TaxTMI 
TaxTMI 
2013 (1) TMI 795
X X X X Extracts X X X X
X X X X Extracts X X X X
....them polished, exporting the processed and locally purchased polished diamonds. In the current year, the assessee entered into international transaction, with Sumit Diamond Corporation, USA, as a result of which reference was made by the AO to TPO to ascertain the correctness of ALP with Sumit Diamond Corporation, USA, assessee's AE. 3. The assessee explained that the assessee had undertaken the following international transaction with its AE. Sr.N Nature of Transactions Amount INR Method used for Bench Marking 1 Purchase of polished diamonds 41,52,42,970 TNMM 2 Sale of cut and polished diamonds 52,61,98,687 TNMM 3 Sale of gold & diamond studded jewellery 13,20,61,376 TNMM 4 Purchase ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ternational transaction amounted to Rs. 89.92 crores only, rest, Rs. 27.52 crores, being domestic transaction was outside the scope of examination of ALP. According to the AR, the TPO has first, erred on this point, i.e., taking the entire turnover for the purpose of computing the ALP, which according to even the CIT(DR) was quite obvious and in our opinion, the AR was correct. 9. Examining the working of the TPO, we find that the TPO had arrived at the operating margin at 7.32%, which he loaded on the entity itself, which in our opinion, even if correct, should have been loaded only on the international transaction segment only. This, he apportioned it on operating cost at Rs. 112.31 crores, and arrived at the profit of Rs. 8.22 crores,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reduction of operating margins for the calculation of ALP. 16. According to the AR, gains on foreign exchange fluctuation is purely incidental to the business of the assessee, therefore, its exclusion was uncalled for. According to the AR, if this item is included, for the purposes of computing operating margin/adjustment, as proposed and done by the TPO, adjustment shall become inconsequential. He referred to the case of Saps Labs India Pvt. Ltd., ITA no. 398/Bang/2008, wherein the coordinate Bench held that the foreign exchange fluctuation gain is nothing but an integral part of the sale proceeds of an assessee carrying on export business. 17. The AR also submitted that the finance charges were rightly excluded by the TPO from oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lusion of discount charges from the total financial charges for the purposes of reduction from the operating cost. 19. We have heard the arguments from either side and after referring to the details as placed in the APB, we are of the considered opinion that the AO/TPO were not justified 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 Vs Prakash I Shah, ITA No. 6349/Mum/2004 (where one of us a party), reported in 115ITD 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 be....