Kellog Brown and Root Engineering and Construction India Pvt. Ltd. computed its TNMM PLI (OP/TC) for IT/ITES services by treating forex gains arising from realisation of export proceeds as operating income.
The tax authority, relying on Safe Harbour Rule 10TA, reclassified this as non-operating income.
Assessee’s Contentions | Revenue’s Contentions | Tribunal’s Judgment |
|---|---|---|
Forex gains on realisation of normal export proceeds constitute operating income; they arise from core business activity and must be included in PLI under TNMM. | The Revenue contended that foreign exchange fluctuation gains are non-operating income based on the framework provided under Safe Harbour Rule 10TA. | The ITAT Forex gains arising from realisation of normal export proceeds are operating in nature. The AO was directed to verify whether the gains arose from export of IT/ITES services to AEs in the ordinary course of business. |
Safe Harbour Rule 10TA is strictly optional; a taxpayer who has not opted into safe harbour cannot have its PLI computed by reference to those deeming provisions. | The Revenue maintained that excluding the forex fluctuations from operating profit was justified, recomputing the segment's operating margin to 11.42%. | The ITAT dismissed the remaining grounds without adjudication, ruling that since the margin shifts within arm's length. |
Ruling Summary
Forex gains arising from realisation of normal export proceeds are inherently operating in nature for TNMM purposes.
Safe Harbour Rule 10TA is an optional deeming provision it cannot be imposed on a taxpayer who has not opted into the safe harbour regime.
