2019 (2) TMI 1380 - AT - Income Tax

ITAT Bangalore: Foreign Exchange Gain Included in Operating Profit for Transfer Pricing

The Appellate Tribunal ITAT Bangalore allowed the miscellaneous application filed by the assessee under section 254(2) of the Income-tax Act, 1961. The ... Rectification application - determination of arms length price u/s 92 of the Act in respect of international transaction of providing software development services by the assessee to its holding providing software development services by the assessee to its holding company - HELD THAT:- It is correct that the assessee had made submission on foreign exchange gain being part of the operating profit of the assessee for the purpose of determining the PLI of the assessee and the comparables and in this regard, the assessee has even drawn attention of the Bench to decision of the Delhi High Court in the case of Pr. CIT Vs. Ameriprice India Pvt. Ltd. [2016 (3) TMI 1272 - DELHI HIGH COURT] and Pr. CIT Vs. S.T Ericsson India Ltd. [2018 (1) TMI 1453 - DELHI HIGH COURT] this Tribunal has taken a view that foreign exchange gain or loss resulting from trading items has to be considered as part of the operating profit or loss. We are therefore, of the view that there is an error apparent on the face of the record and the same is rectified by inserting the following as paragraph 14A. “14A) As far as foreign exchange gain earned by the assessee is concerned, the same should be treated as part of the operating profit or not has already been decided by the Hon’ble Delhi High Court in the case of Prl.CIT Vs. S.T.Ericsson India Ltd. (supra) and Ameriprice India Pvt. Ltd., (Supra).It is the plea of the assessee that foreign exchange gain arose from trading items and therefore it should be regarded as part of the operating profit. We are of the view that the claim made by the assessee in this regard deserves to be accepted and AO is directed to treat the foreign exchange gain as part of the operating profit and compute the PLI of the assessee accordingly'. Issues: Determination of arms length price under section 92 of the Income-tax Act, 1961.In this case, the Appellate Tribunal ITAT Bangalore dealt with a miscellaneous application filed by the assessee under section 254(2) of the Income-tax Act, 1961, seeking rectification of an order dated 21/12/2018 to correct certain apparent errors. The main issue involved was the determination of the arms length price under section 92 of the Act concerning international transactions of providing software development services by the assessee to its holding company. The assessee contended that the Tribunal did not address ground 4.1(g) related to the treatment of foreign exchange gain as part of the operating profit for determining the profit level indicator. The assessee argued that the failure to adjudicate this ground constituted a mistake apparent on the face of the record, citing relevant case laws in support of their claim. The Tribunal acknowledged the submissions made by the assessee regarding the treatment of foreign exchange gain and referred to decisions of the Delhi High Court to support the assessee's position. Consequently, the Tribunal rectified the order by directing the Assessing Officer to treat the foreign exchange gain as part of the operating profit and compute the profit level indicator accordingly. The miscellaneous petition filed by the assessee was allowed by the Tribunal, and the order was pronounced on 22nd February 2019.