SHELL INDIA MARKETS PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘H’ BENCH
MUMBAI

BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER
&

MS. PADMAVATHY S, ACCOUNTANT MEMBER
Shell
India
Markets
Private Limited
BG
House,
Lake
Boulevard
Hiranandani
Business
Park, Powai
Mumbai- 400 076
/
Income
Tax department,
National
Faceless
Assessment
Centre (NFAC), Delhi /
Deputy
Commissioner of Income
Tax-Circle
3(4), Mumbai

(Appellant)
..
(Respondent)

Assessee by Shri Ajit Jain a/w. Siddesh
Chaugule
Revenue by Shri Ajay Chandra, CIT DR
Date of Hearing
21/08/2025
Date of Pronouncement
19/11/2025

आदेश / O R D E R

PER AMIT SHUKLA (J.M):

This appeal by the assessee is directed against the final assessment order dated 31 July 2024 passed under section 143(3) read with section 144C(13) and section 144B of the Income-tax Act, 1961, in pursuance of the directions issued by the Dispute Resolution Panel, Mumbai, under section 144C(5) for the assessment year 2020–21. The controversy before us straddles substantial transfer pricing adjustments
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across multiple business segments of the assessee, together with certain corporate tax disallowances and consequential issues, all resting on a detailed factual and legal matrix.

(i) provision of SBO IT services from Bengaluru;
(ii) provision of SBO services from Chennai;
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(iii) provision of technical services under the Project &
Technology (P&T) division, E&P segment;
(iv) cost allocation charges; and (v) mark-up on recoveries.

S No. Nature of adjustment
Amount (INR)
1
Provision of SBO(IT)
Services
(Bengaluru)
109,94,08,144
2
Provision of SBO Services (Chennai)
102,56,73,395
3
Provision of Technical Services
48,62,63,073
4
Cost Allocation Charges
269,01,24,471
5
Mark up on Recoveries
6,60,94,852

Total
536,75,63,935

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5. The assessee filed detailed objections before the Dispute
Resolution Panel (DRP) on 25 October 2023. After hearing the assessee, the DRP, by directions dated 29 June 2024, substantially upheld the action of the TPO. Pursuant thereto, the Assessing Officer passed the final assessment order dated
31 July 2024 under section 143(3) read with section 144C(13) and section 144B, sustaining the transfer pricing adjustments as well as the disallowance under section 40(a)(ia).

