Foreign Exchange fluctuation gain / loss should be treated as operating in profit margin computation

Global E-Business Operations Pvt. Ltd. Vs ACIT (ITAT Bangalore)

Conclusion: Foreign exchange fluctuation gain/loss should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies.

Held: Assessee was a company belonging to M/s. HP group. It was engaged in ITES services. It undertook HP’s worldwide accounting and transaction processing work, provision of back office operation and customer support services to various associated enterprises.  It adopted TNMM method to benchmark his transactions and the profit level indicator was taken as operating profit by operating cost (OP/OC). TPO recomputed the margin of the assessee by excluding interest income and non-operating income and also reducing the expenditure. The issue arose for consideration was whether foreign exchange fluctuation gain/loss should  form part of operating income/loss or not.  It was held that foreign exchange gain had to be treated as part of the operating profit while computing the profit margin of the assessee as well of the comparable companies.  Accordingly, foreign exchange fluctuation gain/loss should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies.

FULL TEXT OF THE ITAT JUDGEMENT

The assessee has filed this appeal challenging the assessment order dated 23.01.2017 passed by the assessing officer u/s 143(3) r.w.s 144C of the Income-tax Act,1961 [‘the Act’ for short] for assessment year 2012-13 in pursuance of directions given by Ld Dispute Resolution Panel (DRP).

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