Idemitsu Lube India Private Limited Vs DCIT (ITAT Delhi)
TP Adjustment on Raw Material Purchase Remanded; Forex Loss on ECB Held Non-Operating — ITAT Delhi
The Delhi Bench of the ITAT allowed the appeal of Idemitsu Lube India Pvt. Ltd. for AY 2020-21, granting significant relief on transfer pricing issues relating to purchase of raw material from associated enterprises.
On the TP adjustment of ₹4.53 crore, the Tribunal noted that the assessee demonstrated clear computational inconsistencies in margins of comparable companies adopted by the TPO across the TP order, DRP directions, order giving effect, and rectification order. Since the assessee had furnished a detailed comparative chart (pages 7–8) showing correct margins based on annual reports, the ITAT held that this was a pure calculation issue. Accordingly, the matter was restored to the TPO/AO with a direction to re-compute margins after considering the assessee’s workings and after granting due opportunity of hearing.
On the crucial issue of foreign exchange loss on External Commercial Borrowings (ECB) amounting to ₹6.79 crore, the Tribunal held in favour of the assessee. It observed that:
- The same ECB existed in earlier years;
- Forex loss/gain on the same loan was consistently treated as non-operating in prior TP assessments (including forex gain treated as non-operating in AY 2016-17);
- The loss arose from capital account transaction and not from operational activities.
Invoking the principle of consistency, the ITAT held that the ECB-related forex loss cannot be treated as operating cost for computing operating margins in the manufacturing segment. Ground on this issue was allowed outright.
Consequently, the appeal of the assessee was allowed, with TP margin computation remanded and ECB forex loss excluded from operating costs.
FULL TEXT OF THE ORDER OF ITAT DELHI