General Ground:
1 On the facts and in the circumstances of the case and in law, the AU/Ld. AO- NaFAC Transfer Pricing Officer (TPO)/Hon'ble
DRP have erred in completing the assessment of the Appellant under Section 143(3) r.w.s. 144C(13) and 144B of the Act, wherein the total income is assessed at Rs. 755,61,45,499 in pursuance to the Directions issued by the DRP, as against Rs.
215,80,20,610 returned income.
TRANSFER PRICING GROUNDS:
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2. Provision of SBO IT services (Bengaluru) (Adjustment of INR
109,94,08,144) On facts and in circumstances of the case and in law, the learned AU/AO/TPO/DRP/have erred in making an upward adjustment amounting to INR 109,94,08,144 in respect of Provision of SBO IT services (Bengaluru) by the Appellant to Associated Enterprises ("AE"), alleging the same to be not at arm's length in terms of provisions of Chapter - X of the Act
2.1 Not appreciating the business model, functional, Asset &
risk analysis undertaken by the Appellant and have further erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act, read with rules, for determination of the ALP for provision of SBO IT services.
2.2 Rejecting the functionally comparable companies selected by the Appellant to benchmark the transaction of provision of SBO II services (Bengaluru) without giving any cogent reasons.
2.3 Accepting comparable companies with different functional, assets & risk profile as compared to the Appellant by cherry picking and placing reliance on AY 2017-18/AY 2018-19
comparable set which is non-contemporaneous. Further also not providing detailed economic analysis conducted for identification of the said comparables
2.4. Placing reliance on AY 2017-18/AY 2018-19 comparable set that is stated to be using some of the unjustified screening filters leading to distorted comparable companies with different functional, assets & risk profile as compared to the Appellant.
2.5 Not taking due cognizance of the submission of the Appellant wherein detailed contentions on non-comparability in relation to comparables proposed by learned TPO were highlighted.
2.6 Not appreciating that the Appellant's services are in the nature of basic information technology ("IT") and Information
Technology enabled Services ("ITeS") and therefore, cannot be compared with high end service provider.
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2.7. Not allowing to the Appellant, the benefit of working capital adjustment to account for the difference in its working capital position vis-à-vis that of the comparable companies,
2.8 Not allowing to the Appellant, the benefit of risk adjustment to account for the differential risk profile, as compared to the comparable companies.
3. Provision of SBO services (Chennai) (Adjustment of INR
102,56,73,395)
On facts and in circumstances of the case and in law, the learned AU/AO/TPO/DRP have erred in making an upward adjustment amounting to INR 102,56,73,395 in respect of Provision of SBO services (Chennai) by the Appellant to AE, alleging the same to be not at arm's length in terms of provisions of Chapter - X of the Act:
3.1 Not appreciating the business model, functional, asset &
risk analysis undertaken by the Appellant and have further erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act, read with rules, for determination of the ALP for provision of SBO
Chennai services.
3.2 Rejecting the functionally comparable companies selected by the Appellant to benchmark the transaction of provision of SBO services (Chennai) without giving any cogent reasons.
3.3 Accepting comparable companies with different functional, assets & risk profile as compared to the Appellant by not sharing the search process for identifying the comparables, cherry picking and placing reliance on AY 2017-18 and AY
2018-19 comparable set
3.4 Placing reliance on AY 2017-18/AY 2018-19 comparable set with unjustified screening filters leading to distorted comparable companies with different functional, assets & risk profile as compared to the Appellant
3.5 Not taking due cognizance of the submission of the Appellant wherein detailed contentions on non-comparability in relation to comparables proposed by learned TPO were highlighted.
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3.6 Not appreciating that the shared services which are low end services in the nature of back-office support completely different in nature from that of high-end Information
Technology enabled Services ("ITS") and therefore, cannot be held comparable
3.7 Accepting comparable companies with different functional, assets & risk profile as compared to the Appellant by placing reliance un previous year's comparable set.
3.8 Not allowing to the Appellant, the benefit of working capital adjustment to account for the difference in its working capital position vis-à-vis that of the comparable companies
3.9 Not allowing to the Appellant, the benefit of risk adjustment to account for the differential risk profile, as compared to the comparable companies
4. Provision of technical services ( P & T division – E & P segment) (Adjustment of In response to the 48,62,63,073)
On facts and in circumstances of the case and in law, the learned AU/AO/TPO/DRP have erred in making an upward adjustment amounting to INR 48,62,63,073 in respect of provision of technical services (E&P segment) by the Appellant to AF, alleging the same to be not at arm's length in terms of provisions of Chapter X of the Act
4.1 Not accepting the economic analysis ('at cost principle') and placing reliance on earlier year's comparable set (ie AY 2018-
19/AY 2017-18) that makes use of unjustified screening filters leading to distorted comparable companies with different functional, assets & risk profile as compared to the Appellant.
4.2 Not accepting the economic analysis (at cost principle) and accepting comparable companies with difforent functional, assets & risk profile as compared to the Appellant by cherry picking and placing reliance on previous year's (AY 2017-
18/AY 2018-19) comparable set. Further also not providing detailed economic analysis conducted for identification of the said comparables
4.3 Not appreciating the business model, functional, asset &
risk analysis undertaken by the Appellant and have further erred in not accepting the economic analysis (at cost principle)
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undertaken by the Appellant in accordance with the provisions of the Act, read with rules, for determination of the ALP for provision of technical services
Without prejudice to the above, on the facts and circumstances of the case and in law, not appreciating that the Appellant corroborated benchmarking of P&T transaction (E&P segment) under 'other method' as prescribed under Rule 10AB of the Income-tax Rules, 1962, as it may produce better or more appropriate ALP on the facts of the case
4.4 Rejecting the economic analysis ('at cost Principle') undertaken by the appellant using CUP method as the most appropriate method to determine the arm's length price for provision of technical services in relation to upstream/E&P business:
4.5 Applying the same benchmark for determining the ALP of two distinct segments viz. Exploration and production ("E&P") and non-E&P services, without appreciating the inherent differences and commercial circumstances between the aforesaid two segments
4.6 Not appreciating provisions of Rule 10B(2) of Income Tax
Rules, 1962 ('The Rules') for benchmarking this international transaction, wherein the rule recognizes conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, and the law and Government orders in force as comparable factors.
4.7 Not appreciating the Appellant's business model, functional, asset and risk profile, the prevalent Production Sharing
Contract (PSC) framework and other International regulations, and thereby disregarding the 'at cost remuneration model of the Appellant to be at arm's length.
4.8 Disregarding the at-cost principle followed by other consortium members of the PSCs under the PSC framework as a CUP/ Other Method, for benchmarking the price charged by the Appellant from its AIs for provision of technical services in relation to upstream business
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4.9 Disregarding the various unique factors prevailing in the oil and gas industry in determination of the ALP of Appellant's transaction pertaining to upstream / E&P business, which justifies the "at cost principle
4.10 Without prejudice, not taking due cognizance of the submission of the Appellant wherein detailed contentions on non-comparability in relation to comparables proposed by learned TPO were highlighted.
