CIT v. Softbrands India (P.) Ltd. [2018] 94 taxmann.com 426/406 ITR 513 (Kar.) We have heard the rival submissions and perused the material on record. The Ld A.R submitted that this company has also been excluded in many decisions. Safe harbour definitions of the government clearly portray the rules governing TP audit. The Ld A.R submitted that the assessee, in its transfer pricing study, has always been treating foreign exchange loss/gain as operating in nature. The DRP was of the view that the assessee has to be consistent in the approach in this regard. . The learned DR however brought to our notice a decision of the ITAT Bangalore Bench in the case of Commonscope Networks (India) (P.) Ltd. v. ITO IT(TP: A.No.166 & 181/Bang/2016 order dated 22.2.2017 wherein it was the foreign exchange gain or loss that arises should relate to the concerned AY because what is compared is the profit margin of a particular AY. Copyright © TaxGuru. According to him therefore the TPO/AO should examine the nature of foreign exchange gain or loss in the case of the Assessee and the comparable companies and to the extent it relates to turnover of the relevant AY and the segment for which ALP is being determined, the same should alone be considered as part of the operating revenue or loss. However, the frequent litigation has resulted in a situation in which revenue is losing both ways. M/s TCS E Serve Ltd was considered by the co-ordinate bench in the case of M/s Arctern Consulting Pvt Ltd (IT(TP)A No.352/Bang/2017 dated 15.10.2019 relating to AY 2012-13) and it was held as under:-, “10. Ltd. vs. Addl CIT [TS-736-ITAT-2012(Mum)-TP], 9) M/s Bearing Point Business Consulting Pvt. Whether forex gain and loss is operating or not is an altogether different issue. Further there was no segmental bifurcation between the transaction processing and technical services. Accordingly, we restore this matter to the file of the AO/TPO. The Ld A.R submitted that while “Hewlett-packard” may be a known brand, yet it is not known for rendering back-end BPO support services, i.e., it is known for providing hardware and IT solutions to its customers. HP group. All of these decisions pertained to AY 2010-2011. He further submitted that the extra ordinary event, viz., acquisition of Portland group Pty Ltd, Australia has taken place in the last quarter of the financial year and hence the said acquisition would not affect FAR analysis. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion of this company from the list of comparable.”, 11. If a taxpayer has made forex loss, TPO’s stand is beneficial to it. 6. Ltd. [ITA No.617/Del/2014]. There should not have any doubt that the “brand value” possessed by a company has definite role to play in fixing the pricing of product/services, but it may have effect only in the field, in which it possesses expertise. Cisco Systems Services B.E. Because appellate forums have consistently ruled that forex difference is operating, they get instant relief. For instance, interest income and expenses aren't included in operating income, ... items of income or loss from foreign exchange impacts also get … Often in transfer pricing, the foreign exchange fluctuation gain/loss is considered as non-operating for the purpose of computing ALP. Those taxpayers who have incurred foreign exchange gain appeal that it should be considered operating. Order pronounced in the open court on 4th Dec, 2020, Your email address will not be published. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions.”. One main distinction brought out by Ld A.R was that the Hewlett-Packard is having brand value for providing hardware and IT solutions to its customers, i.e., it is not known for rendering back-end BPO support services. Since it was advantageous to the assessee, the action of TPO was not objected to. Some concern may decide to take the risk of hedging and make a profit out of it. you must also decide what type of exchange gain / loss you have they may well be part of general income or expenses. 19. There is no doubt about it. Reserves and provisions will be in … CIT [2017] 87 taxmann.com 43 (Delhi – Tri. The Ld D.R submitted that the impact of brand value was not examined in any of the earlier decisions rendered by the Tribunal in the assessee’s own case. There was some litigation on whether nominal forex loss (determined by MTM method) is revenue expense, but the issue is more or less settled now. It is also submitted that this company owns IPR and brand and incurs advertisement and marketing expenses on brand building. 11. Expenses are not a contingent liability, i.e. Hence taking forex as operating distorts the comparability. The assessee is engaged in ITES services. With the expansion of the global economy and diverse influences on exchange rates – such as the current climate of economic uncertainty and fear of terrorism in many countries – foreign exchange risk is likely to be a key consideration for most companies trading across borders in years to come. 25. 