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

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

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 2 ::

directions dated 01.03.2021 issued by the Dispute Resolution Panel directions dated 01.03.2021 issued by the Dispute Resolution Panel directions dated 01.03.2021 issued by the Dispute Resolution Panel

(hereinafter referred to as ‘DRP‘), Bengaluru, for AY 2016 (hereinafter referred to as ‘DRP‘), Bengaluru, for AY 2016-17. 17.

is a delay of ‘10’ days in filing of t ’ days in filing of this appeal and the reason for cause of appeal and the reason for cause of

delay is mainly due to the lockdown imposed by the Government to the lockdown imposed by the Government to the lockdown imposed by the Government on

account of spread of Covid account of spread of Covid-19 pandemic. Having gone through the . Having gone through the

contents of the affidavit, we find that there was a reasonable contents of the affidavit, we find that there was a reasonable contents of the affidavit, we find that there was a reasonable cause for

delay and hence, we cond condone the delay of ‘10’ days and s and proceed to

adjudicate the appeal on merits. adjudicate the appeal on merits.

incorporated on 21.11.1997 with its parent company in South Korea. The incorporated on 21.11.1997 with its parent company in South Korea. The incorporated on 21.11.1997 with its parent company in South Korea. The

assessee is engaged in manufacturing is engaged in manufacturing products such as low products such as low pressure

hose, rubber profile car roof sealing layout parts, power steering parts, hose, rubber profile car roof sealing layout parts, power steering parts, hose, rubber profile car roof sealing layout parts, power steering parts,

fuel hose, brake hose, intercooler hose, water hose, radiator hose, fuel hose, brake hose, intercooler hose, water hose, radiator hose, fuel hose, brake hose, intercooler hose, water hose, radiator hose,

weather strips and aircon hose weather strips and aircon hose having its manufacturing manufacturing facility in

Sriperumbudur. The assessee assessee caters mostly to original equipment caters mostly to original equipment

manufacturers [in short ‘OEMs’] in India [in short ‘OEMs’] in India. The assessee imports raw The assessee imports raw

materials, consumables and capital goods materials, consumables and capital goods from its Associated Enterprise from its Associated Enterprise

[AE] abroad which it has benchmarked by f [AE] abroad which it has benchmarked by following the Transactio the Transactional Net

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 3 ::

Margin Method [TNMM] as Margin Method [TNMM] as the Most Appropriate Method [MAM] for the Most Appropriate Method [MAM] for

calculating the Arm’s Length Price [ALP]. calculating the Arm’s Length Price [ALP].

declaring total income at Rs.15,86,22,452/ declaring total income at Rs.15,86,22,452/-, which was set , which was set off against

brought forward business losses and depreciation. The case of the brought forward business losses and depreciation. The case of the brought forward business losses and depreciation. The case of the

assessee was selected for scrutiny. The AO is noted to have made a assessee was selected for scrutiny. The AO is noted to have made a assessee was selected for scrutiny. The AO is noted to have made a

reference to the TPO for determination of ALP of the international reference to the TPO for determination of ALP of the international reference to the TPO for determination of ALP of the international

transactions with its AE and the TPO vide o transactions with its AE and the TPO vide order dated 31.10.2019 passed rder dated 31.10.2019 passed

u/s.92CA(3) of the Act made downward adjustment to the tune of u/s.92CA(3) of the Act made downward adjustment to the tune of 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 to the purchases made from AE. Thereafter, the TPO to the purchases made from AE. Thereafter, the TPO

passed a rectification order on 17.12.2019 wherein the computation of TP passed a rectification order on 17.12.2019 wherein the computation of TP passed a rectification order on 17.12.2019 wherein the computation of TP

adjustment was rectifi adjustment was rectified and brought down to Rs.2,52,45,912/ ed and brought down to Rs.2,52,45,912/-.

Aggrieved by the draft assessment order passed by the AO u/s 144C of Aggrieved by the draft assessment order passed by the AO u/s 144C of 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 the Act, the assessee filed its objections before the DRP which was 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 rejected vide order dated 01.03.2021. Thereafter, the AO passed the final rejected vide order dated 01.03.2021. Thereafter, the AO passed the final

assessment order dated 30.03.3021 making downward adjustment of essment order dated 30.03.3021 making downward adjustment of essment order dated 30.03.3021 making downward adjustment of

Rs.3,39,28,213/-, which was rectified by passing rectification order on , which was rectified by passing rectification order on , which was rectified by passing rectification order on

23.07.2021 in which the downward adjustment was reduced to 23.07.2021 in which the downward adjustment was reduced to 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 . Aggrieved by this order, the assessee is now i . Aggrieved by this order, the assessee is now in appeal

before us.

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 4 ::

the primary grievance in this appeal relates to the computation of PLI of the primary grievance in this appeal relates to the computation of PLI of 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, the assessee. According to him, the Ld. DRP/TPO erred in holding that, the assessee. According to him, the Ld. DRP/TPO erred in holding that,

(a) the foreign exchange fluctuation loss was operative in nature without hange fluctuation loss was operative in nature without hange fluctuation loss was operative in nature without

appreciating the assessee’s claim was that the forex loss was appreciating the assessee’s claim was that the forex loss was appreciating the assessee’s claim was that the forex loss was

extraordinary and thus ought to be treated as non extraordinary and thus ought to be treated as non-operative in nature operative in nature

and (b) the product development expenses was non and (b) the product development expenses was non-operative in nature operative in nature

and therefore the assessee had rightly adjusted the same while and therefore the assessee had rightly adjusted the same while and therefore the assessee had rightly adjusted the same while

computing the PLI.

exchange loss. Assailing the action of the lower authorities, the Ld. AR exchange loss. Assailing the action of the lower authorities, the Ld. AR exchange loss. Assailing the action of the lower authorities, the Ld. AR

submitted that they had failed to a submitted that they had failed to appreciate that the foreign exchange ppreciate that the foreign exchange

loss (net) of Rs.2,31,20,681 loss (net) of Rs.2,31,20,681/- incurred during the year was extraordinary incurred during the year was extraordinary

in nature. According to him, there was sharp volatility in transacting in nature. According to him, there was sharp volatility in transacting in nature. According to him, there was sharp volatility in transacting

currencies during the period for FY 2011 currencies during the period for FY 2011-12 to FY 2015-16. He submitted 16. He submitted

that, there was a low forex rate of Rs.47.94/USD when the prices were at, there was a low forex rate of Rs.47.94/USD when the prices were at, there was a low forex rate of Rs.47.94/USD when the prices were

negotiated and finalized with customers in FY 2011 negotiated and finalized with customers in FY 2011-12, whereas the forex 12, whereas the forex

rates had substantially gone up to Rs.65.43/USD when it actually rates had substantially gone up to Rs.65.43/USD when it actually rates had substantially gone up to Rs.65.43/USD when it actually

imported goods in the AY 2015 imported goods in the AY 2015-16. It was the Ld. AR’s case that, though AR’s case that, though

the assessee sold its products in FY 2015 the assessee sold its products in FY 2015-16 but their prices were agreed 16 but their prices were agreed

upon in FY 2011-12 and due to the 12 and due to the sharp volatility in the transacting sharp volatility in the transacting

currencies of about 17.49% during period of about 17.49% during period 2011-12 to 2015 12 to 2015-16, the

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 5 ::

assessee had incurred si incurred significant loss on account of difference in gnificant loss on account of difference in

conversion of foreign exchange conversion of foreign exchange, which resulted in impugned f , which resulted in impugned forex

fluctuation loss. The Ld. AR also furnished a written note explaining the The Ld. AR also furnished a written note explaining the The Ld. AR also furnished a written note explaining the

basis for arriving at such foreign exchange loss and why the same should basis for arriving at such foreign exchange loss and why the same should 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 operative in nature. He pointed out that, similar issue operative in nature. He pointed out that, similar issue

was involved in their own case for AYs 2012 was involved in their own case for AYs 2012-13 & 2013 13 & 2013-14 and this

Tribunal had remitted the matter back to the AO/TPO for de novo Tribunal had remitted the matter back to the AO/TPO for de novo Tribunal had remitted the matter back to the AO/TPO for de novo

consideration and thus urged us to do the same. Per c consideration and thus urged us to do the same. Per contra, the Ld. CIT, ontra, the Ld. CIT,

DR relied upon the order of the lower authorities and urged us not to give DR relied upon the order of the lower authorities and urged us not to give DR relied upon the order of the lower authorities and urged us not to give

a second innings to the assessee. a second innings to the assessee.

integra. It is noticed by us that, this identical issue had later on come up integra. It is noticed by us that, this identical issue had later on come up 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 for consideration in assessee’s own case for AY 2014 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 No.66/Chny/2018 dated 12.06.2024 and same line of argument was put No.66/Chny/2018 dated 12.06.2024 and same line of argument was put

forth by the assessee. Having considered the forth by the assessee. Having considered the nature of business of the nature of business of the

assessee, this Tribunal is noted to have held that foreign exchange loss assessee, this Tribunal is noted to have held that foreign exchange loss assessee, this Tribunal is noted to have held that foreign exchange loss

was not an extraordinary item and therefore no adjustment was was not an extraordinary item and therefore no adjustment was was not an extraordinary item and therefore no adjustment was

warranted in this regard. The relevant findings taken note of by us is as warranted in this regard. The relevant findings taken note of by us is as 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 essee contends that adjustment of forex loss is to be treated essee contends that adjustment of forex loss is to be treated as non-operating in nature. The same is on the ground that purchases operating in nature. The same is on the ground that purchases operating in nature. The same is on the ground that purchases were primarily in US dollars and there was fluctuation in currency rates. were primarily in US dollars and there was fluctuation in currency rates. were primarily in US dollars and there was fluctuation in currency rates. The Ld. AR has submitted that forex loss of compara The Ld. AR has submitted that forex loss of comparable entities is very ble entities is very low and huge variation was to be factored in. However, we are of the low and huge variation was to be factored in. However, we are of the low and huge variation was to be factored in. However, we are of the

