Foreign Exchange Fluctuation Linked to International Transactions is Operating in Nature: Delhi HC Reaffirms [Read Order]

In a recent case, the Delhi High Court reaffirmed that foreign exchange gains or losses arising from international transactions are part of normal business operations and must be treated as operating in nature.

The appeal was filed by the Revenue challenging the ITAT’s order of Steria India Pvt. Ltd. for Assessment Years 2010-11 and 2011-12. The Revenue argued that the ITAT was wrong in its approach on several issues, including the treatment of foreign exchange fluctuation and the exclusion of certain comparables.

During the hearing, the Revenue accepted that all issues except the one relating to foreign exchange fluctuation were already covered against it by earlier decisions.

The assessee’s counsel argued that even on the remaining issue, the matter was fully settled by the Delhi High Court in Ameriprise India Pvt. Ltd., where the Court had explained that foreign exchange fluctuation arising from trading items is directly connected to business activity and cannot be treated as non‑operating. The court in that case had also pointed out that the assessee followed a cost‑plus model, making the foreign exchange component part of its operating results.

The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar observed that the same reasoning applied here as well. Since the foreign exchange fluctuation arose from international transactions forming part of the assessee’s regular business, it had to be treated as operating. The court also took note of the fact that the Transfer Pricing Officer had adopted the same view, and the ITAT had only followed the settled legal position.

The court further observed that the appeal suffered from a delay of 1265 days in re‑filing, and no convincing explanation had been provided for such a long delay. In view of the settled legal position and the unexplained delay, the Court found no reason to interfere with the ITAT’s order.

The court dismissed the appeal and the pending application, making it clear that the issue of foreign exchange fluctuation being operating in nature stands reaffirmed.

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