4.11 Not allowing to the Appellant, the benefit of working capital adjustment to account for the difference in its working capital position vis-à-vis that of the comparable companies.
4.12 Not allowing to the Appellant, the benefit of risk adjustment to account for the differential risk profile, as compared to the comparable companies
5. Cost allocations (Adjustment of INR 269,01,24,471)
On facts and in circumstances of the case and in law, the learned AU/AO/TPO/DRP have erred in making an upward adjustment amounting to INR 269,01,24,471 in respect of payments made by the Appellant to AE for Cost allocations, alleging the same to be not at arm's length in terms of provisions of Chapter-X of the Act
5.1 In applying other method' inappropriately by not providing any document or material on record for determining the ALP as 'NIL" for this transaction Thus, effectively none of the six prescribed methods for determining the ALP as per the Act have been applied to benchmark this international transaction by the TPΟ
5.2 Questioning the commercial expediency of services received, by disregarding the cost allocation arrangements/
agreements without providing any cogent reasons which is against the provisions of Section 37 of the Act
5.3 Disregarding the documentary evidence furnished by the Appellant and thereby concluding that no services have been rendered and no benefit has been received by the Appellant from such services. Thus, rejecting the benchmarking analysis conducted by the Appellant to benchmark the aforesaid international transaction.
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5.4 Adopting an inconsistent approach vis-à-vis the approach adopted by the Ld. TPO/AO of the non-resident AEs and without appreciating that the factum of services stands accepted in the hands of such AEs
5.5 Adopting an inconsistent approach by the Ld TPO/AO by disallowing the cost allocation pertaining to downstream business, however, accepting cost allocation pertaining services segment.
5.6 Exceeding his juri iction by questioning the receipt of service and accrual of benefit
5.7 Not appreciating the huge intrinsic and creative value of these services without which it is very difficult to sustain in a highly competitive environment
5.8 Not granting the relief of indirect taxes, which are paid by Appellant to the government, while computing the adjustment.
6. Recovery of salary and related expenses (Markup on recoveries) (Adjustment of INR 6,60,94,852)
On facts and in circumstances of the case and in law, the learned ALU/AΟ/ΤΡΟ/DRP have erred in making an upward adjustment amounting to INR 6,60,94,852 in respect of Recovery of salary and related expenses, alleging the same to be not at arm's length in terms of provisions of Chapter-X of the Act
6.1 Not appreciating that these expenses are pass through costs and the Appellant neither provides any services nor assumes any risk in relation to incurrence and recovery of these costs and thereby no mark-up is warranted.
6.2 Re-characterizing recovery of expenses/pass through cost as provision of support services and rejecting the benchmarking undertaken by the Appellant and applying
TNMM to benchmark the transaction
6.3 Rejecting the benchmarking undertaken by the Appellant and applying TNMM to benchmark the transaction
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6.4 Not taking due cognizance of the submission of the Assessee wherein detailed contentions on non-comparability in relation to comparables proposed by the TPO were highlighted
6.5 Not providing detailed economic analysis undertaken for identification of comparables and computation of the proposed arm's length margin of 9.88 percent.
6.6. Not providing sufficient opportunity to the Appellant by not sharing the search process /economic analysis undertaken by the TPO for identification of comparables and computation of the proposed arm's length margin [ie, operating profit (OP)/
total cost (TC)]
CORPORATE TAX GROUNDS
7. Disallowance of Rs. 8,82,155 under section 40(a)(ia) of the Act for short deduction of Tax.
On the facts and in the circumstances of the case, the Ld. AO-
NaFAC has erred in holding that the assessee has deducted short tax on an expenditure amounting to Rs. 29,40,517 and disallowed Rs. 8,82,155 i.e., 30 percent of such estimated expenses under section 40(a)(ia) of the Act. The Ld. AO-NaFAC failed to appreciate that complete documents (including Form
26A obtained from vendor was provided) and erred in not following the directions of the Honorable DRP.
The Appellant prays that the said disallowance is erroneous, unwarranted and hence, be deleted.
8. Disallowance of Rs. 6,75,000 due to mismatch in the amount disallowed under Section 40(a)(in) as per Clause
21(b) and 34(a) of Tax Audit Report vis-à-vis amount disallowed in the Return of Income
On the facts and in the circumstances of the case, the Ld. AO-
NAFAC has erred in making disallowance of Rs. 6,75,000 as made by the Central
Processing
Centre,
Income
Tax
Department while passing rectification order dated 22 March
2022 under Section 154 of the Act.
The Appellant prays that the said disallowance is erroneous, unwarranted and hence, be deleted,
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9. Short grant of an advance tax credit of Rs. 5,33,124
On the facts and in the circumstances of the case, and in law, the learned Officer-NaFAC has erred in granting advance tax credit of Rs. 167,37,50,000 as against Rs. 167,42,83, 124
(including Rs. 5,33,124 pertaining to merged entity - Pennzoil
Quaker State India Limited) as claimed by the Appellant in its ROI filed on 29 January 2021
The Ld. AO-NaFAC failed to appreciate the fact that credit of Rs. 533,124 is appearing in Form 26AS of POSIL which has merged with the Appellant.
The Appellant prays that the Ld. AO-NaFAC to directed to grant credit of the balance advance tax amount
10. Levy of interest under section 234B of the Act.
On facts and in circumstances of the case and in law, the Ld.
AO- NaFAC has erred in levying consequential interest u/s.
234B of the Act for additions/disallowances made to the total income in the final assessment order
Levy of interest (Rs. 65,95,467) under section 234D.
On facts and in circumstances of the case and in law, the Ld.
AO-NaFAC has erred in levying interest under Section 234D of the Act. The Ld. AO-NaFAC failed to appreciate that the refund on which interest under Section 234D is levied was only determined and never granted to the Appellant
The Appellant prays that the Ld. AO-NaFAC be directed not to levy interest under Section 234D of the Act
12. Initiation of penalty proceedings under section 270
of the Act
On facts and in circumstances of the case and in law, the learned Transfer Pricing Officer, the Ld. AO-NaFAC/DRP have erred in erred in initiating penalty proceedings for under- reported income of income u/s. 270A of the Act on the additions/disallowances made in the final assessment order without appreciating the facts that the Appellant has not under- reported income in its Return of Income.
13. Other Grounds:
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On the facts and circumstances of the case, the FAO dated 31
July 2024 is bad in law in not following the Hon'ble DRP directions dated 29 June 2024 under Section 144C(10) read with Section 144C(13) of the Act, consequently all further proceedings are also vitiated and invalid in law.
The impugned FAO dated 31 July 2024 is invalid since the same is not in accordance with the procedure laid down under the provisions of section 144C of the Act.‖
7. For the sake of clarity and convenience, we propose to deal with the transfer pricing grounds segment-wise, and thereafter address the corporate tax grounds and consequential issues. While doing so, the overlapping grounds and additional grounds shall be disposed of in a consolidated manner to avoid repetition.
Ground No. 2 – Provision of SBO IT Services (Bengaluru)
8. During the year, the assessee provided support services in the nature of ―information technology enabled services‖
(ITES) and ―software development services‖ amounting in aggregate to INR 2390,01,77,042 to its associated enterprises.
These services were provided to various operating companies of the Shell Group on a cost-to-cost basis. However, in order to comply with Indian transfer pricing regulations, the assessee, in its return of income, suo motu offered a mark-up at the rate of 12% on the relevant cost base, resulting in an enhanced income of INR 286,80,21,245/- in the return of income as entered income.

