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Transfer Pricing--Forex Gain

International Transactions: Whether the Foreign Exchange Gain has to be treated as part of the Operating Profit while Computing the 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 the grounds raised by the assessee was in respect of the treatment of foreign exchange gain/loss as operating income/expenses. It was held that held that foreign exchange fluctuation gain/loss in the appeal should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies. The learned author explains the case.

1. Introduction

Rule 10B of Income Tax Rules, 1962 mentions the methods for determination of arm length price under Section 92C of Income Tax Act, 1961 in relation to an international transaction or a specified domestic transaction. Foreign exchange fluctuation gain earned or loss incurred in it by a company whether to be taken as operating profit or loss has remained a controversial issue 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)A No. 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 the treatment of foreign exchange gain/loss as operating income/expenses.

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