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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 ..... C(8) of the Act. 2. The Revenue has raised three elaborate grounds in its appeal; however 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 operating cost. However the Ld. DRP considering the rule of consistency directed the Ld. A.O. to exclude the profits and gains of forex fluctuation while computing the operating cost. Aggrieved by the order of the Ld. DRP the Revenue is now in appeal before us. 4. The Ld. AR submitted before us that in the earlier assessment year 2008-09 the assessee company had incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s factors come into play, which may be both internal as well as external. The decisions of each entity in respect of various factors controlling the cost will affect the operating cost. Various risk factors are taken into consideration while making financial commitments, one among them is risk pertaining to foreign exchange fluctuations. Since the holding period with respect to sundry creditors who are raw materials suppliers or debtors arising out of sale transactions is with the management which exposes the entities to forex risks. Therefore, the profit or loss arising out of foreign exchange fluctuations will be directly attributable to the operational cost which has to be essentially taken into consideration while arriving at the operating cost of the entities while computing the profit level indicator (PLI) in transfer pricing matters. Unless there is an abnormal situation resulting in abnormal forex fluctuations, the profit or loss arising due to forex fluctuations cannot 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 princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is an item of operating cost." 2. M/s. Cisco Systems Services B.E. India Branch vs. ADIT [ITA(TP) No. 270/Bang/2014], "17. We have perused the orders and heard the rival contentions. The TPO had considered foreign exchange fluctuation gains to be non-operational in nature. This view was confirmed by the DRP stating that the foreign exchange fluctuations had nothing to do with the business operations of a tax payer. The DRP had refused to follow the decision of M/s. Saplap India (P) Ltd. (Supra). None of the authorities have given any finding that foreign exchange fluctuation gains were relatable to any capital receipts or outgoes. Assessee had given a break up of foreign exchange gain in which it had specifically excluded the exchange loss on purchase of fixed assets. We are of the opinion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the profit margin of the assessee...." 5. M/s. Trilogy E-Business Software India Pvt. Ltd. vs. DCIT [ITA No. 1054/Bang/2011] "79..... A..... 1. Treating foreign exchange gain or loss and provision for bad debts as non-operating in nature and fringe benefit tax as part of operating cost: As far a foreign exchange gain/loss being considered as not forming part of the operating 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." 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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