2021 (2) TMI 465 - AT - Income Tax

TP Adjustment - ALP Determination - Forex gain earned form Software Development Services - considered operative in nature while computing the PLI - HELD THAT - As relying on M/S. FIDELITY BUSINESS SERVICES INDIA PVT. LTD. 2020 (12) TMI 728 - ITAT BANGALORE we are of the opinion that foreign exchange gain arising from the fluctuation of foreign exchange has to be considered as operative in nature while computing the PLI. The CIT (Appeals) has taken a correct view holding that the foreign exchange gain earned having nexus with international transaction as part of operating income. This ground of appeal of revenue is dismissed.

Summary

Issues:
1. Appeal by Revenue and Cross Objection by assessee against the order of Commissioner of Income Tax (Appeals) for Assessment Year 2010-11.
2. Revenue's grounds challenging the treatment of forex gain from Software Development Services as operating income.
3. Acceptance of additional evidence by CIT (Appeals) under Rule 46A.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Bangalore involved a dispute between the Revenue and the assessee regarding the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2010-11. The Revenue raised various grounds challenging the treatment of forex gain earned from Software Development Services as operating income.

2. The Tribunal considered the issue of whether the forex gain should be considered as operating income. Referring to a previous decision, the Tribunal held that gains arising from fluctuation of foreign exchange with a nexus to international transactions should be treated as operating income. The Tribunal agreed with the CIT (Appeals) that the foreign exchange gain, when related to international transactions, should be considered operative in nature. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

3. Another issue raised was the admission of additional evidence by the CIT (Appeals) under Rule 46A of the Income Tax Rules, 1962. The Departmental Representative failed to specify the additional evidence admitted. As a result, the Tribunal dismissed the Revenue's ground challenging the admission of additional evidence.

4. During the hearing, the Authorised Representative did not press the grounds in the Cross Objection filed by the assessee, leading to the dismissal of those grounds. Ultimately, the Tribunal dismissed both the Revenue's appeal and the Cross Objection by the assessee.

In conclusion, the Tribunal upheld the CIT (Appeals) decision regarding the treatment of forex gain from Software Development Services as operating income and dismissed the Revenue's appeal. Additionally, the Tribunal dismissed the Revenue's ground concerning the admission of additional evidence due to lack of specific details provided during the proceedings.