India: Tribunal decision on foreign exchange fluctuation gain or loss and arm’s length pricing

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The Income-tax Appellate Tribunal in the case of ACIT v. Rajratna Metal Industries Ltd. [ITA No. 1050/Ahd/2015 with CO No. 91/Ahd/2015, AY: 2010-11] held that a foreign exchange fluctuation gain/loss is an operating item and is not to be excluded for the purpose of computing the arm’s length price (ALP).

The Tribunal also found that income generated by the taxpayer on account of a business transaction which is not related to his international transactions (generation of electricity and sale to the manufacturing business) was not considered to be operating income for this purpose and must be excluded for the purpose of calculating the ALP. However, taking into account the taxpayer’s proposal, the Tribunal agreed to also exclude the expenditure related to that income.

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