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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Assessing Officer dated 30.10.2017 consequent to the direction of the Dispute Resolution Panel dated 20.09.2017.
Shri Sriram Seshadri, the Ld. representative for the assessee, submitted that the first issue arises for consideration is selection of comparable cases. According to the Ld. representative, M/s Acropetal Technologies Ltd. was selected as comparable by the assessee initially. On reviewing of information available in the public domain, during the course of transfer pricing proceedings, the assessee came to know that there were some irregularities committed by M/s Acropetal Technologies Ltd. and proceedings were pending before Security Exchange Board of India, therefore, it has to be excluded. According to the Ld. representative, the assessee requested the Transfer Pricing Officer to exclude M/s Acropetal Technologies Ltd. as a comparable case. However, the TPO and DRP refused to exclude M/s Acropetal Technologies Ltd. According to the Ld. representative, in case M/s Acropetal Technologies Ltd. is removed from comparable cases, there is no need for any adjustment of arm's length price.
On the contrary, Dr. M. Srinivasa Rao, the Ld. Departmental Representative, submitted that M/s Acropetal Technologies Ltd. was selected as comparable case by the assessee itself. Therefore, according to the Ld. D.R., the assessee cannot now say that it has to be removed from comparable case.
We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee itself selected M/s Acropetal Technologies Ltd. as one of the comparables. When the assessee came to know that some adverse information about M/s Acropetal Technologies Ltd., nothing wrong in bringing it to the notice of the Transfer Pricing Officer and DRP and request for removal of that comparable from consideration. Therefore, this Tribunal is of the considered opinion that the TPO as well as DRP are bound to consider the information which was brought to their notice subsequent to the filing of transfer pricing documentation. Hence, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Transfer Pricing Officer. Accordingly, the orders of the authorities below are set aside and the issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter once again to the Transfer Pricing Officer. The Transfer Pricing Officer shall consider the so-called information said to be collected by the assessee subsequent to filing of transfer pricing documentation and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. The Assessing Officer shall follow the statutory provisions and pass the necessary orders as provided under Section 144C of the Income-tax Act, 1961 (in short 'the Act').
The next issue arises for consideration is exclusion of expenditure incurred in foreign currency towards communication and insurance from the total turnover.
We heard Shri Sriram Seshadri, the Ld. representative for the assessee and Dr. M. Srinivasa Rao, the Ld. Departmental Representative. The Dispute Resolution Panel excluded the expenditure incurred by the assessee in foreign currency towards communication and insurance from the export turnover. However, it was not excluded from total turnover. The reason pointed out by the DRP is that the decision of DRP cannot be appealed against by the Department, therefore, in order to keep the matter alive, they could not follow the decision of Special Bench in ITO v. Sak Soft Limited (2009) 313 ITR (AT) 353.
We have carefully gone through the provisions of Income-tax Act, more particularly Section 253 of the Act. Section 253(2A) of the Act as it stood till 31.05.2006 enabled the Commissioner to direct the Assessing Officer to file an appeal against the direction of Dispute Resolution Panel before this Tribunal. However, sub- section (2A) was omitted by Finance Act, 2016 with effect from 01.06.2016. Therefore, as rightly observed by the DRP, there is no provision for filing of appeal by the Department against DRP’s direction before this Tribunal. However, that does not mean that Dispute Resolution Panel can ignore the order of this Tribunal.
When this Tribunal found that expenditure incurred in foreign currency cannot form part of export turnover and total turnover, the same has to be followed. In fact, a similar view was taken by this Tribunal in the assessee's own case for assessment year 2009-10 in dated 16.11.2016. In view of the above, we are unable to uphold the order of the lower authority.
Accordingly, the Assessing Officer is directed to exclude the expenditure incurred by the assessee from both the export turnover and total turnover. The orders of the DRP as well as the Assessing Officer are modified accordingly.
The next issue arises for consideration is exclusion of foreign exchange gain from profits of the undertaking.
We heard Shri Sriram Seshadri, the Ld. representative for the assessee and Dr. M. Srinivasa Rao, the Ld. Departmental Representative. The gain due to foreign exchange fluctuation on the export is a profit from export, therefore, this Tribunal is of the considered opinion that the same cannot be excluded. In fact, this Tribunal in the assessee's own case for assessment year 2009-10 had taken a similar view by placing reliance on the judgment of Madras High Court in CIT v. Pentasoft Technologies Ltd. (2012) 347 ITR 578.
In view of the above, the orders of the lower authorities are set aside and the Assessing Officer is directed to treat the gain due to foreign exchange fluctuation as part of the export profit.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 12th September, 2018 at Chennai.