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most appropriate method, with Operating Profit to Operating
Cost (OP/OC) as the Profit Level Indicator (PLI), and selected itself as the tested party. Since the SBO IT Bengaluru platform rendered both software development as well as ITES/back-office support services, the assessee undertook two separate benchmarking analyses one for ITES and another for software development services and, thereafter, evaluated the combined outcome. According to the assessee, on such combined analysis, the 12% mark-up offered in the return fell well within the arm‘s length range.

•
replaced the minimum turnover filter of INR 1 crore with a so-called 1/10 to 10 times turnover band;

•
applied a positive net-worth filter;

•
applied a related party transaction (RPT) filter of 25%;

•
applied a consecutive loss-making filter; and •
applied an export turnover filter of 75%.

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10. In his show-cause notice, the TPO called upon the assessee to explain why the final set of comparables chosen for ITES and IT segments in AYs 2017–18 and 2018–19
should not be adopted for AY 2020–21 as well. He proposed a set of 17 companies, as tabulated on pages 6 to 8 of his order, for benchmarking the international transactions of this segment for the year under consideration, substantially by piggy-backing on earlier years‘ selection without undertaking a fresh, current-year search. The assessee filed an elaborate reply to the show cause notice, objecting to the application of the modified quantitative filters and, in particular, highlighting functional non-comparability of several proposed companies. The TPO has reproduced the assessee‘s detailed submissions in his order on pages 9 to 48. 10.1. After analysing the assessee‘s submissions, the TPO finally culled out the following set of seven companies as comparables for the combined SBO IT (ITES and software development) functions:

S No. Name of the Comparable
Weighted
Average %
1
Maveric System
11.04
2
Mindtree Ltd
12.49
3
Infosys BPM
16.44
4
Tech Mahindra Business services
16.60
5
Nihilent Ltd.
24.13
6
Tata Elexi
28.69
7
Cybage Software
46.44

Range 16.44% to 24.13% Median 16.60%
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11. On the basis of this final set, the TPO observed that the arm‘s length range of margins worked out to 16.44% to 24.13%, with a median margin of 16.60%. Treating this as the relevant arm‘s length margin range, he computed the arm‘s length price of the assessee‘s services under TNMM and proposed an adjustment of INR 109,94,08,144 to the income of the assessee for this segment.

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14. The Ld. AR then took us through the functional profile of the SBO IT Bengaluru centre as captured in the transfer pricing study (paper book pages 383–385). He emphasised that the assessee is essentially a routine, low-risk delivery centre providing software development and ITES/back-office support services to Shell operating companies, and that its services are remunerated on a cost-to-cost basis, with a 12%
mark-up being voluntarily offered only to comply with Indian transfer pricing norms. He pointed out that:

•
For ITES functions, the assessee‘s search yielded 9
comparables with an arm‘s length margin range of 5.15% to 9.28%;
•
For software development services, 14 comparables were identified, with a margin range of 3.66% to 15.12%; and •
On a combined basis for these two closely-linked functions, the overall range worked out to 5.15% to 13.02%.

In this backdrop, he submitted that the assessee‘s 12%
mark-up comfortably fell within the range and ought to have been accepted as being at arm‘s length.

