Forex Fluctuation Loss Directly Resulting From Trading Items Can't Be Considered As Non-Operating Loss: Delhi High Court
Finding that Assessee/ Petitioner had raised invoices on its AE (Ameriprise USA) based on cost-plus pricing methodology for the specified products & services provided by the Assessee, the Delhi High Court held that foreign exchange loss directly resulting from trading items could not be considered as a non-operating loss. The Division Bench comprising Justice Yashwant Varma...
Finding that Assessee/ Petitioner had raised invoices on its AE (Ameriprise USA) based on cost-plus pricing methodology for the specified products & services provided by the Assessee, the Delhi High Court held that foreign exchange loss directly resulting from trading items could not be considered as a non-operating loss.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja reiterated that “Since the foreign exchange loss directly resulted from trading items, it could not be considered as a non-operating loss”.
Facts of the case:
The Revenue Department had approached the High Court challenging the action of the ITAT in holding that forex gain/loss could not be made the subject matter of adjustment, without further holding that even if this were to be the case, appropriate adjustments were required to be carried out under Rule 10B(3) so as to eliminate the differences in factors like credit period and risk-management policy between the comparable and the assessee.
The Department had also challenged the action of ITAT in holding that AMP expenditure incurred during the year by the assessee does not constitute an international Transaction.
Observations of the High Court:
As far as advertisement, marketing and promotion expenditure is concerned, the Bench observed that the same was answered in ITA 419/2024 dated 05 August 2024 in favour of the assessee.
Further, the Bench reiterated that the 'Brightline Test' was not mandated in law to be used as a method to determine the price but only as an economic tool to arrive at the cost of services rendered to foreign enterprise by the Indian entity.
The Bench also reiterated that AMP (advertisement, market promotion) expenditure incurred during the year by the Assessee does not constitute an International Transaction.
Therefore, relying on the decision of Sony Ericsson Mobile Communications India Pvt Ltd to uphold AMP adjustment deletion, the Bench deleted the ALP determination based on AMP expenses.
The High Court therefore dismissed Revenue's appeal with respect to AMP adjustment and treatment of foreign exchange fluctuation.
Counsel for Appellant/ Revenue: Advocates Puneet Rai, Ashvini Kumar, Rishabh Nangia and Nikhil Jain
Counsel for Respondent/ Revenue: Advocates Himanshu S. Sinha, Prashant Meharchandani and Jainender Singh
Case Title: Pr. CIT vs Samsung India Electronics Pvt Ltd
Citation: 2024 LiveLaw (Del) 978
Case Number: ITA No 453/2024