TaxTMI 
TaxTMI 
2015 (10) TMI 461
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.... the business of providing Information Technology Enabled Services ('ITES') to its Associated Enterprises ('AE'). For Assessment Year 2009-10, the assessee filed the return of income on 29.9.2009 declaring income of Rs. 60,56,224 after claiming deduction of Rs. 8,82,24,106 under Section 10A of the Income Tax Act, 1961 (in short 'the Act') . The return was processed under Section 143(1) of the Act and the case was subsequently taken up for scrutiny. The Assessing Officer observed that the assessee had reportedly entered into international transactions in the year under consideration and therefore a reference was made under Section 92CA of the Act to the Transfer Pricing Officer ( 'TPO' ) for determining the Arm's Length Price ( 'ALP'....
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....nd without appreciating that such loss / gain though attributable to the operating activity is not derived from the operating activity. 3. The CIT (Appeals) erred in concluding that forex gain / loss are to be treated as operating in nature without appreciating that though they may be incidental to the operating activity, they cannot be deemed as operating in nature since, they are not critical to operational activities of the business conducted by the taxpayer. 4. The CIT (Appeals) erred in law as well as on facts by directing the TPO to decide the case of the assessee, by applying the principles emerging from the orders of the Delhi Bench of the Hon'ble Tribunal in Haworth (India) Pvt. Ltd. V DCIT 11 ITR (Trib) 757 and the Bangalo....
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....nds that may be urged at the time of hearing of the appeal." 4. The Grounds raised at S.Nos.1, 7 & 8 being general in nature, no adjudication is called for thereon. 5. Ground Nos. 2 to 4 : Transfer Pricing Issues. 5.1 The assessee company, engaged in providing ITES to its AEs has reported the following international transactions entered into by it in the year under consideration :- S.No. Type of Transaction Amount (Rs.) 1. ITES - Research Services 49,35,00,659 2. Cross charges for travelling, training and communication expenses (paid) 3,40,139. 3. Reimbursement of Expenses (Received) 1,69,01,265 5.2 The assessee conducted its TP Study applying TNMM as the Most Appropriate Method (MAM) and conducte....
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....es was computed at 25.04%. After allowing working capital adjustment of 0.91%, the adjusted mean margin was worked out at 24.13 %. The resultant shortfall amounting to Rs. 4,08,55,503 was taken as the T.P. Adjustment to the ALP of the international transactions of the assessee with its AEs in the ITES field. 5.5 In the Grounds raised at S.Nos.2 to 4, Revenue contends that the learned CIT(A) erred in holding that foreign exchange loss / gain to be operating in nature without ascertaining the nexus between the forex gain/loss with the business activity of the assessee and without appreciating that this gain/loss is not derived from the operating activity of the assessee. Revenue further contends that the learned CIT (A) erred in directing th....
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....ain has arisen as a consequence of the realization of the consideration for rendering ITES services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calculating the operating margin of the assessee. We find that this proposition has been upheld by a co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. in IT(TP)A No.70/Bang/2014 dt.21.8.2014 wherein at para 11 thereof it has been held as under :- "11. We have considered the rival submissions. It is not disputed by the Revenue that the foreign exchange fluctuation has arisen as a result of the realization of the consideration for rendering software development services. It is therefore incurred in the normal course of busin....