Kellog Brown and Root Engineering and Construction India Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITAT Treats Foreign Exchange Gains as Operating Income Because They Arose From Export Service Realisations; Transfer Pricing Adjustment Set for Reconsideration Because Forex Gains Were Held Operating in Nature
The Income Tax Appellate Tribunal (ITAT), Delhi, partly allowed the assessee’s appeal for Assessment Year 2020-21 against the assessment order passed under Sections 143(3), 144C(13), and 144B of the Income Tax Act, 1961. The appeal challenged a transfer pricing adjustment of ₹4.11 crore, denial of deduction under Section 80G, denial of double taxation relief under Section 90, levy of interest, and initiation of penalty proceedings.
The assessee, engaged in providing design, technical consultancy, IT/ITES, marketing support services, and sale of proprietary equipment, had entered into international transactions with its associated enterprises (AEs). The principal transfer pricing dispute related to the treatment of foreign exchange fluctuation gains while computing the Profit Level Indicator (PLI) under the Transactional Net Margin Method (TNMM). The assessee treated foreign exchange gains arising from realization of export proceeds as operating income, whereas the Transfer Pricing Officer (TPO), Assessing Officer (AO), and Dispute Resolution Panel (DRP) treated them as non-operating by relying on the Safe Harbour Rules.
