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2020 (12) TMI 728 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Assessee in engaged in the business of provision of Information Technology enabled Services (ITeS), to its wholly owned holding company thus companies functionally dissimilar with that of assessee need to be deselected. Wrong computation of working capital adjustment - HELD THAT:- It is clear from the perusal of the submissions made by the assessee and the order of the DRP that the argument with regard to adopting weighted average of the interest rate was not considered by DRP. We are, therefore, of the view that it would be just and appropriate to remand the issue to the TPO/AO for fresh consideration with regard to computation of working capital level and the consequent adjustment on account of working capital. Not considering the foreign exchange fluctuation gain earned by the Company as part of operations for the purpose of computing the Assessee's operating mark-up on total cost to arrive at the arm's length price - HELD THAT:- Foreign exchange gain has to be taken as part of the operating profits to the extent that it has nexus with the international transaction in respect of which the ALP is being determined. As far as the issue with regard to treatment of foreign exchange gain as part of operating profit is concerned, this issue is no longer res integra and has been settled by the decision in the case of e4e Business Solutions P. Ltd. v. DCIT[2016 (3) TMI 356 - ITAT BANGALORE]. It has been held therein that the gains arising from fluctuation of foreign exchange having nexus with international transaction should be treated as operating income and taken into consideration while computing the operating profit of the assessee. Following the aforesaid decision, we direct the computation of PLI by treating the gains arising from fluctuation of foreign exchange having nexus with international transaction as part of operating income. TPO directed to compute the ALP of the international transaction in question in accordance with the directions contained in this order, after affording the assessee opportunity of being heard. Computation of deduction u/s 10AA - exclusion of telecommunication expenses loss both from the export turnover and total turnover for the purpose of computation of deduction u/s. 10AA - HELD THAT:- In the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that charges/expenses relating to telecommunication, insurance charges and foreign exchange loss should be excluded both from export turnover and total turnover while computing deduction u/s.10A of the Act i.e., whatever is removed from the numerator should also be excluded from the denominator while working total turnover and export turnover for allowing deduction u/s.10A. The aforesaid decision of the jurisdictional High Court has been upheld in the case of CIT v. HCL Technologies Ltd.. [2018 (5) TMI 357 - SUPREME COURT]. The telecommunication charges should be excluded both from the export turnover as well as total turnover while computing deduction u/s.10AA of the Act.
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