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 6 ::

opinion that forex gains / losses are part of normal business operations opinion that forex gains / losses are part of normal business operations opinion that forex gains / losses are part of normal business operations only. Further, the assessee is engaged in export of goods also and is only. Further, the assessee is engaged in export of goods also and is only. Further, the assessee is engaged in export of goods also and is having earnings in fore having earnings in foreign currency. Therefore, the resultant gains or ign currency. Therefore, the resultant gains or losses could not be treated as extraordinary in nature. No such losses could not be treated as extraordinary in nature. No such losses could not be treated as extraordinary in nature. No such adjustment could be granted to the assessee. adjustment could be granted to the assessee.”

consistency, we do not see any i consistency, we do not see any infirmity in the order of the lower nfirmity in the order of the lower

authorities holding the foreign exchange loss to be an operating item. authorities holding the foreign exchange loss to be an operating item. authorities holding the foreign exchange loss to be an operating item.

According to the Ld. DRP/TPO, the product development expenses were in According to the Ld. DRP/TPO, the product development expenses were in 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 of operating item, whereas it was the assessee’s case that of operating item, whereas it was the assessee’s case that

these expenses were neither incurred during the year and nor were linked these expenses were neither incurred during the year and nor were linked these expenses were neither incurred during the year and nor were linked

to its revenues and therefore it was rightly adjusted/excluded from the to its revenues and therefore it was rightly adjusted/excluded from the to its revenues and therefore it was rightly adjusted/excluded from the

computation of their PLI. We find that, this identi computation of their PLI. We find that, this identical issue was adjudicated cal issue was adjudicated

by this Tribunal in assessee’s own case for AY 2014 by this Tribunal in assessee’s own case for AY 2014 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: No.66/Chny/2018 dated 12.06.2024 wherein it was held as under: No.66/Chny/2018 dated 12.06.2024 wherein it was held as under:-

“10. The assessee also seeks adjustment of product development 10. The assessee also seeks adjustment of product development 10. The assessee also seeks adjustment of product development expenses. The Ld. TPO has treated the expenses. The Ld. TPO has treated the same as operating in nature. The same as operating in nature. The Ld. AR has stated that product development expenses are not incurred Ld. AR has stated that product development expenses are not incurred Ld. AR has stated that product development expenses are not incurred for this year. The expenses is incurred for extending support services for this year. The expenses is incurred for extending support services for this year. The expenses is incurred for extending support services rendered during the development of new model car by HMIL, the benefit rendered during the development of new model car by HMIL, the benefit 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 or may not occur and would not have any direct link with 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 the revenue of this year. It has been submitted that this adjustment has the revenue of this year. It has been submitted that this adjustment has been granted by Ld. TPO in AY 2012 been granted by Ld. TPO in AY 2012-13. Accepting the plea of Ld. AR, 13. Accepting the plea of Ld. AR, we direct Ld. TPO to consider the same. The assessee is d we direct Ld. TPO to consider the same. The assessee is d we direct Ld. TPO to consider the same. The assessee is directed to provide the data to substantiate the same. provide the data to substantiate the same.”

has allowed adjustment of the product development expenses in 2014 has allowed adjustment of the product development expenses in 2014 has allowed adjustment of the product development expenses in 2014-15.

IT (TP) A No.28/Chny/20 /Chny/2021 (AY 2016-17) Automotives Pvt. Ltd. M/s. HSI Automotives Pvt. Ltd. :: 7 ::

Having gone through the material placed before us and foll Having gone through the material placed before us and foll 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 decision (supra), we find merit in the plea of the assessee. The TPO is 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 directed to consider the same in light of the view taken in earlier AYs 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 15; and the assessee is directed to provide the relevant 15; and the assessee is directed to provide the relevant

data to substantiate the same. data to substantiate the same.

directions, this appeal is accordingly disposed off. directions, this appeal is accordingly disposed off.

Order pronounced on the 13th day of June, 2025, in Chennai. Order pronounced on the , in Chennai.

Sd/- Sd/ Sd/- (अिमताभ शु�ा) (एबी टी. . वक�) (AMITABH SHUKLA AMITABH SHUKLA) (ABY T. VARKEY ABY T. VARKEY) लेखासद�य/ACCOUNTANT MEMBER �याियकसद�य/JUDICIAL MEMBER /ACCOUNTANT MEMBER /JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 13th June, 20 , 2025. TLN आदेशक��ितिलिपअ�ेिषत/Copy to Copy to: