TRANSFER PRICING : Where assessee-company entered into international transactions with its AE for import of raw material (greasy wool) and benchmarked transactions by applying internal CUP method, since raw material purchased by assessee from external parties were of same product and average micron was 21.36 in comparison to 21.76 found in purchase from non AEs and weighted average purchase price from AE in comparison to weighted average purchase price from non-AE fell within tolerance range of +/- 5 per cent, TPO erred in rejecting CUP method and making adjustments by applying TNM method

INCOME TAX : Exchange loss incurred by assessee upon restatement of loan in foreign currency which was attributable towards working capital was to be allowed
INCOME TAX : Where assessee paid certain amount to different parties on account of repair and maintenance charges since assessee had produced all necessary material/evidences such as bills, vouchers and rate contract etc. in respect of repair and maintenance charges paid, impugned disallowance of said payments by Assessing officer was unjustified

IN THE ITAT KOLKATA BENCH ‘C’
Deputy Commissioner of Income-tax.
v.
Global Wool Alliance (P.) Ltd.*
SANJAY GARG, JUDICIAL MEMBER
AND RAJESH KUMAR, ACCOUNTANT MEMBER
IT APPEAL NO. 260 (KOL.) OF 2020
[ASSESSMENT YEAR 2005-06]
NOVEMBER 2, 2022

I. Section 92C of the Income-tax Act, 1961, read with rule 10B of the Income-tax Rules, 1962 – Transfer pricing – Computation of arm’s length price (Methods for determination of – CUP method) – Assessment year 2005-06 – Assessee-company was engaged in business of processing raw company wool, greasy wool etc. – It entered into international transactions with its AE for import of raw material and export of fabrics to AE – Both international transactions were benchmarked by applying internal CUP method as most appropriate method (MAM) – TPO rejected CUP method adopted by assessee and instead applied external TNM method and, accordingly, made transfer pricing adjustments – It was noted that assessee had reliable data available with regard to similar transactions with unrelated third parties and, thus, claimed CUP as MAM – Commissioner (Appeals) recorded a detailed finding of fact that raw material purchased by assessee from external parties were same product as purchased from AE and average micron was 21.36 in comparison to 21.76 found in purchases from non AEs – Further, weighted average purchase price from AE in comparison to weighted average purchase price from non-AE fell within tolerance range of +/- 5 percent – It was further found that similar CUP benchmarking done by assessee in earlier years under identical facts was accepted by TPO and there was no change in facts and in law during relevant year – Whether once revenue had accepted method or proposition in earlier years, then it was not open to revenue to take a different view in subsequent years – Held, yes – Whether thus transfer pricing adjustment made by TPO was to be deleted – Held, yes [Para7] [In favour of assessee]

II. Section 28(i) of the Income-tax Act, 1961 – Business loss/deductions – Allowable as (Exchange loss on foreign currency loan) – Assessment year 2005-06 – Assessee claimed exchange loss of certain amount resulting from restatement of loan in foreign currency which was attributable towards working capital – Assessing Officer disallowed said loss by following decision of his predecessor in earlier year – It was noted that earlier assessment order relied upon by Assessing Officer passed by his predecessor was reversed by Commissioner (Appeals) and loss pertaining to working capital was allowed – Whether, on facts, impugned loss incurred by assessee was to be allowed – Held, yes [Para11] [In favour of assessee]

III. Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of (Repair and maintenance charges) – Assessment year 2005-06 – Assessee incurred expenses of certain amount on account of repair and maintenance charges paid to two parties – It also paid commission of certain amount by way of percentage of sales – Assessing Officer disallowed said payments and held that recipient parties were bogus non-existing parties – It was noted that in respect of both these parties all necessary material/evidences such as bills, vouchers and rate contract etc. in respect of repair and maintenance charges were placed before Assessing Officer as well as Commissioner (Appeals) and payments were made by cheques after proper deduction of TDS – Similarly, in respect of sales commission paid, sales invoices were placed on record in respect of which commission was paid after deduction of TDS – Whether, on facts, impugned payments made by assessee were to be allowed – Held, yes [Para15] [In favour of assessee]

CASE REVIEW – I
JSL Ltd. v. Asstt. CIT [2018] (Delhi – Trib.); Asstt. CIT v. Esser Steel Ltd. [2014] (Mum. – Trib) (para 7); Radhaswami Satsang v. CIT [1992] ITR 321 (SC) (para 7) followed.

CASE REVIEW – II
CIT v. Woodward Governor (P.) Ltd. [2009] (SC) (para 11) and ONGC Ltd. v. CIT [2010] (SC) (para 11) followed.

CASES REFERRED TO
Cognizance for Extension of Limitation, In re [2021] (SC) (para 2), JSL Ltd. v. Asstt. CIT [2018] (Delhi – Trib.) (para 7), Asstt. CIT v. Esser Steel Ltd. [2014] (Mum. – Trib) (para 7), Radhaswami Satsang v. CIT [1992] (SC) (para 7), CIT v. Woodward Governor (P.) Ltd. [2009] (SC) (para 11), ONGC Ltd. v. CIT [2010] (SC) (para 11), CIT v. Inbuilt Merchants (P.) Ltd. [GA No. 3825 of 2013, dated 14-3-2014] (para 14) and Mather & Platt (I) Ltd. v. CIT [1987] (Cal.) (para 14).
Akkal Dudhwewala, FCA for the Appellant. Smt. Ranu Biswas, Addl. CIT DR for the Respondent.

ADV MEGHA **ALL RIGHTS RESERVED**

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Exchange loss incurred on restatement of loan attributable towards working capital is allowable ITAT