×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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02-11-2018, Fresenius Kabi India, Section 92C(2A), Tribunal Pune
These two cross appeals, viz., one by the assessee and the other by the Revenue are directed against the order passed by Ld. CIT (Appeals)-13, Pune on 12.08.2016 in relation to the assessment year 2011-12.
2. The assessee is, firstly, aggrieved by the application of the Transactional Net Margin Method (TNMM) in respect of its international transaction of trading activity as against its selection of Resale Price Method (RPM) as the most appropriate method.
3. Brief facts of the case are that the assessee is a 100% Indian subsidiary of Fresenius Kabi AG Germany. It is engaged in the field of Infusion Therapy and Clinical Nutrition It is also active in the field of Transfusion Technology, supplying Blood processing systems as well as Blood bags and filters. The assessee filed its Audit report in Form no. 3CEB declaring eight international transactions. The Assessing Officer (AO) referred the matter to Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the international transactions. The assessee applied the TNMM in respect of three international transactions; Comparable uncontrolled Price (CUP) method in respect of one international transaction; and the RPM in respect of one international transaction, as the most appropriate methods for demonstrating them to be at ALP. There is no dispute on the determination of the ALP of any of the international transactions except the transaction reported at Sr. No. 2, that is, `Import of Finished goods’ with transacted value of Rs.58,12,31,464/-
The assessee applied the RPM to demonstrate that this international transaction was at ALP. The TPO observed that the assessee under this transaction was engaged in the `Distribution activity’. The assessee imported finished goods under this transaction from its Associated enterprises (AEs) and resold the same to non-AEs without any value addition. The TPO rejected the assessee’s contention for the application of the RPM as most appropriate method and resorted to the TNMM for benchmarking the international transaction. As against the assessee’s list of certain comparables, the TPO finally selected nine companies as comparable by making certain inclusions Indicator (PLI) of such finally selected comparable companies at 6.97% and proposed the amount of transfer pricing adjustment at Rs.12,28,68,248/-.
The Assessing Officer passed the final assessment order giving effect to the recommendation of the TPO. The assessee approached the ld. CIT(Appeals), inter alia, on the selection of the TNMM as most appropriate method. The ld. first appellate authority approved the view of the authorities below by relying on the order passed by his predecessor in the case of the assessee itself for the immediately preceding assessment year. The assessee is aggrieved by the application of the TNMM as most appropriate method.
4. We have heard rival submissions and perused the relevant material on record. It is seen that ld. CIT(Appeals) relied on the order passed by his predecessor for a preceding assessment year for applying the TNMM as most appropriate method in relation to international transaction of distribution activities depicted by the assessee as `Import of finished goods’. Such order of the ld. CIT(Appeals) came up for consideration before the Pune bench of the Tribunal. We have gone through the said order of the Tribunal dated 22.09.2007 in relation to the assessment years 2009-10, 2010-11, a copy of which is placed in the paper book. The Tribunal has approved the application of the RPM as most appropriate method. In doing so, it also relied on the order passed by it for the assessment year 2008-09. The Ld. DR failed to point out any distinguishing feature in the international transaction under dispute for the year under consideration vis-à-vis the preceding years. Respectfully following the precedents, we hold the RPM to be the most appropriate method in respect of distribution activities undertaken by the assessee under the international transaction of `Import of finished goods’. Accordingly, the impugned order is overturned to this extent.
5. Next ground taken by assessee in its appeal is against not granting functional adjustment relating to foreign exchange (forex) loss. The assessee treated forex loss of the comparables as non-operational and computed their PLI accordingly. The TPO while determining the ALP of the international transaction did not concur with the assessee that the foreign exchange loss should be taken as an item of non-operating nature. The ld. CIT(A) approved the TPO’s stand that such foreign exchange loss should be taken as operating in nature, against wh ch the assessee has come up before the Tribunal.
6. We have heard the rival submissions and gone through the relevant material on record. The Special Bench of the Tribunal in ACIT Vs Prakash I. Shah (2008) 115 ITD 167 (Mum)(SB) has held that the gain due to fluctuations in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the foreign currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and invoice is raised in a currency of the country where such goods are sold and subsequently when the amount is realized in that foreign currency and then