•
The minimum turnover filter of INR 1 crore is an objective filter designed to weed out start-up or defunct
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entities.
Once that threshold is applied, functional comparability and FAR analysis should guide the inclusion or exclusion of comparables.
•
In contrast, a mechanical 1/10 to 10 times turnover band is inherently subjective and arbitrary; there is no inherent logic as to why a multiple of ten, and not five or fifteen, should be treated as sacrosanct.
•
The adoption of this band, without any cogent reasoning, has resulted in exclusion of functionally comparable companies and allowed inclusion of entities with brand intangibles, diversified operations and significantly different risk profiles.
16. In support, the Ld. AR relied upon a decision of the Mumbai Bench in DNV Business Assurance India Pvt. Ltd.
(ITA
No.
2134/Mum/2022
dated
22.12.2023), placing particular emphasis on paragraph 12 thereof. The relevant passage from para 12 of the decision in DNV Business
Assurance India Pvt. Ltd. as relied upon by the Ld. AR is as under:-
―We concur the observations made by the Tribunal that turnover filter cannot be applied as a tool for cherry picking the comparables at the later stage after completion of the search process with the object of excluding comparables which was otherwise found to be functionally comparables after the Functions Assets
Risks
(FAR)
Analysis.
After taking into facts and circumstances of the present case, we are of the view that the application of the second lower turnover filter by the TPO without rejecting the first turnover filter adopted by the Appellant resulted exclusion of two companies which were otherwise functionally comparable and thus, resulted in cherry picking. It is not the case of the Revenue that the comparables
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excluded were not functionally comparable with the Appellant.
The lower turnover of filter adopted by the Appellant and the explanation provided by the Appellant for adopting the same was not rejected by the TPO. The CIT(A) upheld the adoption of additional turnover filter on the incorrect premise that in the Transfer Pricing Study Report the Appellant did not apply any filters while selecting the comparables. Accordingly, we find merit in the contentions advanced on behalf of the Appellant and direct the TPO/Assessing Officer to re-compute the ALP and transfer pricing adjustment, if any, after including (a)
APITCO Limited and (b) IDMA Laboratories Limited in the final set of comparables. In terms of the aforesaid, Ground No. 3 to 3.3 raised by the Appellant are allowed, while Ground No. 3.4
& 3.5 raised by the Appellant are dismissed as being infructuous.‖

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5. Significant R&D
6. Intangibles
2
Tech Mahindra Business
Services Limited
1. Brand Value
2. Intangibles
3. Dissimilar functions
4. Outsourcing cost
3
Nihilent Limited
1. Intangibles
2. Dissimilar and diversified activities
3. Lack of segmental
4. Significant R&D
4
Infosys BPM Limited
1. Brand profile
2. Functionally dissimilar
3. Intangibles
5
Cybage Software Private
Limited
1. Significant economic event
2. Significant R&D
3.Marketing expenses/AMP expenses
4. Intangibles
5. Functionally dissimilar
6. Lack of segments
7. Abnormal profits

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used, then it was observed by the Bench from the order of the lower authorities that no fresh search has been carried out by the TPO to benchmark the international transactions after modification of the filters applied by the assessee. The TPO has merely relied upon the comparables chosen for benchmarking for AY 2017-18 and AY 2018-19. The DRP has also confirmed this action of the TPO by relying upon the directions of the DRP for AY 2018-19. It is then ld. AR made his submission on this point.
21. We have heard the submissions of the ld. AR and that comparables chosen by the assessee in great detailed and it was observed that even the comparables chosen by the assessee will not completely match the FAR analysis of the comparables vis-à-vis the assessee therefore, it would be difficult to accept all the comparables chosen by the assessee.
When this was pointed out we raise the query to the AR firstly, why in the case of TPOs admitted reliance on comparables chosen in the earlier years without carrying out a fresh search and not using contemptuous data cannot be accepted and on the other hand there has been no benchmarking analysis done at any stage of the comparables selected by the assessee which remain untested. From the orders of the lower authorities it is evident that no independent current year search was undertaken by the TPO, instead the comparables for A.Y.2017-18 and 2018-19 were imported wholesome into A.Y.2020-21. The ld. DRP in turn contended itself relying upon its own earlier directions.
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22. To understand this point we have to look to the statutory frame work under Rule 10B(4) and Rule 10B(5) of the Income
Tax Rules, 1962 which for the sake of ready reference are reproduced hereinbelow:-

―10B(4)
The data to be used in analysing the comparability of an uncontrolled transactions with an international transaction or a specified domestic transaction shall be the data relating to the financial year (hereinafter in this rule and rule 10CA referred to as the ‗current year‘) in which the international transaction or the specified domestic transaction has been entered into:
Provided that data relating to a period not being more than two years prior to the current year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared:
Provided further that the first proviso shall not apply while analysing the compatibility of an uncontrolled transaction with an international transaction or a specified domestic transaction entered into on or after 1st day of April 2014. 10B(5)
In a case there the most appropriate Method for determination of the arm‘s length price of an international transaction or a specified domestic transaction entered into on or after 1st day of April 2014 is the method …………. then notwithstanding anything contained in sub rule (4) the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be –
(i) the data relating to the current year; or (ii) the data relating to the financial year immediately preceding the current year, if the data relating to the current year is not available at the time of furnishing the return of income by the assessee for the assessment year relevant to the current year.‖
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23. The first proviso of Rule 10B(4) (which provided that data relating to a period not being more than two years prior to current year may be considered.) was applicable until introduction of Rule 10B(5). Rule 10B(5) is applicable for the international transaction entered into on or after 1st day of April 2014.Hence, for the present case Rule 10B(5) would be applicable. Rule 10B(5) mandates that the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the current year. However, data relating to the financial year immediately preceding the current year shall also be used if the data relating to the current year is not available at the time of furnishing the return.
24. We have also noted the scheme of Rule 10CA(2) dealing with construction of the dataset and the use of multiple data in a manner aligned with Rule 10B(5). For the sake of ready reference, the same is reproduced hereunder:-

