513, NEW BLOCK, M.G.ROAD, CHENNAI 600 034. PAN AADCS 4890 C ( / APPELLANT ) ( / RESPONDENT ) !' # $ / APPELLANT BY : MR.RAGHUNATHAN,ADVOCATE %&!' # $ / RESPONDENT BY : MR.A.B.KOLI,JCIT, D.R ' ( # )* / DATE OF HEARING : 01.01.2016 +, # )* /DATE OF PRONOUNCEMENT : 06.01.2016 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS MISCELLANEOUS PETITIONS IS FILED BY THE ASSESS EE PRAYING FOR RECTIFICATION OF THE ORDER OF THE TRIBUNAL IN I TA NO.983/MDS./2014 DATED 17.07.2015 FOR THE ASSESSMENT YEAR 2009-10. MP NO.178 /MDS/2015 2 2. THE WRITTEN SUBMISSIONS SUBMITTED BY THE ASSESS EE IS REPRODUCED HEREIN BELOW FOR REFERENCE:- MISCELLANEOUS APPLICATION 1. THE ABOVE APPEAL WAS DISPOSED OF BY THE TRIBUNAL BY ITS ORDER DATED 17 TH JULY 2015 RECEIVED ON 17TH AUGUST 2015. THE HONBLE TRIB UNAL WHILE HOLDING THAT THE DIFFERENCE IN EXCHANGE RATE IS PART OF OPERATING EX PENSE, INTERALIA PROVIDED THE FOLLOWING IN PARA 7OF THE ORDER- 2. UNLESS THERE IS AN ABNORMAL SITUATION RESULTING IN ABNORMAL FOREX FLUCTUATIONS, THE PROFIT OR LOSS ARISING DUE TO FOREX FLUCTUATION S CANNOT BE IGNORED WHILE ARRIVING AT THE OPERATING COST FOR DERIVING THE PU IN TRANSF ER PRICING MATTERS. . IN THIS REGARD, THE RESPONDENT INVITES ATTENTION OF THE HON BLE BENCH TO THE WRITTEN SUBMISSION PARA 2, 2.2 AND 2.3, , AS REPRODUCED BEL OW- 2. WITHOUT PREJUDICE TO THE OBJECTION IN (1), ANY E XTRA ORDINARY FLUCTUATION INCLUDING SUCH TYPE OF FLUCTUATIONS IN EXCHANGE RATE NEED TO BE ADJUSTED TO ARRIVE AT THE NORMAL OPERATING MARGI N- AS AN ABNORMAL LOSS 2.1 WITHOUT PREJUDICE TO OUR SUBMISSION OF LOSS ON EXCHANGE FLUCTUATION NOT TO BE INCLUDED, WE SUBMIT FURTHER T HAT ANY EXCHANGE FLUCTUATION MOVEMENT MORE THAN 10% TO BE TREATED AS EXTRA-ORDINARY ITEM. 2.2 THE SAID PRINCIPLE ALSO CONFIRMED IN HONDA TRAD ING CORP. INDIA PVT. LTD [TS- 135-ITAT-2013(DEL)-TP] BY THE DELHI TRIBUNAL, THE H ONORABLE COURT HELD THAT ASSESSEE S CONTENTION FOR EXCLUSION OF FOREIGN EX CHANGE LOSS FROM COMPUTATION OF OPERATING MARGIN; SUCH LOSS WAS ABNORMAL LOSS ON ACCOUNT OF HUGE FLUCTUATIONS IN EXCHANGE RATES; (PARA 2.7 & 2.8 A ND PARAS 22 TO 25) 2.3 AS SUBMITTED EARLIER, INFAC INDIA DURING THE YE AR HAD INCURRED FOREX LOSS TO THE TUNE OF RS. 35,111,952 PERTAINS TO REVENUE ITEMS. I N THIS REGARD, WE WOULD DRAW YOUR ATTENTION THAT THE USD /INR RATE DURING FY 200 8-09 STARTED WITH RS.39.97 MP NO.178 /MDS/2015 3 PER DOLLAR DURING APRIL AND ENDED WITH RS.51.88/- D URING MARCH 2009, AS PER CHART BELOW, WHICH WAS REFLECTIVE OF THE POOR ADMINISTRAT ION AND ECONOMIC CONDITIONS OF RUPEE VIS A VIS DOLLAR AND HAS NOTHING TO DO WIT H THE OPERATION OF THE COMPANY. EVEN IF IT WERE CONSIDERED AS AN OPERATING RESULT, A VARIATION OF MORE THAN 30% WOULD ALWAYS TO BE ELIMINATED AS ABNORMAL 2.4 TO FURTHER ESTABLISH THAT THE CHANGES DURING TH E A Y IN EXCHANGE RATE WAS DUE TO TURMOIL IN FINANCIAL MARKETS, WE DRAW YOUR R EFERENCE TO THE AMENDMENT TO ACCOUNTING STANDARD 11- EFFECT OF CHANGES IN FOREIG N EXCHANGE RATES BROUGHT IN BY MINISTRY OF CORPORATE AFFAIRS NOTIFICATION OF 29TH DECEMBER 2011, (WITH RETROSPECTIVITY FOR ACCOUNTING PERIOD COMMENCING FR OM DECEMBER 2006) AN OPTION FOR COMPANIES TO DEFER CHARGING OF SUCH CHAN GES IN FOREIGN EXCHANGE RATES AND AMORTIZE OVER A PERIOD TILL 3]T MARCH 201 0. THIS ESTABLISHES THAT THE CHARGING OF EXPENSES DUE TO CHANGES IN FOREIGN EXCH ANGE RATES WAS EXTRA- ORDINARY AND ABNORMAL. THE HON BLE TRIBUNAL DID NOT CONCLUDE WHETHER THE VARIATION OF 30% AS INDICATED ABOVE IS ABNORMAL OR NOT. 3. TPO IN HIS ORDER HIMSELF HAS CONSIDERED 30% PORT ION OF THE EXCHANGE FLUCTUATION AS ABNORMAL. 4. FURTHER IT IS SUBMITTED THAT THE HONBLE TRIBUNA L FAILED TO LOOK INTO THE STATUTORY DEFINITION OF OPERATING EXPENSES RULE 10TA(J)(IV) I SSUED IN CONNECTION WITH TP MATTERS, WHILE EVALUATING DECISIONS OF OTHER TRIBUN ALS.. PETITIONER PRAYS FOR A SUITABLE ORDER CONSIDERING T HE ABOVE SUBMISSIONS. DATED THIS SATURDAY DAY 19TH OF SEPTEMBER 2015. 3. LD. A.R REITERATED THE ABOVE WRITTEN SUBMISSION S FIELD BY THE ASSESSEE AND ARGUED IN SUPPORT OF THE SAME WHILE AS THE LD. D.R MP NO.178 /MDS/2015 4 RELIED ON THE ORDER OF THE TRIBUNAL AND ARGUED STAT ING THAT THERE IS NO MISTAKE APPARENT ON THE ORDER OF THE TRIBUNAL WHICH NEEDS TO BE RECTIFIED. 4. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE ISSUE WHETHE R LOSS ARISING OUT OF FOREIGN EXCHANGE FLUCTUATION SHOULD BE EXCLUDED FROM THE COMPUTATION OF THE OPERATING COST OF THE ASSESSEE T HE BENCH HAS DISCUSSED THE ISSUE IN DETAIL AND HELD FOLLOWING TH E DECISION RENDERED IN THE CASE M/S.SAP LABS INDIA PVT. LTD VS. ACIT RE PORTED IN (2011) 44 SOT 156 (BANG.) THAT THE PROFIT OR LOSS ARISING OUT FOREIGN EXCHANGE FLUCTUATION HAS TO BE TAKEN INTO CONSIDERA TION WHILE ARRIVING AT THE OPERATING COST IN TRANSFER PRICING MATTERS. THE GIST OF THE ORDER OF THE SPECIAL BENCH IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 42. WE CONSIDERED THE ISSUE CAREFULLY. THE FOREIGN EXCHANGE FLUCTUATION GAINS IS NOTHING BUT AN INTEGRAL PART OF THE SALES PROCEEDS OF AN ASSESSEE CARRYING ON EXPORT BUSINESS. THIS PROPOSITION HAS B EEN TIME AND AGAIN CONSIDERED IN CASES ARISING IN THE CONTEXT OF SECTI ON 80HHC. THE COURTS AND TRIBUNALS HAVE HELD THAT FOREIGN EXCHANGE FLUCT UATION GAINS FORM PART OF THE SALE PROCEEDS OF EXPORTER-ASSESSEE. USEFUL R EFERENCE MAY BE MADE TO THE DECISIONS OF BOMBAY HIGH COURT IN THE CASE O F SHAH BROS. V. CIT, [2003] 259 ITR 741; THAT OF GUJARAT HIGH COURT IN T HE CASE OF CIT V. AMBA MP NO.178 /MDS/2015 5 IMPEX [2006] 282 ITR 144 AND THAT OF MUMBAI ITAT SP L. BENCH IN THE CASE OF ASSTT. CIT V. PRAKASH L. SHAH [2008] 306 ITR (AT ) 1. IN ALL THE ABOVE CASES, THE DOMINANT QUESTION CONSIDERED WAS THE YEA R OF DEDUCTION ON THE ACCEPTED PROPOSITION THAT THE FOREIGN EXCHANGE FLUC TUATION GAINS COMPUTED BY AN ASSESSEE IN A RELEVANT PREVIOUS YEAR SHOULD B E TREATED AS PART OF THE OPERATING INCOME AND THEREBY IT WOULD CONTRIBUT E TO THE OPERATING MARGIN OF THE ASSESSEE-COMPANY. THE FOREIGN EXCHANGE FLUCTUATIONS INCOME CANNOT BE EXCLUDED FROM THE COMPUTATION OF T HE OPERATING MARGIN OF THE ASSESSEE-COMPANY. THIS CONTENTION OF THE ASSESSEE IS ACCEPTED . FURTHER THE DEFINITION OF OPERATING EXPENSES MENTIO NED IN RULE- 10TA(J)(IV), HAS COME INTO EFFECT FROM 04.02.2015 A ND THAT TOO IN REGARD TO THE SAFE HARBOUR RULES FOR INTERNATIONAL TAXATION AND THEREFORE NOT APPLICABLE TO THE RELEVANT CASE BEFOR E US. MOREOVER NO CATEGORICAL WORKINGS WERE BROUGHT ON RECORD BEFORE US SUBSTANTIATED WITH MATERIAL EVIDENCE TO ESTABLISH THAT 30% PORTIO N OF THE FOREIGN EXCHANGE FLUCTUATION WAS ABNORMAL. FOR THE ABOVE ST ATED REASONS WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MISTAKE APPARENT ON RECORD IN THE ORDER OF THE TRIBUNAL WHICH IS REQUIR ED TO BE RECTIFIED. THEREFORE, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS DEVOID OF MERITS. MP NO.178 /MDS/2015 6 5. IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 06 TH JANUARY, 2016 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 06 TH JANUARY,2016 K S SUNDARAM. # %)-. / .,) /COPY TO: 1. !' /APPELLANT 2. %&!' /RESPONDENT 3. ' 0) ( ) /CIT(A) 4. ' 0) /CIT 5. .3 %)45 /DR 6. 6 7( /GF