DCIT Vs GHCL Ltd. (ITAT Ahmedabad)
During the course of assessment, the assessee has submitted that foreign exchange gain/loss should be considered as part of operational income mainly stating that receipts/expenditures are booked at the time of transaction while conversion of payment/receipts of foreign exchange occurs at a later point of time resulting into foreign exchange gain/loss due to variation in the exchange rate from the date of transaction to date of conversion of foreign exchange into Indian currency and in the second situation an exporter/importer enter into foreign contract for sale/purchase of foreign exchange to hedge itself from the fluctuation in exchange rates. The TPO has not agreed with the submission of the assessee and exluded the foreing exchange fluctution from operarting income and not cosndiered for the purpospe of comparables to determine the arms length price of the international transsctions. The DRP has agreed with the view of the TPO and stated that the gain or loss on account of foreign exchange fluctuation is not linked to the quality or quantity of the services rendered and further stated that it is difficult to ascertain exact nature of such gains in the case of comparables. In this regard, we have gone through the judicial pronouncement referred by the learned counsel. In the case of Techbooks International Pvt. Ltd. 150 ITD 162, the Co-ordinate Bench of the ITAT Delhi has held that the foreign exchange gain/loss is required to be considered as part of the operating revenue cost.
We have also perused the decision of Co-ordinate Bench of Ahmedabad in the case of Effective Tally Services Pvt. Ltd. (2018) 90 taxmann.com 390 ITAT Ahmedabad wherein it is held that the ld. CIT(A) has rightly treated the foreign exchange fluctuation gain/loss as a operating item not to be excluded for the purpose of computing arms length price.
It is clear from the findings of the authoriies below that in case of the asssesse, the amount of foreign exchange gain are arised out of the revenue transactions. We are of the considered view that when foreign exchange fluctuation income is an operating income then same has to be taken into consideration while determining ALP of international transactions entered into by assessee. After considering the decision of the Co-ordinate Benches as supra, we consider that the amount of foreign exchange gain/loss arising out of revenue transaction is required to be considered as an item operating revenue/cost, therefore, we restore this issue to the file of Assessing Officer/TPO to compute the assessee’ s margin as well as comparables by considering foreign exchange gain/loss as an item of operating revenue/cost. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes.
FULL TEXT OF THE ITAT JUDGEMENT
All these appeals filed by the Revenue and by the assessee on different assessment years are directed against the order of DRP and CIT(A), Ahmedabad. Since common issues and identical facts involved in these appeals, therefore, for the sake of convenience, these appeals are adjudicated by this common order as follows:-
Appeal filed by the assessee vide ITA No. 1042/Ahd/2014 A.Y. 2009-10
2. The fact in brief is that return of income declaring income of Rs. 13,61,47,217/- was filed on 27th Sep, 2009. Thereafter, the assessee has filed revised return of income on 05/10/2020 declaring total income at Rs. 10,94,32,920/-. The return of income was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 27th August, 2010. The assessee company is engaged in the business of manufacturing of Soda Ash, refined salt, detergent and yarn, textile, raw salt for the captive consumption for soda ash generation development and export of I.T. enabled services and generation of electricity. During the course of assessment, the Assessing Officer noticed that assessee company was having international transaction with associated enterprise. Therefore, a reference was made to the Director of Income Tax (Transfer Pricing Officer) vide letter dated 5th October, 2011. The Deputy Commissioner, Transfer Pricing Officer-II, Ahmedabad has passed order u/s. 92CA(3) of the Income Tax Act, 1961 on 28th Jan, 2013. After taking into consideration the finding of the TPO and discussion made, the Assessing Officer has passed draft assessment order on 28.03.2013 by making following additions and disallowance to the total income of the assessee.