(2) A dataset shall be constructed by placing the prices referred to in sub-rule (1) in an ascending order and the arm's length price shall be determined on the basis of the dataset so constructed:
Provided that in a case referred to in clause (i) of sub-rule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of data relating to the current year and the enterprise undertaking the said uncontrolled transaction,
[not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in either or both of the two financial years immediately preceding the current year undertaken the same or similar comparable uncontrolled transaction then,-
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(i) the most appropriate method used to determine the price of the comparable uncontrolled transaction undertaken in the current year shall be applied in similar manner to the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions shall be determined; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the current year and in the aforesaid period preceding it shall be included in the dataset instead of the price referred to in sub-rule (1):

Provided further that in a case referred to in clause (ii) of sub- rule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of the data relating to the financial year immediately preceding the current year and the enterprise undertaking the said uncontrolled transaction,
[not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in the financial year immediately preceding the two financial years undertaken the same or similar comparable uncontrolled transaction then,—
(i) the price in respect of such uncontrolled transaction shall be determined by applying the most appropriate method in a similar manner as it was applied to determine the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule
(1):
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25
Provided also that where the use of data relating to the current year in terms of the proviso to sub-rule (5) of rule 10B establishes that,—
(i) the enterprise has not undertaken same or similar uncontrolled transaction during the current year ; or (ii) the uncontrolled transaction undertaken by an enterprise in the current year is not a comparable uncontrolled transaction, then, irrespective of the fact that such an enterprise had undertaken comparable uncontrolled transaction in the financial year immediately preceding the current year or the financial year immediately preceding such financial year, the price of comparable uncontrolled transaction or the weighted average of the prices of the uncontrolled transactions, as the case may be, undertaken by such enterprise shall not be included in the dataset.
25. Ergo, Rule 10CA(2) mandates a dataset to be constructed.
For constructing the dataset, we go back to Rule 10B(5) which prescribes that for analysing the comparability the data relating to current year shall be used in normal circumstances. Data relating to immediately preceding year shall be used in the circumstances prescribed in clause (ii).
 First Proviso to Rule 10CA(2) comes into operation once the comparables have been identified using current year’s data. The data of either one or two preceding year(s) can be used only if the comparable is performing same or similar functions in the preceding year(s).
 Second Proviso to Rule 10CA(2) comes into operation where the comparables have been identified using the data relating to financial year immediately preceding the current year as specified in Rule 10B(5)(ii). Here again
Shell India Markets Pvt. Ltd.

26
the data of either one or two preceding year(s) can be used only if the comparable is performing same or similar functions in the preceding year(s).
 Third Proviso to Rule 10CA(2) mandates that where the data relating to the current year establishes that comparable is not functionally comparable, then irrespective of the fact that the comparable is functionally comparable in the preceding year(s), the same shall not be included in the dataset.
26. On a co-joint reading of Rule 10B(5) and Rule 10CA(2) following points emerge:

Rule 10B(5) is for analysing the comparability.

Rule 10B(5) prescribes use of the current year’s data for analysing the comparability.

Data relating to immediately preceding year for analysing the comparability can be used only in those circumstances when the data is not available at the time of furnishing of return.

Rule10CA(2) requires construction of a dataset for computing the arm‘s length price.

Rule 10B(5) is for selection of comparables whereas Rule
10CA(2) is for computation of arm‘s length price using the comparables identified.

Common thread between First Proviso and Second Proviso is that the comparables have to be identified using either
Rule 10B(5)(i) or Rule 10B(5)(ii).
Shell India Markets Pvt. Ltd.

27

Third Proviso clearly mentions that for functional comparability current year’s data is most relevant. If any comparable is not functionally comparable in the current year then even if the comparable is functionally comparable for the prior two years, the same cannot be used as a comparable.
27. Reverting to the facts of present case, the TPO applied the set of comparables identified for AY 2017-18 and AY 2018-19
for benchmarking the international transactions relevant to AY 2020-21. No efforts were made by the TPO to identify the comparable basis a fresh search. Since the TPO was conducting the audit during January to July 2023 for AY 20-
21, Rule 10B(5)(i) read with First Proviso to Rule 10CA(2) will be applicable. Third Proviso to Rule 10CA(2) is equally applicable. Thus, the TPO was dutybound to identify the comparables on the basis of current year‘s data and then compute the arm‘s length price accordingly. However, the TPO has miserably failed in doing so. It is, therefore, palpable that the TPO has failed in his duties to benchmark the international transactions of the assessee by following the prescribed rules. The TPO has benchmarked international transactions by using the same set of comparables which was being used 3 years prior to this assessment year.
Benchmarking is an annual exercise and it has to be carried out for the year under consideration. In the interim period of 3 years, there could be various new companies which would satisfy the filters of the assessee and the TPO and they may come into the final set. By not using contemporaneous data,
TPO is not only violating the rules as already discussed above
Shell India Markets Pvt. Ltd.

28
but also jeopardizing the entire benchmarking process and consequently the determination of the arm‘s length. We cannot shut our eyes to this kind of approach of the TPO and DRP even though the assessee has chosen not to press this ground for the reasons best known to the assessee.

