TaxTMI 
TaxTMI 
2013 (2) TMI 710
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.... has entered into the following international transactions with its Associate Enterprise (AE). S. No. Name and Address of AE Nature of Transaction Qty (In Cts) Amount in Rs. 1. M/s. Sauraj Diamonds NV 348, 2-Hovenierstraat B-2018, Antwerp, Belgium Import of Rough Diamonds 1,32,564.76 53,91,66,956 2. M/s. Sauraj Diamonds NV 348, 2-Hovenierstraat B-2018, Antwerp, Belgium Import of Polished Diamonds 1,608.21 1,74,25,842 3. M/s. Sauraj Diamonds NV 348, 2-Hovenierstraat B-2018, Antwerp, Belgium Export of Polished Diamonds 11,725.22 23,10,55,520 The matter was referred to Transfer Pricing Officer (TPO) who has computed the adjustment of Rs. 3,19,55,004/- vide his order dt. 25th October 2011. It was the case of the assessee that its margin should be determined after taking into consideration the gain on foreign exchange amounting to Rs. 3,36,36,765/-. However, TPO did not accept such contention of the assessee and has computed the transaction profit of the assessee at Rs. 75,71,025/- as per the following table: Operating Income: Rs. Net Sales as per P&L A/c 65,87,67,157 COGS (O.S. +....
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....tted that to bring parity the foreign exchange gain in the case of assessee should also be included in the profit. Ld. TPO has accepted such contention of the assessee that can be seen from the following observations of the TPO. Further on 10-10-2011, the assessee submitted detailed working and explained that some of the comparables used by the Department actually had foreign exchange gain but these gains were not explicitly mentioned but were included in sales or purchase. The assessee asked for parity. The assessee asked that since it was not possible to ascertain foreign exchange gain/loss on all the comparables, the same should be included in assessee as well as comparables. This submission of the assessee was found factually correct and therefore was accepted and comparables were re-drawn including foreign exchange gain/loss which is as under: (emphasis ours) Company Long Name OP/OC % OP/Net Sales % 1. C Mahendra Exports Ltd 6.79% 6.36% 2. Dimexon Diamonds Ltd 8.89% 8.17% 3. Goenka Diamonds & Jewels Ltd 9.64% 8.79% 4. Mohit Diamonds Pvt Ltd 4.45% 4.26 5. SB&T International Ltd 7.08% 6.61% 6. Suashish Diamonds Ltd -....
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....same with the margin of comparable parities. If it is held that foreign exchange gain is to be included for the purpose of computing Operating Profit of the assessee then the other issues raised and discussed will become infructuous and academic. 6. To bring more clarity on facts, it may also be mentioned here that though initially the assessee in his TP Report has computed his margin at 3.36% but later on the margin of the assessee has been computed at 6.26 and 6.67% on OP/Sales and OP/OCs. The margin computed by the TPO of the assessee and the margin re-computed by the assessee are stated in the following table: Operating Profit as Computed by the learned TPO Name of Company OP/OC OP/SALES (As per TPO) C Mahendra Exports Ltd 6.79% 6.36% Dimexon Diamonds Ltd 8.89% 8.17% Goenka diamond & Jewel Ltd 9.64% 8.79% Mohit Diamonds Pvt Ltd 4.45% 4.26% SB&T International Ltd 7.08% 6.61% Suashish Diamonds Ltd -0.57% -0.57% Zodiac-JRD-MKJ Ltd 5.75% 5.44% Assessee 6.00% 5.58% Operating Profit of the assessee (Including Exchange Difference) 1.16% 1.15....
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.... the facts, it was submitted by the Ld. Authorised Representative (AR) that the issue that whether or not gain on foreign exchange should be considered as part of profit for computing Arm Length Price (ALP) is no more res-integra as this proposition is well settled by the following decisions of the Tribunal: Sap Labs India (P.) Ltd. v. Asstt. CIT [2011] 44 SOT 156/[2010] 8 taxmann.com 207 (Bang.) Where in vide para 42 of the order it has been held that foreign exchange fluctuation gain is nothing but an integral part of the sale proceeds of an assessee. Following observations of the Tribunal from the said decision are re-produced below: "We considered the issue carefully. The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business. This proposition has been time and again considered in cases arising in the context of s. 80HHC. The Court and the Tribunals have held that foreign exchange fluctuation gains from part of the sale proceeds of exporter-assessee. Useful reference may be made to the decisions of the Bombay High Court in the case of Shah Brothers v. CIT [2003] 180 CTR (Bom)....
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....ed to be made on the margin declared by the assessee for the international transaction of the associated enterprises in relation to software development services. We direct accordingly." 2. Trilogy E Business Software India (P.) Ltd. v. Dy. CIT [2011] 47 SOT 45 (URO)/12 taxmann.com 464 (Bang.) Wherein similar proposition was accepted with the following observations. Copy placed on record and given to the Ld. DR "With regard to computation of margins of the assessee under 'Foreign Exchange Gain' we find that an identical issue had cropped up before the earlier Bench wherein the Hon'ble Bench in the case of Sap Labs India (P.) Ltd., v. ACIT referred supra had held that the foreign exchange gain needs to be considered as being operating in nature while determining arm's length price. In conformity with the said finding, we decide the issue in favour of the assessee 3. Order dt. 23-01-2013 in ITA No. 7148/Mum/2012 Sumit Diamond India (P.) Ltd. v. Addl. CIT. The issue was considered as per the following observations: "16 According to the AR, gains on foreign exchange fluctuation is purely incidental to the....
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....tified in excluding gain on foreign exchange fluctuation from the total revenues, as held by the decision of Saps Labs (supra). The Special Bench in the case of ACIT v. Prakash I Shah, ITA No. 6349/Mum/2004 (where one of us a party), reported in 115 ITD 167, it was held, "Foreign exchange fluctuation gain is a part and parcel of export turnover for the purposes of section 80HHC....". Since the issue of foreign exchange fluctuation being part of operations has been laid at rest and since there are neither any contrary decision nor any reference to the High Court, we are inclined to accept the arguments of the assessee on this issue and observe that we cannot take into consideration the decisions referred to by the DR." 8. Copy of all these decisions were placed on record and also was given to Ld. DR. Ld. AR further submitted that though TPO has accepted that to bring the case of the assessee at parity with the comparables on inclusion of gain on foreign exchange in the Operative Profit, but while computing the profit margin of the assessee, he has excluded the gain on foreign exchange. Thus, she pointed out that there is a contradiction in the stand taken by TPO. She submitted th....