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Income Tax Appellate Tribunal, DELHI BENCH, ‘H’: NEW DELHI
Before: SHRI PRAKASH CHAND YADAV & SHRI BRAJESH KUMAR SINGH
ORDER PER PRAKASH CHAND YADAV, JM
The present appeal of the assessee is arising out of the order of the Ld. Assessing Officer dated 21.10.2024 having DIN No.ITBA/AST/S/143(3)/2024-25/1069800458(1) and relates to Assessment year 2021-22.
Brief facts of the case as coming out of the orders of the authorities below are that the assessee is a company and engaged in the business of trading of Spices, Oil Seeds, Seeds, Coffee, Tea, Dry Fruits and etc. to its Associated Enterprises (in short ‘AE’) and third parties. In the impugned assessment year, the assessee has entered into international transaction with its AE and third parties and filed its return of income, observing international transactions with its AE, the Assessing Officer made reference to the learned Transfer Pricing Officer (in short ‘TPO’) for computing the Arm’s Length Price (in short ‘ALP’) of the international transaction entered into by the assessee with its AE. The Ld. TPO vide its order dated 28.10.2023 made certain adjustments of Rs.4,29,49,937/-. Thereafter, the Assessing Officer passed the draft assessment order on 11.12.2023.
Aggrieved with the draft assessment order, the assessee filed objections before the Ld. Dispute Resolution Panel and assailed the draft assessment order of the Assessing Officer. The Ld. DRP vide its order dated 26.09.2024 gave certain directions and then the ld. TPO passed the fresh TP order on 19.10.2024. It is pertinent to note here that in the fresh TP order, the adjustments of Rs.4.29 Crores were revised to the tune of Rs.1.64 Crores, after the directions of the Ld. DRP. Then, the Assessing Officer passed the final assessment order, which is impugned before us and framed the assessment.
Aggrieved with the said order of the Assessing Officer, the assessee has come up in appeal before us by raising the following grounds of appeal:
1. On the facts and circumstances of the case and in law, the leamed AO (Technical Unit) has erred in making a reference u/s 92CA (I) of the Act without having any powers for making such a reference. Accordingly, the Transfer Pricing reference is bad in law, consequently the TP order dated October 28. 2023, is bad in law and ought to be quashed.
2. On the facts and circumstances of the case and in law, the learned TPO [Addl/Joint Commissioner TP 2(2)] has erred in passing the TP order dated October 28, 2023 without having any jurisdiction to pass such order. Accordingly, the said TP order is bad in law and ought to be quashed.
3. On the facts and circumstances of the case, the learned AO has erred in not issuing the final assessment order in conformity with the directions of the Hon'ble DRP. Thus, the learned AO has violated the mandatory provisions of section 144C(10) read with 144C(13). Accordingly, the final assessment order dated October 21, 2024 is bad in law and ought to be quashed. Pertaining to Transfer Pricing Issues: Adjustment Rs. 42,949,937 1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel (Hon'ble DRP'), the Learned Transfer Pricing Officer ('Ld. TPO" and the Learned AO (collectively referred as "the Revenue") erred in making an adjustment of Rs. 42,949,937 to the total income of the Appellant on account of the alleged difference in the arm's length price ('ALP") of its international related party transactions under the provisions of Section 92CA(4) of the Act.
2. On the facts and in law, the Revenue erred in rejecting the internal Transactional Net Margin Method (TNMM") applied by the Appellant and thereby applying the external TNMM to benchmark the international transaction. In doing so, the Revenue erred in. 2.1 disregarding the detailed submissions establishing the applicability of Internal TNMM submitted by the Appellant 2.2. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case 2.3 misinterpreting the facts and not appreciating the business of the Appellant and thus, rejecting the TP analysis undertaken by the Appellant without demonstrating the inadequacy or infirmity in the analysis so conducted 2.4 rejecting the segment accounts maintained by the Appellant based on assumption, whims and 2.5 disregarding the report issued by an Independent Chartered Accountant validating the veracity of segment accounts as presented in the TP documentation. 2.6 incorrectly considering gain on foreign exchange fluctuation, duty drawback, export incentives, bad debts and bank charges as non-operating while computing the profit level indicator (PLI) of the Appellant 3. On the facts and in law, the Ld. AO/ Ld. TPO erred in disregarding the various judicial pronouncements upholding the application of Internal TNMM over external TNMM.
4. Without prejudice, on facts and in the circumstances of the case and in law, the Revenue erred in application of external TNMM by identifying companies which are not comparable to the Appellant in terms of functions, assets, and risk profile. In doing so. 4.1 the Ld. AO/ TPO erred in introducing companies which are failing the export filter applied by the Ld. TPO: a. Mas Enterprises Limited; and b. Sakuma Exports Limited 4.2 rejecting functionally comparable companies without citing any valid reasons for the same 5. On facts and in law, the Revenue erred in passing a cryptic order, not addressing various contentions raised by the Appellant and completely disregarding the information furnished during the assessment proceedings.
6. That, on the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under Section 234A and 234B of the Act.
7. That, on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 270A of the Act.
8. Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the assessment proceedings are barred by limitation in view of Section 153 read with Section 144C of the Act. The above grounds are notwithstanding and without prejudice to each other. The objections embodied in the above grounds are mutually exclusive.
Grounds of appeal no.1 to 3 are general in nature and hence do not require any specific adjudication.
6. In rest of the grounds, the assessee has challenged the addition of Rs.4,29,49,397/-( after rectification it is 1.64Crore).
The ld. Counsel appearing on behalf of the assessee, has contended that the ld. TPO has neither disturbed the method applied by the assessee for computing the ALP i.e. TNMM nor disturbed the PLI of the assessee. It is the contentions of the ld. Counsel for the assessee that the Ld. TPO has only replaced the internal TNMM method, as applied by the assessee, by external TNMM method and the TPO has held that external TNMM method is most appropriate method. The ld. Counsel for the assessee, in order to cut-short the controversy has argued that the approach of the TPO in rejecting the segmental analysis of the assessee vis-a-vis international transactions on the ground that the segmental results were not audited is of no relevance. The ld. Counsel for the assessee further argued that the profit margin declared by the assessee with AE is -2.68% and with non-AE is -1.99%. He further, pointed out that the TPO, after conducting his own TP study has arrived to a median of 1.39%, which mean, is in the tolerance limit of 1% and hence no adjustment is required to be made in this case.
Further, Mr Rohit Tewari, counsel for the assessee argued that the assessee has duly filed the certificate of the auditors, certifying that the segmental results of the assessee before the TPO. However, the TPO has discarded this certificate without any basis.
The ld. DR on behalf of the Revenue relied upon the orders of the authorities below.
We have heard the rival submissions and perused the material available on record. We observe that in this case, the solitary ground on the basis of which the TPO has discarded the TP study of the assessee is that the segments filed by the assessee were not audited. The Ld. TPO has discarded the certificate of the auditor in a summary manner. Further, we observe that even if, we go by the conclusion of the TPO in arriving the PLI, then also the same is within the +-1% tolerance limit. Therefore, we are of the view that no adjustment is called for in this case and the adjustments made by the TPO are hereby deleted.
Further, the assessee has rightly relied upon the order of the Co- ordinate Bench of the Madras Tribunal in the case of Honeywell Electrical Devices & Systems India Ltd., wherein, it has been held that filing of audited segments is not necessary, if the accounts are audited and the figures mentioned therein are not disturbed by the TPO. Respectfully, following the decision of the Co-ordinate Bench, we are of the view that opinion of TPO with respect to filing of audited segments results is not correct.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 09th May, 2025.