The Tax Publishers2015 TaxPub(DT) 0273 (Bang-Trib) : (2015) 037 ITR (Trib) 0133

 

CISCO Systems (India) (P) Ltd. v. Dy. CIT

 

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPTreatment of foreign exchange gain--The total foreign exchange gain on account of realisation of proceeds from debtors, taken to creditors, inter-company statements, etc., was a sum of Rs. 1,79,01,08,756. Out of the above, the assessee on his own had excluded foreign exchange fluctuation on account of advances towards share capital charged to profit and loss account and foreign exchange fluctuation in the matter of purchase of fixed assets charged to profit and loss account. It was thus clear from the chart that a sum of Rs. 37,89,23,185 which was sought to be added as part of the operating income on rendering software development services was only on account of transactions of rendering software development services by the assessee to its associated enterprises and the foreign exchange fluctuation at the time of realisation of the payment for rendering software development services. It was therefore, clear that the foreign exchange fluctuation in question had to be treated as part of the operating income of software development services segment of the assessee and the operating profit to operating cost had to be determined accordingly. Held: In the given facts and circumstances, the foreign exchange gain from software development services had to be considered as part of the income from software development services while computing the margin of the assessee and accordingly, the margin of 12.67 per cent, computed by the assessee was directed to be adopted.

The Dispute Resolution Panel has refused to follow the decision of the Income-tax Appellate Tribunal, Bangalore Bench in the case of SAP Labs India P. Ltd. v. Asst. CIT (2012) 15 ITR 506 (Bang-Trib). In view of this Tribunal, the decision rendered by the Tribunal is binding on the Dispute Resolution Panel and the Dispute Resolution Panel cannot be heard to say that the decision rendered by the Tribunal is incorrect and refuse to follow the same. In the given facts and circumstances, the foreign exchange gain from software development services had to be considered as part of the income from software development services while computing the margin of the assessee and accordingly, the margin of 12.67 per cent, computed by the assessee is directed to be adopted. [Para 23]

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