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TMI Blog2015 (7) TMI 1436X X X X Extracts X X X X X X X X Extracts X X X X ..... er the crux of the issue is that the Revenue is aggrieved by the direction of the DRP who had directed the TPO to exclude the forex loss from the computation of operating cost of the assessee. 3. The brief facts of the case are that the assessee is a company, engaged in the business of manufacturing engine gas cuts and general rubber parts., filed its return of income for the assessment year 2009-10 on 30.09.2009 admitting its loss as Rs 8,14,65,712/-. The Ld. Assessing Officer referred the assessee's case U/s. 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determining the Arms Length Price (ALP). In the transfer pricing computation the Ld. TPO included profits and gains of forex fluctuation while determining the operatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Ld. DRP may be confirmed. The Ld. D.R. on the other hand argued in support of the order of the Ld. TPO. 5. At the outset, we find that this issue is squarely covered by decision of the Chennai Bench of the Tribunal in the case of M/s. Infac India Pvt. Ltd., in ITA No. 983/Mds./2014 vide order dated 17.07.2015 wherein the Tribunal following the decisions of various other orders of the Tribunal as well as the Special Bench of the Tribunal had held that profits or loss arising out foreign exchange fluctuation has to be taken into consideration while arriving at the operating cost in the Transfer pricing matters. The relevant portion of the order is extracted below for reference:- 7. We have heard the rival submissions, carefully p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be ignored while arriving at the operating cost for deriving the PLI in Transfer pricing matters. It is pertinent to mention here that in arriving at the operating cost in transfer pricing matters the principles of Cost Accounting will not be strictly applicable where cost of finance may be treated differently. For the afore-stated reasons we do not find any merit in the arguments advanced by the Ld. A.R. Further in the following decisions it is made clear that profits or loss arising out of foreign exchange fluctuations ought to be taken into consideration while arriving at the operation cost in transfer pricing matters. 1. M/s. Westfalia Separator India Pvt. Ltd. vs. ACIT [ITA No. 4446/Del/2007] 4.1. We have heard the rival submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f circulating capital embarked in the business'. When we read the ratio of the case of Sutlej Cotton (SC) (supra) in juxtaposition to that of the Special Bench in case of Prakash I Shah (supra), there remains no doubt that forex gain or loss from a trading transaction is not only an item of revenue nature, but is, in fact, a part of the price of import or value of export transaction, as the case may be. Operating expense is ordinarily an expense that a business incurs as a result of performing its normal business operations. As the business of 'Assembly' done by the assessee under this segment is not possible without purchases and forex gain is in relation to such purchase transactions, we have no hesitation in holding that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing cost, the reasoning of the revenue is that such loss or gain cannot be said to be one realized from international transaction though they may form part of the gain/loss of the enterprise and therefore they should be excluded while determining operating cost. On the above issue we find that the Bangalore Bench of ITAT in the case of Sap Labs India (P) Ltd. Vs. ACIT (2011) 44 SOT 156 (Bang.) has taken the view that Foreign Exchange Fluctuation gains are required to be added to operating revenue. Following the same, the AO is directed to accept the claim of the Assessee in this regard....... ". 3.6.1 In conformity with the above finding, we direct the AO/TPO to consider the foreign exchange gain or loss as part of the operating cost or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enterprise and therefore they should be excluded while determining operating cost. On the above issue we find that the Bangalore Bench of ITAT in the case of Sap Labs India (P) Ltd. Vs. ACIT (2011) 44 SOT 156 (Bang.) has taken the view that Foreign Exchange Fluctuation gains are required to be added to operating revenue. Following the same, the AO is directed to accept the claim of the Assessee in this regard." 6. M/s. SAP Labs India (P) Ltd. vs. ACIT [2011, 44 SOT 156, Bang] "42. We considered the issue carefully. The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business. This proposition has been time and again considered in cases arising in the context ..... X X X X Extracts X X X X X X X X Extracts X X X X
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