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TMI Blog2016 (10) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has stated at bar that the assessee presses only one issue regarding the treatment of foreign exchange fluctuations gain as operating in nature while computing the operating margin of the assessee for the purpose of determining the arm's length price. Thus the learned AR stated that except the foreign exchange fluctuations being part of operating margin and benefit of tolerance range under proviso to section 92C of the Act, the assessee does not press other grounds raised in this appeal. Accordingly the effective grounds which are pressed by the assessee are ground Nos. 8 to 10, as under: "8. The learned CIT(A) has erred in not deciding on the treatment of foreign exchange fluctuation gain as operating in nature while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Transaction Net Margin Method (TNMM). The TPO has worked out a negative working capital adjustment of 3.18% and accordingly arrived at the adjusted mean margin of 28.22%. Accordingly the TPO proposed an upward adjustment under section 92CA of Rs. 2,66,09,306/- . The assessee challenged the action of the TPO before the CIT(A) and got part relief. Since the assessee has not pressed the other grounds in this appeal, therefore the only issue before us is regarding the treatment of foreign exchange gain for the purpose of determining the arm's length price. The learned AR of the assessee has submitted that the foreign exchange gain is accrued due to fluctuation on the receivables from exports and therefore it will be a part of the operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easoning of the revenue is that such loss or gain cannot be said to be one realized from gain/loss of the enterprise and therefore they should be excluded while determining operating cost. On the above issue we find that the Bangalore Bench of ITAT in the case of Sap Labs India (P) Ltd., Vs. ACIT (2011) 44 SOT 156 (Bang.) has taken the view that Foreign Exchange fluctuation gains are required to be directed to accept the claim of the Assessee in this regard. As far as provision for bad debts are concerned, the TPO has accepted that the same would be part of operating expenses provided the same is incurred every year for at least three years and the manner in which provision is made is consistent. The Assessee in reply to the query of the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired. 8. The revenue has raised the following grounds: 1. The order of the CIT (Appeals) is opposed to law and the facts and circumstances of the case. 2. The CIT (A) erred in law as well as on facts in holding that, as the working capital adjustment provided by the TPO has negative impact on adjusted margin, the assessee is entitled to risk adjustment as per prevailing norms, which shall be worked out by the TPO and granted to the assessee without appreciating that risk adjustment could not be allowed in the absence of specific difference in risk and its impact on profit margin when TP regulations in India are against making any assumptions in respect of any adjustments and such risk adjustment cannot be provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble High Court in the case of Tata Elxsi Limited 349 ITR 98 while computing the deduction u/s 10A by excluding the value of the telecommunication expenditure and expenses incurred in foreign currency from the total turnover also, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as. clause (iv) of the explanation to Section 10A provides that such expenses are to be reduced only from the export turnover. 7. The CIT(A) erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the' department and an appeal has been filed before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials. 11. Ground No. 3 to 5 are regarding the directions given by the CIT(A) for considering the foreign exchange (gain/loss) as part of the operating margin. This issue is common as it was also involved in the appeal of the assessee. In view of our finding on this issue while dealing with the appeal of the assessee, accordingly these grounds of the revenue appeal stand adjudicated on the same terms. 12. Ground No. 6 and 7 regarding exclusion of telecommunication expenditure and other expenses incurred in foreign currency from export turnover as well as total turnover while computing deduction under section 10A. 13. We have heard the learned DR as well as learned AR and consider the relevant material on record. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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