• Starting from the qualitative analysis dump of companies engaged in ITES/software support functions, the assessee first identified those entities that were broadly similar to the SBO IT functions.
• From this pool, companies were weeded out by applying objective filters such as:
(a) foreign exchange earnings of at least 25%;
Shell India Markets Pvt. Ltd.

29
(b) RPT threshold; and (c) other standard quantitative criteria.
• The assessee then shortlisted a set of 17 companies for which segmental or overall margins were computed for three years (FYs 2017–18, 2018–19 and 2019–20), and from these, a further refined set of 8 companies was derived after applying additional filters relating to foreign exchange turnover and RPT.

The entire exercise is tabulated in the assessee‘s letter dated
17th June 2025 in the form of detailed tables and step-wise working:-

“TP
Adjustment pertaining to Ground no.
2
for International Transaction of Provision of Services by SBO IT (TP Adjustment of INR 1,099,408,144)
The captioned appeal came up for hearing before the Hon‘ble
‗H‘ Bench of the Tribunal on 4th June 2025 and the Hon‘ble
ITAT members asked the Counsel/Appellant to submit list of comparable company‘s which are broadly similar to the functions of SBO IT (only for the IT Set). Considering Hon‘ble member‘s request, the appellant hereby submits the comparable analysis as under:

Summary of the comparable (IT Set)
Count of comparable
Comparable count as per transfer pricing study report (‘TP
Report’)
14
Analysis for identifying additional comparable which are broadly similar to SBOIT functions (IT set), as requested by Hon’ble ITAT member as under:
Add: Addl. comparable considered, similar to SBOIT functions from the existing Qualitative Analysis dump
22
Total count at this stage
36
Application of below Assessee’s filter as directed by the Hon’ble ITAT member to follow the contemporaneous process
Shell India Markets Pvt. Ltd.

30
Summary of the comparable (IT Set)
Count of comparable of search as per the TP Study report (filter as mentioned in the TP Study Report)
Less: Companies rejected under Forex<25% filter (from Additional count of 22)
-8
Less: Companies rejected under Related Party Transaction
(‘RPT’) filter (from Additional count of 22)
-7
Less: Companies rejected under Employee cost to turnover
<25% filter (from Additional count of 22)
-2
Less: Companies rejected under Consistent loss making filter
(from Additional count of 22)
-2
Count of comparable finally considered by appellant from the Qualitative Analysis for IT set under SBO IT 17

Sr.
No.
Dat a flag
Company Name
Segment
Name
OP/TC
2018
(%)
OP/TC
2019
(%)
OP/TC
2020
(%)
Weighte d
Average
1
C
Rheal Software Ltd*

-13.86%
3.11%
-3.54%
-4.37%
2
C
DCIS Dot Com
Solutions India Pvt
Ltd. *

-0.19%
5.49%
4.97%
3.66%
8
P
Happiest Minds
Technologies Pvt Ltd

-3.79%
8.53%
13.66%
6.95%
9
P
Infomile Technologies
Ltd. *

31
Sr.
No.
Dat a flag
Company Name
Segment
Name
OP/TC
2018
(%)
OP/TC
2019
(%)
OP/TC
2020
(%)
Weighte d
Average
*
14
P
Great Software
Laboratory Pvt. Ltd.

NA - Not Available

Counts

Mean

Median

35th Percentile

65th Percentile

*TP Report comparable

The detailed PLI working along with the summary for the above
17 comparable is attached as Annexure 1. Based on three years‘ data, i.e. financial years 2017-18, 2018-
19 and 2019-20, the 35th and 65th percentile of the weighted average NCP earned by these broadly comparable independent companies performing functions similar to SBO IT ranges from 3.66 per cent to 15.12 per cent with median of 8.25 per cent.

The markup of 12% offered by SIMPL for the said SBO IT segment is within the arm‘s length range of weighted average
NCP of the broadly independent comparable companies.

Based on the above, the said international transaction can be concluded to be adhering to arm‘s length principle, as required under the Indian TP Regulations.

Further, basis similar analysis requested by the Hon‘ble ITAT member earlier, the comparable companies considered under Shell India Markets Pvt. Ltd.

32
the ITES services is already submitted before the Hon‘ble ITAT on 29th May 2025 and summary of those comparable companies is mentioned below:

Sr.
No Data
Flag
Company
Name
Segment
Name
NCP
2018
(%)
NCP
2019
(%)
NCP
2020
(%)
Weighted
Average
(%)
1
P
Global
Healthcare
Billing Pvt Ltd*
1.33%
1.42%
1.21%
1.31%
2
P
Remunance
Systems Pvt.
Ltd.

Counts
8

Mean
11.36%

Median
12.33%

35th Percentile
7.55%

65th Percentile
15.83%

The markup of 12% offered by SIMPL for the said SBO IT segment is within the arm‘s length range of weighted average
NCP of the broadly independent comparable companies.

Based on the above, the said international transaction can be concluded to be adhering to arm‘s length principle, as required under the Indian TP Regulations.

