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2015 (8) TMI 1293 - ITAT BANGALORE

2015 (8) TMI 1293 - ITAT BANGALORE - TMI - Foreign exchange loss / gain treated as operating in nature - Calculation of operating margin - Held that:- We observe that it has not been disputed that the foreign exchange gain/loss has arisen as a consequence of the realization of the consideration for rendering software development services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calculating the operating margin of the assessee. Thus we hold .....

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A.M. : This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-IV, Bangalore dt.20.10.2014 for Assessment Year is 2009-10. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is engaged in the business of development of software and indenting sale of application embedded business and industrial software. The assessee company, formerly known as Phillips Semi-conductors India Pvt. Ltd. was incorporated on 18.7.2006 as a 100% EOU set up .....

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reported the following international transactions :- Provision of Software Development Services ₹ 258,21,78,120. Provision of Order Gathering Services. ₹ 14,34,45,438 In view of the above international transactions entered into by the assessee, the Assessing Officer made a reference under Section 92CA of the Act to the Transfer Pricing Officer ( TPO ) for determining the Arm s Length Price ( ALP ) of these international transactions, after obtaining necessary approval from the CIT-II .....

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n Panel. In this view of the matter, the Assessing Officer concluded the final order of assessment under Section 143(3) rws 144C of the Act vide order dt.30.4.2013 determining the assessable income of the assessee at ₹ 76,22,25,096; which included the T.P. Adjustment of ₹ 28,11,31,440 to the ALP of international transactions in respect of the software development services rendered by the assessee as proposed by the TPO in the order under Section 92CA of the Act. 2.3 Aggrieved by the .....

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of the case. 2. The CIT (Appeals) erred in holding that foreign exchange loss/gain is operating in nature when such loss/gain that is attributable to the operating activity is not derived from the operating activity. 3. The learned CIT (Appeals) erred in law in directing to include forex gain/loss as part of operating income/loss without ascertaining the nexus with the business activity of the taxpayer. 4. The learned CIT (Appeals) erred in concluding that forex gain/loss are to be treated as op .....

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d it is not possible to expand the scope of computers even to networking equipments and active components for the purpose of claiming depreciation at a higher rate of 60%. 6. On these and any other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 7. The appellant craves leave to add, alter, amend and/or delete any of the grounds mention .....

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of the assessee. The learned Departmental Representative was heard in support of the grounds raised. 4.2 Per contra, the learned Authorised Representative supported the impugned order of the learned CIT(A) in holding that foreign exchange gain / loss to be part of the operating revenue for the purpose of computing the assessee's margin for comparison with the margin of the comparable companies. The learned Authorised Representative contended that revenue s appeal on this issue is liable to .....

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India (P) Ltd. (2011) 44 SOT 156 (Bang). 4.3 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited and placed reliance upon. We observe that it has not been disputed that the foreign exchange gain/loss has arisen as a consequence of the realization of the consideration for rendering software development services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calcu .....

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xchange gain has arisen as a consequence of the realization of the consideration for rendering ITES services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calculating the operating margin of the assessee. We find that this proposition has been upheld by a co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. in IT(TP)A No.70/Bang/2014 dt.21.8.2014 wherein at para 11 thereof it has been held as under :- 11. We have considered t .....

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omputing operating margins is not proper. In our view, foreign exchange gain on realization of consideration for rendering software development services should be regarding as part of the operating revenue. Following the decision of the ITAT, Bangalore Bench in the case of SAP Labs (supra), we hold that the operating revenue for the assessee be computed by including the foreign exchange gain. Following the decision of the co-ordinate benches of this Tribunal in the case of Sap Labs India (Pvt.) .....

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d. (supra), we hold that operating revenue should be computed by including the foreign exchange gain/loss. Consequently, the grounds at S.Nos.2 to 4 raised by revenue are dismissed. CORPORATE TAX 5.1 The Ground raised at S.No.5 is in respect of the assessee's claim for depreciation on networking equipment and active components. Revenue contends that in the impugned order, the learned CIT (Appeals) erred indirecting the Assessing Officer to allow depreciation @ 60% on net working equipment an .....

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sentative supported the order of the learned CIT (Appeals) in granting the assessee depreciation @ 60% on computer net working equipment and active components except for the metallic racks as per his finding at para 4.1 of the impugned order. It is submitted by the learned Authorised Representative that the very same issue was before co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 and in its order in IT(TP)A No.1174/Bang/2011 dt.14.11.2014, the mat .....

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orised Representative and the learned Departmental Representative and perused and considered the material on record; including the judicial decision cited. On an appreciation of the material on record, we find that the same issue was before co-ordinate benches of this Tribunal in the assessee's own case for both Assessment Years 2007-08 and 2008-09. In its order in IT(TP)A No.1560/Bang/2012 dt.15.3.2015 for Assessment Year 2008-09, the co-ordinate benche followed the order of the Tribunal fo .....

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in IT(TP)A No.1174/Bang/2011 dt.14.11.2014, at para 11 thereof the co-ordinate bench has held as under :- 11. We have considered the rival submissions and are of the view that the issue requires a fresh consideration in the light of the submissions made by the Assessee before the DRP. As far as depreciation on Networking equipment is concerned, the AO has not called upon the Assessee to demonstrate as to how Networking equipment on which depreciation was claimed at 60%, satisfied the requirement .....

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