Unrealised foreign currency translation gains or losses as of the balance sheet date are usually accounted for under financial expenses or income on accounts 563 or 663 – this relates to receivables, payables, stamps and vouchers, foreign currency treasury and foreign currency accounts. In other words, expenses must be incurred. As far as TCS E Service Ltd., is concerned, the comparability of this company was considered by this Tribunal in the case of Zyme Solutions Ltd., in its order dated 16.11.2018 as follows:-. Vs. Dy.CIT  [TS-390-ITAT-2014(HYD)-TP]. CIT [2010] 8 taxmann.com 207/[2011] 44 SOT 156 (Bang.) We have also noticed that M/s Infosys BPO Ltd is being consistently excluded in the assessee’s own case in the earlier years. Dr Debtors, Cr Profit and loss account). The rules for safe harbour were formulated by the Rangachary Committee and definitions for safe harbour are same as that of TP, since safe harbour is nothing but a safety net for a taxpayer above a specified TNMM margin. HC:Share-transfer to subsidiary for corporate restructuring, absent voluntariness, not gift; Upholds capital gains tax, SC:State's 'Administrative lethargy' in notifying Electricity duty rebate violates 'doctrine of promissory estoppel', HC:Transaction non-reference while seeking TPO-reference approval not fatal when CASS-selection reason specified, ITAT:Inter-unit transactions between eligible units u/s. Vs. Dy.CIT [TS-715-ITAT-2011(HYD)], 6) M/s CSR India Pvt. Accordingly, he made transfer pricing adjustment of Rs.57,69,82,545/-. The TPO rejected the transfer pricing study and he selected following set of comparable companies: 5. On the contrary, the contention of Ld A.R is that both the comparable companies have been excluded in many cases on the reasoning that they possess huge brand value. The TPO recomputed the margin of the assessee by excluding interest income and non-operating income and also reducing the expenditure. Ltd. vs. DCIT [TS-522-ITAT-2011(Bang)], 14) M/s SAP Labs India (P) Ltd. vs. ACIT [2011, 44 SOT 156, Bang]. Real gain/loss may arise out of hedging or time lag between transaction and payment, and nominal forex gain/loss arises on 31st March of the year by using Marked to Market(MTM) method of accounting. Westfalia Separator India Pvt. CIT v. Softbrands India (P.) Ltd. [2018] 94 taxmann.com 426/406 ITR 513 (Kar.) These exchange differences are recognized in the profit or loss on disposal of the net investment. Step 3 – calculate the foreign exchange gain/loss at the year-end 31 March 2017 . The assessee is a company belonging to M/s. These factors vitiated its comparability under the FAR analysis with the tested company, which could be a capital service provider without much intangible and risks. It is wise to make a consistent assumption across the board: between taxpayers, TP auditors, and appellate forums. 20. What weighed invariably is the fact that both companies had huge turnovers when compared to the tested entity. “12. Accordingly, the assessing officer passed the final assessment order. I would call this account Gain (Loss) on Foreign Exchange. Rules, 1962 give various definitions for the purpose of safe harbour. 11.1 Being aggrieved, the assessee is before us contending that this company is functionally different as it is engaged in diversified business activities of BPO such as banking, finance, insurance. We have heard rival contentions and perused the record. The Ld D.R submitted that the TPO had treated the foreign exchange fluctuation loss incurred by the assessee in the immediately preceding year as non-operating in nature and the assessee did not object to the same. It can create differences in value in the monetary assets and liabilities, which must be recognized periodically until they are ultimately settled . Revenue loses both ways. “38. CIT(DR) opposed its exclusion. HP group. The mere fact that the transactions were identical was not, in terms of the law explained in the above decisions, either a sole or a reliable yardstick to determine the apposite choice of comparables.”, In the above said case, the Hon’ble High Court has considered multiple criteria to hold that M/s TCS E Serve Ltd and M/s Infosys BPO Ltd are not comparable. There is no direct correlation between operating income/expenses and revenue income/expenses. MERITS OF TAKING FOREIGN EXCHANGE GAIN/LOSS AS OPERATING. Hence it cannot be said that the brand value would affect profitability of the companies. Hence, it is justified to take forex gain/loss as non-operating in nature. Rule 10TA of I.T. Accordingly, we hold that both the above said companies cannot be considered as comparable companies. In the light of this, the merits of taking foreign exchange gain/loss as non-operating are as under: 1. Company A will have to work out the foreign exchange gain or loss as follows: This gain is taken to the profit and loss account as a credit (i.e. In a recent case it was held that the foreign exchange fluctuation loss shall be considered as a part of the Operating Cost. The main reason why the DRP considered foreign exchange gain should not be treated as a part of the operating profit was due to the fact that the assessee in the preceding Assessment year did not consider foreign exchange loss as operating in nature. The relevant findings of the Tribunal are as under: ‘. To this extent the decision rendered by the Bangalore Bench of ITAT in the case of Commonscope Networks (India) Pvt.Ltd. 21. In view of the foregoing discussions, the ALP of the transactions require to be determined afresh in the light of decisions rendered supra. Extent the decision rendered by the Bangalore bench of ITAT in the case of XLHealth Corpn b ) ( ). Revenue income ’ transaction occurred the list of comparables distort GAAP numbers by lowering earnings! Updated on Taxation and Corporate Law seek to provide an exhaustive catalogue operating/... Transactions require to be determined afresh in the case of SAP Labs India ( P. ) ltd. 2018! [ TS-715-ITAT-2011 ( HYD ) ], 13 ) M/s capital IQ Information Systems ( ). Because forex gain/loss also arises on 31st of March ( year-end date ) Marked-to-Market! Alp of the business, “brand value” commands a premium on pricing from forex! 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