TMI Blog2019 (6) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Pr. CIT VS. B.C. Management Services Pvt. Ltd. [ 2017 (12) TMI 255 - DELHI HIGH COURT] reiterated held that foreign exchange fluctuation in relation to trading transactions, prior to safe harbor rules from 2013, is operating gain or loss. The amount of foreign exchange gain/loss arising out of trading transactions is required to be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. The ground taken by the assessee is, therefore, allowed. Availability of +-5% benefit in determining the ALP - NIL ALP of the international transaction of Payment of management fees - HELD THAT:- Second proviso to section 92C(2) provides that if the variation between the ALP and the price at which the international transaction has actually been undertaken does not exceed the specified margin, which at the material time was 5%, then the price at which the international transaction has actually been undertaken shall be deemed to be the ALP. The effect of this proviso is that so long as the difference between the ALP as determined by applying one of the specified methods and the price at which the international transaction was undertaken is within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gain/Loss (forex). 3. Briefly stated, the facts of the case are that the assessee is one of the companies of INA brand of Schaeffler group worldwide. It is a wholly owned subsidiary of Schaeffler KG, Germany. The assessee is engaged in the business of manufacturing, development, marketing and distribution of roller bearing, linear bearings system and engine components. The assessee filed its return declaring total income at Rs. Nil. Certain international transactions entered into by the assessee with its Associated Enterprises (AEs) were reported in Form No. 3CEB. The Assessing Officer (AO) referred the matter of determination of the arm s length price (ALP) of the international transactions to the Transfer Pricing Officer (TPO). The TPO observed that though the assessee reported twelve international transactions, but it categorized its business into two segments viz., Manufacturing segment and Trading segment. 4. At this stage, it is relevant to mention that the only dispute raised by the assessee is against the determination of ALP of the manufacturing as well as trading segment by excluding foreign exchange (forex) from the computation of profit m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue that the exchange rate difference should be detached from the exports and be considered as an independent transaction. Eventually, the Special Bench held that such exchange rate fluctuation gain/loss arising from exports cannot be viewed differently from sale proceeds. 8. The reliance of the ld. DR on Safe Harbour rules to contend that foreign exchange gain or loss be taken as non-operating, is not sustainable. There is no doubt that in such rules, forex gain/loss has been treated as non-operating. However it is pertinent to note that such rules are not applicable to the assessment year under consideration. Even the reliance of the ld. DR on certain decisions taking cognizance of safe harbour rules for the period anterior to their insertion in other contexts, does not improve the case of the Department. Following the judgment in Principal Commissioner of Income Tax Vs. Ameriprise India Private Limited (ITA 206/2016) decided on 23.03.2016, holding foreign exchange gains earned by the assessee, which is in relation to trading items and emanating from international transactions, cannot be treated as non-operating losses and gains, the Hon ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that : `In view of the discussion as above, the arm s length price of the international transactions of the assessee company is not being disturbed except for transaction relating to Trading segment. 11. It can be seen from the order of the Assessing Officer that he computed total income at ₹ 7,35,83,486/- by making the solitary transfer pricing addition of the equal amount proposed by the TPO under the Trading segment to the Nil income declared by the assessee. Our attention has not been drawn towards any rectification order having passed either by the AO or the TPO on this score. 12. Though the assessee inadvertently challenged before the ld. CIT(A) the so-called transfer pricing addition of ₹ 5,25,95,383/- towards Management fees paid to the AEs, which was, in fact, never made, the ld. CIT(A) too fell into error by adjudicating the issue without noticing that since no addition was made, the issue did not arise out of the impugned order before him and more so when no notice of enhancement for such an addition was issued by him. The ld. CIT(A) called for a remand report from the TPO on this issue. The TPO proposed enhancement of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was undertaken is within the prescribed percentage, no transfer pricing adjustment can be made. This proviso was substituted by the Finance (No.2) Act, 2009 w.e.f. 01-10-2009. Explanation to sub-section (2) of section 92C has clarified : that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before the Assessing Officer as on 1st October, 2009 . Thus, it is overt that even for the assessment year under consideration, namely, 2010-11, the benefit of the second proviso would be available by virtue of the Explanation given at the end of sub-section (2) of 92C. We, therefore, hold that the ld. CIT(A) was justified in extending the benefit of +/-5% margin in determining the ALP of the international transactions. This ground of the Revenue fails. 16. The only other effective ground of the Revenue is the direction of the ld. CIT(A) for exclusion of additional companies selected by the TPO from the list of comparables, which as per the Revenue, are comparable. 17. The facts concerning this issue are that the TPO ventured to determine the ALP of the international t ..... 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