The Income Tax Appellate Tribunal (ITAT) Pune Bench, constituted of the Vice President of ITAT, Pune alongside being an Accountant Member Ravinder Singh Syal, and a Judicial Member Partha Sarathy Chaudhury, has made a conspicuous decision in the case of Dana India Pvt. Ltd Company and rendered that the Foreign Exchange fluctuations in export or imports can be treated as an Operating Cost.
Dana India Pvt. Ltd. Company, the assessee, engaged in supplying and trading of commercial vehicles, drive axles & steer axles brought an appeal before the Appellate Tribunal against the findings of the Dispute Resolution Panel – 3 (DRP), Mumbai for the A.Y. 2014-15.
The fact is that the assessee treated the Foreign Exchange fluctuation gain as an operating revenue but the Transfer Pricing Officer (TPO)/Assessing Officer (AO), basing their decision on Rule 10TA of the Income Tax Rules of 1962, considered the fluctuation gain as non-operating revenue, resulting and influence in the assessee’s capacity to calculate its profit level indicator (PLI).
R. D. Onkar alleged in its issue that the TPO/AO erred by incorporating Foreign Exchange Gain or Loss in the Operating Cost on behalf of the Assessee. The counsel referenced the same Tribunal’s order from the previous year, where it ruled that the foreign exchange gain or loss resulting from the company transactions were operating income or expense. The assessee highlighted various tribunal pronouncements on the matter.
Keyur Patel, the department representative, firmly supported the DRP order in which the panel endorsed the TPO/AO’s view. In the order of DRP, Rule 10TA of the Income Tax Rules of 1962, rules dealing with the definition of operating revenue and operating expense, rules forming part of safe harbour rules, recommends the exclusion of income/loss culminating from foreign currency fluctuations from the operating revenue/expenses.
The DRP determined that although the assessee hadn’t yet opted to use safe harbouring rules, the expressions could still be interpreted as offering assistance since its meaning would not differ despite whether an enterprise had chosen to use safe harbour rules or not. The department delegate asserted that “ the action of the TPO of treating the forex gain/loss as non-operative is proper and justified”.
The ITAT held that “in the case of the assessee that foreign exchange gain/loss which has arisen from exports/imports of the product/materials which are in the ordinary course of business of the assessee are included as operating cost.”
The Appellate Tribunal upheld the previous year decision in the case of the assessee on the same facts held by the same tribunal.
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