The ACIT, Circle-1(2), Baroda V. M/s. ITT Corporation India Pvt. Ltd., Vadodara

ITA 552/AHD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9002 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IT(TP)A NO. 552/AHD/2016 ACIT VS. ITT CORPORATION INDIA LTD ASSESSMENT YEAR: 2010-11 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] IT(TP)A NO. 552/AHD/2016 ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME-TAX ........... ....APPELLANT CIRCLE 1(1)(2), VADODARA VS. M/S. ITT CORPORATION INDIA PVT. LTD., ............ ................RESPONDENT PLOT NO. 731, MANJUSAR GIDC, SAVLI ROAD, VADODARA-391775 PAN : AABCI 7013 D APPEARANCES BY: DILEEP KUMAR FOR THE APPELLANT NONE FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : MARCH 23, 2017 DATE OF PRONOUNCING THE ORDER : MARCH 28, 2017 O R D E R PER PRAMOD KUMAR AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE LEARNED CIT(A)S ORDER DATED 23.12.2015, IN THE MAT TER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. 2. GRIEVANCE RAISED IN THE APPEAL IS AS FOLLOWS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN ACCEPTING THE ASSESSEES CLAIM TO INCLUDE THE FOREX GAIN/LOSS WHILE COMPUTING THE PLI OF THE TESTED PARTY AS WELL AS TH E COMPARABLES AND REWORKING THE PLI. 3. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEA RNED DEPARTMENTAL REPRESENTATIVE WAS ASKED WHETHER FOREIGN EXCHANGE L OSS AND GAINS WERE IN RESPECT OF IT(TP)A NO. 552/AHD/2016 ACIT VS. ITT CORPORATION INDIA LTD ASSESSMENT YEAR: 2010-11 PAGE 2 OF 4 REVENUE ITEMS OR NOT. LEARNED DEPARTMENTAL REPRESE NTATIVE FAIRLY ACCEPTED THAT THESE FOREIGN EXCHANGE GAINS AND LOSSES ARE IN RESPECT OF REVENUE ITEMS BUT; IT HAS BEEN EXCLUDED, IN COMPUTATION OF PLI (PROFIT LEVEL INDIC ATOR), SO AS TO ELIMINATE THE DIFFERENCES ARISING OUT OF RISK MANAGEMENT POLICY I.E. HEDGING IN RESPECT OF FOREIGN EXCHANGE TRANSACTIONS. 4. WE FIND THAT THE ABOVE ISSUE IS SQUARELY COVERED , IN FAVOUR OF THE ASSESSEE BY A DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF TE CHBOOKS INTERNATIONAL PVT LTD VS. ACIT [(2014) 45 TAXMANN.COM 528 (DEL)], WHICH HAS O BSERVED AS FOLLOWS: 4.6 WE FIND MERIT IN THE CONTENTION RAISED ON BEHA LF OF THE ASSESSEE ABOUT THE INCLUSION OF FOREIGN EXCHANGE GAIN/LOSS IN THE OPER ATING REVENUE/COSTS OF THE ASSESSEE AS WELL AS THAT OF THE COMPARABLES. WHEN W E ADVERT TO THE NATURE OF SUCH FOREIGN EXCHANGE GAIN EARNED BY THE ASSESSEE, IT COMES OUT THAT THE SAME IS IN RELATION TO THE REVENUE EARNED BY THE ASSESSE E FROM ITS A.ES IN CONNECTION WITH THE PROVISION OF I.T ENABLED DATA CONVERSION S ERVICES, WHICH HAS BEEN REPORTED AS INTERNATIONAL TRANSACTION TO THE TUNE O F RS. 113.76 CRORES. WHEN THE FOREIGN EXCHANGE GAIN DIRECTLY EMANATES FROM THE CO NSIDERATION RECEIVED FOR RENDERING OF SERVICES TO ITS A.E, WE FAIL TO APPREC IATE AS TO HOW SUCH FOREIGN EXCHANGE GAIN FLUCTUATION CAN BE CONSIDERED AS AN I TEM OF NON-OPERATING REVENUE. WHAT IS TRUE FOR FOREIGN EXCHANGE GAIN FRO M THE TRANSACTIONS OF THE REVENUE NATURE BEING CONSIDERED AS PART OF OPERATIN G REVENUE IS EQUALLY TRUE FOR THE FOREIGN EXCHANGE LOSS BEING CONSIDERED AS PART OF OPERATING COSTS FROM THE TRANSACTIONS OF THE REVENUE NATURE. 4.7 THE SPECIAL BENCH OF THE TRIBUNAL IN ASSTT. CIT V. PRAKASH L. SHAH [2008] 115 ITD 167 (BOM)(SB) HAS HELD THAT THE GAIN DUE TO FLU CTUATION IN THE FOREIGN EXCHANGE RATE EMANATING FROM EXPORT IS ITS INTEGRAL PART AND CANNOT BE DIFFERENTIATED FROM THE EXPORT PROCEEDS SIMPLY ON T HE GROUND THAT THE FOREIGN CURRENCY RATE HAS INCREASED SUBSEQUENT TO SALE BUT PRIOR TO REALIZATION. IT WENT ON TO ADD THAT WHEN GOODS ARE EXPORTED AND THE INVOICE IS RAISED IN THE CURRENCY OF THE COUNTRY FROM WHERE THE GOODS ARE SOLD AND SUBSE QUENTLY WHEN THE AMOUNT IS REALIZED IN THAT FOREIGN CURRENCY AND THEN CONVERTE D INTO INDIAN RUPEES, THE ENTIRE AMOUNT IS RELATABLE TO THE EXPORTS MADE. IN FACT IT IS ONLY THE TRANSLATION OF INVOICE VALUE FROM THE FOREIGN CURRENCY TO THE INDIAN RUPEE S. IT HELD THAT THE EXCHANGE RATE GAIN OR LOSS CANNOT HAVE A DIFFERENT CHARACTER THAN THE TRANSACTION TO WHICH IT RELATES. THE BENCH FURTHER FOUND FALLACY IN THE SUB MISSION MADE ON BEHALF OF THE REVENUE THAT THE EXCHANGE RATE DIFFERENCE SHOULD BE DETACHED FROM THE EXPORTS AND BE CONSIDERED AS AN INDEPENDENT TRANSACTION. EV ENTUALLY, THE SPECIAL BENCH HELD THAT SUCH EXCHANGE RATE GAIN ARISING FROM EXPO RT CANNOT BE VIEWED IN A DIFFERENT SHADE. IT(TP)A NO. 552/AHD/2016 ACIT VS. ITT CORPORATION INDIA LTD ASSESSMENT YEAR: 2010-11 PAGE 3 OF 4 5. LEARNED CIT(A) HAS MERELY FOLLOWED THE STAND SO TAKEN BY THE CO-ORDINATE BENCH. LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, PLACE D HIS RELIANCE ON THE STAND OF THE TPO, BUT COULD NOT POINT OUT ANY LEGALLY SUSTAINABL E REASONS FOR OUR NOT FOLLOWING THE STAND SO TAKEN BY THE CO-ORDINATE BENCH. 6. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNED C IT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNC ED IN THE OPEN COURT ON THIS 28 TH DAY OF MARCH, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KU MAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 28 TH DAY OF MARCH, 2017 BT* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD