Government only intended to restrict the investment in a particular financial year and accordingly has fixed the limit of Rs. 50,00,000/- as permissible limit in a particular financial year. The Government did not intend to restrict the maximum amount of exemption permissible under Section 54EC.
We have heard the parties, and perused the material on record as well as the case law cited. The reopening of assessments in the instant case is decidedly before the expiry of a period of four years from the end of the relevant assessment years, so that the first proviso to s. 147 is not applicable.
Regarding disallowance of foreign travelling expenses, it is seen that on similar circumstances and facts, the Assessing Officer has disallowed 4% of the expenditure claimed which was based on ratio of such expenses with export sales. Thus, such a view taken by the Assessing Officer cannot be disturbed without any difference in the facts and circumstances of the case.
In so far as the impugned order is concerned, there is nothing stated in the operative part which would seem to indicate that the CIC has come to the conclusion which it has, is based on the fact that, the economic interest of the country, will get effected. The CIC, in the operative part has merely recorded what has been conveyed to it vis-a-vis the procedure for selection of cases for scrutiny.
In this case, it is found that a consumer interested in buying an iPhone is tied to one of the two mobile networks i.e. Airtel or Vodafone. It is worth noting that at the time of launch of iPhone in India, Apple did not have an outlet to sell its iPhone, a high-end smartphone. Instead of investing money on creating sales and service outlet and incurring advertisement expenditure, Apple’s strategy was to have tactical agreement with network operators, possibly the best partners for selling mobile handsets. This arrangement also helped Apple in gauging the public perception for iPhone before actually selling iPhone through its own retail stores. The mobile network companies who spent money on creating distribution channel and incurring advertisement expenditure wanted the iPhone to be locked-in for some period so that they would be able to recoup their investment over a period of time.
Coming to the issue regarding ICC International, we find that assessee has demonstrated, as noted earlier, that it had earned super profits during the year because of increase in supply on account of government scheme. We find that TPO has considered the assessee’s objection regarding exclusion of high margin comparables in para 8.7 of his order and the DRP in para 7.1. They have merely, inter alia, observed that comparables cannot be rejected simply because they are loss or high profit making comparables. However, they have not considered that if certain extraordinary factors materially affected the profit in a particular year then that aspects had to be taken into consideration and due adjustment was required to be made to the net profit margin for brining the comparable on the same platform at which the assessee was performing its functions.
The proposition that gain on foreign exchange if it relates to the business of the assessee is part and parcel of operating income is well established by the afore-mentioned decisions of the coordinate benches. In the present case, nothing has been brought on record to suggest that the gain made by the assessee on fluctuation of foreign exchange was not on account of business transactions of the assessee. In absence of any such material, following the afore-mentioned decisions of the Tribunal, it has to be held that the foreign exchange gain of the assessee is to be considered as part and parcel of the profit of the assessee and therefore should be included for the purpose of computing the profit margin of the assessee.
In this context, it is pertinent to refer to the decision of the Hon’ble ITAT, Chandigarh Bench, in the case of Dy. CIT v. Smt.Baljinder Kaur [2009] 29 SOT 9 (URO), wherein it has been held that it is a well settled proposition that the concept of ‘fair market value’ envisages existence of hypothetical seller and hypothetical buyer, in a hypothetical market. Therefore, determination of fair market value of capital asset, as on 1.4.1981, would involve a judgement of estimation, based on relevant factors.
The first comparable taken by the TPO is CRISL Research and Information Services Ltd. The said comparable is common as the assessee has also selected the same in its original TP study. Though CRISL Ltd is basically a rating agency; however, since the segment results relating to the research activity has been taken into consideration; therefore, the other activity being rating agency does not effect the comparability solely because of this fact. The ld Sr counsel for the assessee has pointed out that about 60% of the income of the CRISL Ltd is from the related party transactions. This is a material fact that has to be considered for the purpose of selecting the uncontrolled comparable transactions as per sec. 92C(1) r.w.r 10B(1)(e) for the purpose of determination of ALP.
The next question that arises is that as to the allocation, if so, of the expenditure, when the returns as per the investment strategy adopted is toward and, consequently, bound to be earned under different income heads, being ‘capital gains’ and ‘income from other sources’ in the instant case, and while being allowable in one case (the latter), is not so under the other (the former).