21. This decision dealt with the exclusion of three specific comparables, which have also involved in the present case namely M/s. Comparability criteria: As discussed above, the idea of finding a PLI is to get the best comparability possible. more Actuarial Gain Or Loss It is wise to make a consistent assumption across the board: between taxpayers, TP auditors, and appellate forums. Kenexa Technologies Pvt. 27. The Foreign currency guide contains a summary of the framework for accounting for foreign currency matters, including the accounting for foreign currency transactions and translating the financial statements of foreign entities. GIST of GST Notifications issued on 22.12.2020, New Rule restricting use of ITC for discharging Output Tax liability, Smart Investment at Different Life Stages of Individual through SIP, New Rule 86B restricts use of ITC for discharging output liability, Extend due dates for Income Tax Audit & Returns for AY 2020-21, Extend Tax Audit/ITR due dates for AY 2020-21, ICAI requests for extension of various Income-tax due dates, Extend Due Dates for Tax Audit and Income Tax Return Filing, Extend due dates of GSTR-9/GSTR-9C for FY 2018-19 & 2019-20, Extend due date of ITR/Tax Audit/GSTR-9/GSTR-9C, Representation for Extension of time for Tax Audit & Return. Because forex gain/loss is too dependant on timing of transactions, and brings about more differences between tested party and comparables. The Company provides its services from various processing facilities, backed by a robust and scalable infrastructure network tailored to meet clients’ needs. Foreign exchange accounting involves the recordation of transactions in currencies other than one’s functional currency.For example, a business enters into a transaction where it is scheduled to receive a payment from a customer that is denominated in a foreign currency, or to make a payment to a supplier in a foreign currency. Removing forex from operating revenue is nothing but an adjustment to increase comparability. It is stated that its total profit before interest and tax was Rs.11683 crores, consisted of brand profits of 9969 crores and non-brand income of Rs.1714 crores. 1.Description of non-operating loss The Company has posted a foreign exchange loss in the amount of ¥1,942 million in consolidated financial results and ¥1,978 million in unconsolidated financial results. It is backed by M/s Infosys Ltd. The ld D.R further submitted that various case laws relied upon by the assessee are distinguishable. Even before you make or take payment on international transactions, or withdraw money from a foreign bank account, there is the potential for changes in the exchange rate to affect the value of your transactions and accounts. “38. Vs. Dy.CIT [TS-390-ITAT-2014(HYD)-TP]. In the case of Pr. The OECD TP Guidelines, 2010 ("the Guidelines"), on the contrary, do not talk anything specific about the categorization of foreign exchange gain/ loss as operating or non-operating. Accordingly, the assessing officer passed the final assessment order. wherein this Tribunal considered the very same issue and held as follows:-. CIT [2010] 8 taxmann.com 207/[2011] 44 SOT 156 (Bang.) Is Tran credit/ITC recovery mechanism defective under GST? The above said company has expertise in Strategic outsourcing and category management services. Cisco Systems Services B.E. We are conscious of the fact that we are dealing with the case relating to AY 2012-. When a foreign operation is disposed of, the cumulative amount of the exchange differences recognised in other comprehensive income and accumulated in the separate component of equity relating to that foreign operation shall be recognised in profit or loss when the gain or loss on disposal is recognised. TPO recomputed the margin of the assessee by excluding interest income and non-operating income and also reducing the expenditure. The basic argument behind considering forex gain/loss as operating is that foreign exchange fluctuation is an integral part of sale and purchase transactions. It is, in a way, speculative. All other issues arising on account of TP adjustments were not argued and therefore treated as not pressed for adjudication.”. A notional forex gain/loss also arises on 31st day of March (year-end date) when Marked-to-Market method is used to make accounting entries. It is, in a way, speculative. (a) Whether foreign exchange gains/loss are operating in nature or not? Record the rate of exchange on the date the transaction occurred. The losses were recorded as a non-operating expense for the first quarter ended June 30, 2016. With regard to functionality of M/s TCS E-Serve Limited, the assessee submitted as under:-. A part of forex gain/loss is definitely operating – the part that arises from sale/purchase transactions. sMlwTL http://www.FyLitCl7Pf7ojQdDUOLQOuaxTXbj5iNG.com, PLIro2 http://www.FyLitCl7Pf7ojQdDUOLQOuaxTXbj5iNG.com, f1sT9N mmdhijpxnnym, [url=http://mzhpbokbshkn.com/]mzhpbokbshkn[/url], [link=http://mlpctxptmleg.com/]mlpctxptmleg[/link], http://wfunxuomuvtm.com/, Tarun Arora (Partner, Deloitte Haskins & Sells LLP), Navigate through the nuances of Domestic-TP legislation, loss arising on account of foreign currency fluctuations, Statistically speaking, about equal number of TP auditees will have forex gain and forex loss. 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