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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member
This appeal by the Revenue is against the directions of the DRP u/s. 144C(5) dated 27.11.2014. The grounds raised by the Revenue in the appeal reads as follows:-
IT(TP)A No.81/Bang/2015 Page 2 of 4
“1. The directions of DRP is opposed to law and facts of the case. 2. The Hon’ble DRP has erred in directing the TPO to include forex gain/loss as operating in nature without ascertaining the nexus with the business activity of the tax payer. 3. For these and such other grounds that may be urged at the time of hearing.”
The assessee is a company engaged in the business of manufacture of aluminum radiator and air-conditioners for cars and multi- utility vehicles. The assessee entered into an international transaction with its AE viz., Denso, Japan. The arm’s length price (ALP) in respect of the international transaction carried out by the assessee with its AE had to be determined in view of the provisions of section 92 of the Act. The narrow issue that arises for consideration in this appeal is as to whether the foreign exchange gain which the assessee received by reason of fluctuation in foreign exchange at the time of realization of the sale proceeds should be considered as part of operating revenue while computing the ALP.
There is no dispute that Transaction Net Margin Method (TNMM) was the most appropriate method for determination of ALP. The Profit Level Indicator (PLI) chosen was operating profits to total revenue. The AO refused to accept the claim of the assessee that foreign exchange gain should also be treated as part of operating revenue for the purpose of computing operating margin of the assessee and the comparable
IT(TP)A No.81/Bang/2015 Page 3 of 4 companies. The CIT(Appeals), on the other hand, following the decision of the ITAT Bangalore Bench in the case of SAP Labs India Pvt. Ltd. v.
ACIT (2011) 44 SOT 156, wherein it was held that foreign exchange fluctuation gain is nothing but integral part of the sale proceeds of the assessee carrying on export business and that the same should be treated as operating income. The CIT(Appeals), following the aforesaid decision, directed the AO to compute margin of the assessee and comparable companies treating the foreign exchange gain/loss as operating in nature.
Aggrieved by the order of the CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal. The ld. DR reiterated the stand of the Revenue as reflected in the grounds of appeal filed before the Tribunal. We are of the view that the stand taken by the Revenue is unsustainable. It is not disputed that the foreign exchange fluctuation and the resulting gain to the assessee was in respect of the sale proceeds which the assessee had to realize. In such circumstances, it cannot be contended by the Revenue that the nexus of the foreign exchange gain with the business activity of the tax payer has not been ascertained by the DRP. We therefore do not find any merits in this appeal by the Revenue. Consequently the same is dismissed.
IT(TP)A No.81/Bang/2015 Page 4 of 4 In the result, the appeal of the revenue is dismissed. 5. Pronounced in the open court on this 29th day of May, 2015.