ITAT Delhi: Forex Gains from Export Proceeds Are Operating in Nature; Section 80G Deduction Allowed on CSR Donation to Odisha State Disaster Management Authority

Case Reference

Kellog Brown and Root Engineering and Construction India Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITA No. 3310/Del/2024 | Assessment Year: 2020-21
Order Pronounced: 05.06.2026

Background and Overview

The Income Tax Appellate Tribunal, Delhi Bench, delivered a significant ruling in the case of Kellog Brown and Root Engineering and Construction India Pvt. Ltd. Vs DCIT, partly allowing the assessee's appeal for Assessment Year 2020-21. The impugned assessment order had been passed under Section 143(3) read with Section 144C(13) and Section 144B of the Income Tax Act, 1961.

The assessee operates in a specialised domain — providing design and technical consultancy services related to offshore and underwater construction activities in the oil and gas sector, along with marketing support services, IT/ITES services, and sale of proprietary equipment in India. Being part of a multinational group, the assessee had entered into various international transactions with its Associated Enterprises (AEs).

The appeal before the Tribunal covered multiple contentious issues:

  • A transfer pricing adjustment of ₹4,11,54,574/- pertaining to the ITES segment
  • Denial of deduction of ₹12,25,000/- under Section 80G of the Income Tax Act, 1961
  • Denial of double taxation relief of ₹1,11,34,019/- under Section 90
  • Levy of interest under Section 234A, Section 234B, and Section 234C
  • Initiation of penalty proceedings under Section 270A

Procedural History

The Assessing Officer had initially issued a draft assessment order dated 06.09.2023 under Section 144C(1) of the Income Tax Act, 1961, proposing an ALP adjustment of ₹9,61,64,469/- as recommended by the Transfer Pricing Officer (TPO) in its order dated 01.07.2023 under Section 92CA(3). Additionally, a disallowance of ₹12,25,000/- under Section 80G was also proposed in the draft order.

The assessee challenged these proposals before the Dispute Resolution Panel (DRP-1), New Delhi. The DRP issued its directions dated 23.04.2024 under Section 144C(5), following which the TPO revised the ALP adjustment downward to ₹4,11,54,574/- vide its order dated 10.05.2024. The Assessing Officer thereafter passed the final assessment order dated 17.05.2024, which became the subject matter of the present appeal.

Issue I: Transfer Pricing — Treatment of Foreign Exchange Fluctuation Gains Under TNMM

The Core Dispute

The primary and most consequential transfer pricing issue revolved around the treatment of foreign exchange fluctuation gains while computing the Profit Level Indicator (PLI) under the Transactional Net Margin Method (TNMM).

The assessee had applied TNMM using the OP/TC (Operating Profit to Total Cost) ratio as the PLI for benchmarking its ITES segment transactions with AEs. In this computation, the assessee included forex gains arising from the realisation of export service proceeds as operating income, on the basis that such gains were directly linked to revenue transactions carried out in the ordinary course of business.

However, the TPO, AO, and DRP all treated these forex gains as non-operating in nature, placing reliance on the Safe Harbour Rules under Rule 10TA of the Income-tax Rules, 1962, which categorise such gains as non-operating for the purpose of PLI computation.

Assessee's Contentions

The assessee argued that: