OMNIGLOBE INFORMATION TECHNOLOGIES (INDIA) PVT. LTD.,NEW DELHI vs. ACIT, SPECIAL RANGE-7, NEW DELHI

The first issue arising for consideration is, whether foreign exchange fluctuation gain can be treated as operating income while computing the operating profit margin.

We have considered rival submissions and perused the materials on record. Undisputedly, the TPO has refused to treat foreign exchange fluctuation gain as operating income for computing the operating profit margin by relying upon the directions of learned DRP in assessment years 2012-13. However, while deciding assessee’s appeal for assessment year 2012-13, the Tribunal in dated 07.01.2018 has directed the TPO to consider foreign exchange fluctuation gain as operating income for computing operating margin of the assessee.

Be that as it may, in our view, the issue is squarely covered in favour of the assessee by the decisions of the Tribunal in assessee’s own case in assessment years 2012-13 and 2013-14, as discussed above. For the sake of completeness, we must observe at the time of hearing, learned CIT(DR) has drawn our attention to certain observations of the Tribunal in the appellate order passed for assessment year 2012-13 and had submitted, as

18.09.2013, the foreign exchange fluctuation gain/loss cannot be treated as operating income/loss for computing the operating profit margin of the assessee. In the context of the aforesaid submission of learned CIT(DR), we must observe, firstly Safe Harbour Rules can be applied only at the option of the assessee and not otherwise. In any case of the matter, in the facts of the present appeal, the TPO has made adjustment without taking recourse to Safe Harbour Rules. That being the case, contention of learned CIT(DR) cannot be accepted.

Before us, learned counsel for the assessee has furnished a working to demonstrate that, in case, foreign exchange fluctuation gain is treated as operating income, assessee’s margin would be 7.88%, which will come within the range of + 3% of 4 | P a g e average operating profit margin of comparables worked out at 9.91%. The Assessing Officer is directed to verify the working and delete the addition.

The next issue arising for consideration is transfer pricing adjustment of Rs.36,29,836/- on account of delayed receivables from AE. While verifying the documents relating to international transactions with the AE, the Assessing Officer noticed that in certain instances, the assessee received remittances after expiry of credit period. Thus, re-characterizing the delay in receipt of receivables as unsecured loan, the Assessing Officer computed interest by applying rate of 4.33% on the basis of 6 months LIBOR with a mark-up of 400 basis points. Learned DRP upheld the adjustments made by the TPO.

Before us, learned counsel appearing for the assessee submitted that the receivables on which the Assessing Officer has imputed interest on account of delay are in relation to provision of BPO services to the AE. He submitted, since the receipts of remittances against invoices raised are closely linking with the provision of BPO services, it cannot be segregated and treated as a separate international transaction. In this contest, he relied upon the following decisions: 5 | P a g e

Further, he submitted, the assessee more or less is a debut free company and has no interest liability. He submitted, the assessee has reserve and surplus of Rs.18,31,24,532/-.

Strongly relying upon the observations of TPO and DRP, learned CIT(DR) submitted that by allowing AE to hold on remittances the assessee certainly has allowed benefit to the AE to utilize the fund. Thus, for the period for which the AE had retained the remittances can be treated as loan. Further, he submitted, in case of delay in remittance by the AE, the assessee will be bearing foreign exchange remittances risk. Thus, he submitted, the adjustment made should be sustained.

We have considered rival submissions and perused the materials on record. Though, we agree with learned CIT (DR) that there may be instances where the AE is benefited due to delay in remitting the outstanding receivables, however, it depends upon the facts of each case. In the present case, admittedly, the assessee has very negligible interest liability. Further, on perusal of materials placed before us, it is observed that the only borrowing made by the assessee is loan availed for purchasing vehicle. There is no dispute that the assessee had utilized the loan for the purpose of which it was availed and paying interest 7 | P a g e on that. Further, on perusal of the documents placed before us, it is observed that in the year under consideration, the assessee has paid interest of small amount of Rs.56,497/-. Thus, from the aforesaid facts it is clear that the assessee is more or less a debt free company, whereas, it has substantial reserve and surplus.

In the result, the appeal is allowed, as indicated above.