Assessee is Idemitsu Lube India Pvt Ltd.
The assessee is engaged in the business of manufacturing and marketing Lubricating oils and greases.
Assessee’s Contentions -
The assessee contended that the TPO had committed a calculation error while computing the margins of certain comparables, which resulted in an incorrect determination of the arm’s length margin.
The assessee contended that the TPO failed to explain the manner in which the margins were calculated. In this regard, the assessee submitted his own working chart detailing the computation of margins for consideration.
It was contended by the assessee that the forex loss arose due to the translation of ECB and, as it was not connected with routine operational activities, the same should be treated as a capital loss.
Assessee contended that such loss should be treated non operating for TP margin calculation. Same treatment was accepted in earlier years.
Revenue’s Contentions -
The TPO recomputed the margins of the comparable companies based on his own calculations, after examining the relevant financial data and applying the appropriate methodology.
The TPO did not accept assesse's working chart and proceeded without explaining the detailed basis of computation.
The Revenue treated the net foreign exchange loss arising from the translation of ECB as an operating expense, on the ground that such loss was integrally connected with the business operations of the assessee.
The Revenue included the loss while recomputing operating margin and didn't follow the treatment accepted in earlier years.
ITAT's Judgement -
The ITAT held that the loss on foreign exchange translation relating to ECBs should be treated as non-operating for the purpose of computing the OPM , since such loss arises from financing activities and is not attributable to the core operational performance of the business for the year under consideration.
The Delhi ITAT held that foreign exchange loss due to ECB translation is capital loss. Such loss should be treated as non-operating loss for TP margin calculation.
