Pangea3 & Legal Database Systems (P.) Ltd. v. ITO

INCOME TAX ACT, 1961

--Transfer pricing--Determination of ALPTreatment of foreign exchange loss----Foreign exchange gain or loss relatable to an international transaction is always part and parcel of such underlined transaction. Hence, while calculating PLI foreign exchange loss would not be excluded from operating profit/operating cost.--Assessee-company was rendering ITES services in the nature of legal support services, data processing, legal database and other administrative support services to its associated enterprise. To benchmark the said international transaction, assessee calculated PLI excluding foreign exchange loss from operating profit/operating cost. TPO was of the view that, assessee's working of PLI was erroneous as it had wrongly considered foreign exchange loss as non-operating item of expenses.Held: Foreign exchange gain or loss relatable to an international transaction is always part and parcel of such underlined transaction. Otherwise also, when international transactions are entered into with the associated enterprise, then any gain or loss on account of forex is inherent item of cost or profit. Thus, the proposition of the assessee that forex loss is not part of the operating cost is rejected.