The Tax Publishers

Transfer Pricing--Forex Gain

International Transactions: Whether the ForeignExchange Gain has to be treated as part of the Operating Profit while Computingthe Profit Margin of the Assessee as Well of the Comparable Companies

Akhilesh Kumar Sah

In Global E-Business Operations Pvt. Ltd v. ACIT[IT(TP)A No. 725/ Bang/2017 (A.Y. 2012-13) decided on 4-12-2020], one of thegrounds raised by the assessee was in respect of the treatment of foreignexchange gain/loss as operating income/expenses. It was held that held thatforeign exchange fluctuation gain/loss in the appeal should be treated asoperating profit/loss in nature while computing the profit margin of theassessee as well as of the comparable companies. The learned author explainsthe case.

1. Introduction

Rule 10B of Income Tax Rules, 1962 mentions the methods fordetermination of arm length price under section 92C of Income Tax Act, 1961 inrelation to an international transaction or a specified domestic transaction.Foreign exchange fluctuation gain earned or loss incurred in it by a companywhether to be taken as operating profit or loss has remained a controversialissue in many cases. A recent case before Bangalore ITAT is illustrating one.

2. Case before Bangalore ITAT

In Global E-Business Operations Pvt. Ltd v. ACIT [IT(TP)ANo. 725/ Bang/2017 (A.Y. 2012-13) decided on 4-12-2020] : 2021 TaxPub(DT) 51(Bang-Trib), one of the grounds raised by the assessee was in respect of thetreatment of foreign exchange gain/loss as operating income/expenses.