TMI Blog2015 (3) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... essee claiming that difference in the foreign exchange rate of Euro beyond a particular point is abnormal and hence the same be not considered as recurring expense - Held that:- This contention is devoid of any merits because of the obvious reason that fluctuation in the foreign currency is across the board and is applicable not only to the assessee but to the comparables as well. It was fairly admitted that in some of the comparable cases, there is a figure of forex gain/loss. This shows that such change in the foreign exchange rate is not assessee-specific so as to warrant any adjustment. As it is applicable to one and all, there can be no case for treating some part of the forex loss as normal and the other as abnormal so as to warrant exclusion of the second part from operating cost by treating it as an abnormal loss. It is further relevant to note that the assessee earned forex gain of around `18.40 lac under the ‘Trading segment’. As such, the contention of the assessee claiming exclusion of some part of the forex loss from the ambit of operating expenses on the basis of the abnormal loss theory, is not sustainable. CIT(A) has taken an unimpeachable view by considering the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyush Jain, CIT, DR ORDER PER R.S. SYAL, AM: These cross appeals - one by the assessee and the other by the Revenue arise out of the order passed by the CIT(A) on 30th August, 2007 in relation to the assessment year 2003-04. 2. The assessee has filed revised grounds. The first issue pressed before us is against the treatment of foreign exchange fluctuation loss as operating cost. Briefly stated, the facts of the case are that the assessee is engaged in the business of rendering services and marketing of separators and decanters and spare parts related to separators and decanters. The assessee has two separate units for Trading functions and Assembly functions located at Delhi and Mumbai, respectively. The assessee declared three international transactions in its Audit Report. Two transactions relating to Trading business are not disputed as the TPO accepted such transactions at arm s length price (ALP). The entire controversy rotates around the international transaction of Purchase of components of Plate Heat Exchanger and Braze Plate Heat Exchanger amounting to ₹ 4.96 crore under the Assembly segment. The assessee applied Transactional Net Marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s contention for treating forex loss as non-operating expense. In this way, the assessee s profit margin at 1.40% was considered to be outside the permissible range of the comparables at 5.72%. He increased the amount of TP adjustment to ₹ 84.15 lac as against ₹ 53.55 lac made by the AO. In this exercise done on page 45 of the impugned order, he applied 5.72% on total sales to work out the above addition. At this stage, it is relevant to mention that the assessee agitated such computation by the CIT(A) through rectification application filed u/s 154 contending, firstly, that TP adjustment was not to be made with 5.72%, but with the difference between the assessee s profit margin and that of comparables and, secondly, even the calculation by the application of the rate of 5.72% was incorrect, as the resultant figure came at `64.54 lac instead of ₹ 84.54 lac. The ld. CIT(A) agreed with the assessee s point of view in respect of calculation mistake, but did not accept that the point of differential rate between 5.72% and 1.40% for the purpose of TP adjustment. 3. The assessee is aggrieved against the TP addition sustained by the ld. CIT(A) primarily on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange loss in the operating cost by arguing that rate of Euro had increased beyond proportions. It was stated that Euro had shot up like anything. Since such fluctuation was not anticipated, the ld. AR claimed that it was in the nature of extra-ordinary item and hence liable to be expelled from operating costs. This contention is again bereft of any force. Extra-ordinary item is normally distinct and unusual from the ordinary activity of the business that is carried on by the assessee. We fail to comprehend as to how the amount of forex loss can be considered as unusual from the ordinary activity of the purchase carried on by the assessee throughout the year from its associated enterprise. As it is direct incident of or rather a part and parcel of purchase transaction itself, the same cannot be viewed as an extra-ordinary item of expense. 4.3. Without prejudice to the above arguments, the ld. AR contended in the alternative that if forex loss was to be considered as part of operating cost, then, the forex loss in relation to the international transaction undertaken during the year alone should be considered. He invited our attention towards four components of such forex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be unpaid and during the year two, when payment is made, there would be no matching international transaction. This contention is, therefore, jettisoned. 4.6. Still another argument was raised by the ld. AR that the forex loss to the extent it is abnormal, be ignored from inclusion in the operating cost. By inviting our attention towards pages 4k to 4T of the paper book, the ld. AR submitted that the average rate of Euro during the period 1.4.2001 to 31.3.2002 was ₹ 41.52 as against the higher and lower rates of `44.81 and `38.68 respectively. It was submitted that any payment of foreign currency at the rate above `44.81 was abnormal loss, liable to be ignored from operating cost. 4.7. We are again unable to accept this proposition put forth on behalf of the assessee for the reason that forex loss is a natural incident of import. Each item of import leads to forex gain/loss when there is a difference between the rate of foreign currency at the time of purchase and payment. When buying of goods is a core business of the assessee and there is a change in the rate of foreign exchange at the time of payment for goods purchased, such forex gain/loss is simply a recurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases, there is a figure of forex gain/loss. This shows that such change in the foreign exchange rate is not assessee-specific so as to warrant any adjustment. As it is applicable to one and all, there can be no case for treating some part of the forex loss as normal and the other as abnormal so as to warrant exclusion of the second part from operating cost by treating it as an abnormal loss. It is further relevant to note that the assessee earned forex gain of around `18.40 lac under the Trading segment . As such, the contention of the assessee claiming exclusion of some part of the forex loss from the ambit of operating expenses on the basis of the abnormal loss theory, is not sustainable. 4.8. The ld. AR relied on Rule 10T(j) to contend that loss arising on account of foreign currency fluctuations cannot be included in the operating expense. We are not persuaded to give any mileage to the ld. AR on this count for the simple reason that Rule 10T is a part of Safe harbor rules notified on 18.09.2013 which are not applicable to the assessment year under consideration. 4.9. Now we will deal with the decisions relied by the ld. AR in support of his case. The decision of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This difficulty has also been appreciated by the special bench of the tribunal in DCIT VS. Quark Systems (P) Ltd. (2010) 132 TTJ (Chd)(SB) 1. The fact of the matter is that if an assessee is entitled to a particular deduction as per law, the same cannot be refused because of technicalities or ignorance. As the transfer pricing provisions were in rudimentary stage at the material time, the rightful due to the assessee should not have been denied simply because it was not claimed before the TPO but before the CIT(A) for the first time. 5.3. Now coming to the merits of the claim, we find that the Delhi Bench of the Tribunal in Agilent Technologies International Pvt. Ltd. vs. DCIT (ITA No.1837/Del/2014) vide its order dated 15th July, 2014 has held that the assessee cannot be deprived of the working capital adjustment, if it is rightly due. Similar view has been taken by in Mercer Consulting (India) Pvt. Ltd. vs. DCIT in ITA No.966/Del/2014. In view of the foregoing discussion, we are of the considered opinion that the claim of the assessee for working capital adjustment cannot be rejected at the outset. The impugned order on this issue is set aside and the matter is sent back ..... X X X X Extracts X X X X X X X X Extracts X X X X
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