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The tax court has dismissed the tax case appeals as the taxpayer has availed the benefit under the Direct Tax Vivad Se Vishwas Act, 2020 during the pendency of such appeals and the same is admitted by the revenue.
The taxpayer had combined the transactions of purchase of software products & management fees and as both the transactions were inextricably linked, had applied TNMM to benchmark the international transactions. The tax court upholds that the management fee formed part of the ‘Operating and other expenses and the operating profit margin had been accepted after consideration of management fees, then there was no question of making any separate adjustment for the same.
The tax court upholds that the Transfer Pricing Officer (‘TPO’) had accepted foreign exchange fluctuation gain as part of operating profit for the comparables but omitted to apply the same principle while determining the operating profit of the taxpayer. As a result, the tax court rectifies this error and instructed to consider foreign exchange fluctuation gain as part of operating profit for the taxpayer.
The tax court opined that the duration of the loan/debt and the level of high involved are the significant factors in the determination of the interest rate charged for unsecured debentures. Accordingly, debentures having repayment on maturity while loan having periodical repayment justifies higher rate of interest charged for debenture in the commercial sense.
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