The assessee supported exclusion of functionally dissimilar comparables and submitted that R. Systems International Limited should be included, subject to availability of relevant financial data in the public domain. The assessee also relied on the functional profile of the companies while determining their comparability.

The Revenue challenged the exclusion of the disputed comparables and contended that R. Systems International Limited should not be considered due to differences in financial year and other comparability factors. The Revenue also supported the comparability analysis adopted by the Transfer Pricing Officer.

The Tribunal upheld exclusion of five comparables on account of functional dissimilarity, extraordinary events or absence of relevant segmental data. It also upheld inclusion of R. Systems International Limited, subject to verification of the relevant financial data in accordance with the prescribed conditions.

The assessee submitted that the foreign exchange fluctuation loss arose from its normal business transactions and was therefore an operating item for computing the margin under the Transactional Net Margin Method. Accordingly, the loss should be considered while determining the operating margin.

The Revenue opposed the treatment of foreign exchange fluctuation loss as an operating item and contended that it should not be considered while determining the operating margin. The Revenue accordingly disputed its inclusion in the margin computation.

The Tribunal held that foreign exchange fluctuation loss arising from normal business transactions is an operating item for margin computation. Accordingly, the Tribunal directed the Transfer Pricing Officer to recompute the operating margin after considering the foreign exchange fluctuation loss.