34
32. In our considered view, the interests of substantial justice, and the statutory mandate of a fair, contemporaneous comparability analysis, would best be served if the entire issue of transfer pricing adjustment in respect of provision of SBO IT services (Bengaluru) is restored to the file of the TPO/Assessing Officer for a de novo determination. While doing so, we deem it appropriate to issue the following broad directions:

(i) The TPO shall disregard the mechanical importation of comparables from AYs 2017–18 and 2018–19 and instead undertake a fresh, current-year search for AY 2020–21, in terms of Rule 10B(5) read with Rule 10CA, using data relating to the current financial year (and, where legitimately permissible, the immediately preceding year) and applying objective filters.
(ii) In the course of this exercise, the TPO shall consider, in detail, the fresh comparable set and supporting analysis placed by the assessee in its letter dated 17 June 2025, together with all annexures, including:

•
the qualitative analysis dump;

•
the step-wise derivation of the final comparable set; and •
the computation of multi-year and weighted margins.
(iii) The TPO shall examine the functional profile, asset base and risk attributes of each proposed comparable vis-à-vis the assessee, and record clear findings on inclusion or exclusion.
Shell India Markets Pvt. Ltd.

35
(iv) The TPO shall eschew arbitrary or unexplained filters—
such as a 1/10 to 10 times turnover band—unless he is able to substantiate, by cogent reasoning, how any such filter aligns with the FAR profile of the assessee and the statutory rules.
(v) It shall be open to the assessee to urge all contentions in law and on facts, including on the need, if any, for working capital or risk adjustments, and the TPO shall examine such contentions uninfluenced by the earlier rejection.
33. We make it clear that we are not, at this stage, pronouncing upon the correctness or otherwise of each individual comparable suggested by the assessee, nor upon the acceptance of the 12% mark-up as arm‘s length per se.
Those are matters to be determined afresh by the TPO/Assessing
Officer in accordance with law, after considering all material on record and after granting due and effective opportunity of hearing to the assessee.
34. In the result, the transfer pricing adjustment in respect of the provision of SBO IT services (Bengaluru) is set aside and the matter is restored to the file of the TPO/Assessing
Officer for fresh adjudication in terms of the above directions.
The corresponding grounds of appeal are treated as allowed for statistical purposes.

Ground No. 3 – Provision of SBO Services (Chennai)
35. We now turn to Ground No. 3 concerning the provision of SBO services by the Chennai unit. During the year, the assessee provided support services in the nature of ITES
Shell India Markets Pvt. Ltd.

36
(back-office shared services) amounting to INR
1203,84,20,125 to its associated enterprises. These services, too, were rendered on a cost-to-cost basis to various Shell group operating entities. For transfer pricing purposes, the assessee suo motu offered a mark-up of 8% on the relevant cost base, resulting in an enhanced income of INR
96,30,73,610 in its return. In its transfer pricing study, the assessee again adopted TNMM with OP/OC as PLI and itself as the tested party. For this segment, the assessee identified
9 comparables with an arm‘s length margin range of 5.15% to 9.28%, and concluded that its 8% mark-up fell within the arm‘s length range and ought to be accepted.

S No. Name of the Comparable
Weighted
Average %
Shell India Markets Pvt. Ltd.

37
1
Infosys BPM
16.44
2
Tech Mahindra Business services
16.60

Mean
16.52

38
meet the arm‘s length requirements of Indian transfer pricing regulations, the assessee has suo-moto offered a markup of 8% on cost which worked out to INR 96.30 Crores. He further pointed out that the TNMM with OP/OC and assessee as the tested party has been used to benchmark the suo-moto markup. He referred to page numbers 482-496 of the paper book to point out that the assessee has used 9 comparables for benchmarking. He further pointed out that the range of the comparables selected was 5.15% to 9.28% while the assessee has offered a suo-moto markup of 8% which falls within the range and therefore the markup offered by the assessee is at arm‘s length.
39. Ld. AR vehemently argued that the TPO has not provided any cogent reasons for rejecting the benchmarking analysis conducted by the assessee. The arguments of the Ld. AR in relation to the application of 1/10-10 times turnover filter have already been captured in the earlier part of this order.
Ld. AR then referred to the chart already furnished by him to argue on two comparables selected by the TPO. Detailed arguments were made by the Ld. AR for rejection of (i) Infosys
BPM and (ii) Tech Mahindra Business Services pointing out the functional differences with reference to the extract of annual reports reproduced in the chart furnished. Ld. AR pointed out that similar to SBO-IT Bengaluru the TPO has not carried out a fresh search and has used the comparable set which was used in AY 2017-18 and 2018-19. In so far as various comparables which assessee had chosen in its TP study report we had discussed this issue in length during the Shell India Markets Pvt. Ltd.

39
hearing and it was found that even some of those comparables chosen by the assessee may not be comparable on FAR analysis and also the comparables chosen by the assessee have not been tested or analysed by the ld. TPO or ld. DRP. Therefore, in the interest of justice after providing opportunity of hearing to both the parties we direct the ld. AR to furnish fresh comparable companies after detailed search and file the list of such comparables which are particularly similar to the functional profile of the assessee.
As in the case of the SBO IT segment, the Bench suggested that the assessee should place on record a fresh, objective, current- year comparability analysis for SBO Chennai. In response, the assessee filed, during the course of hearing, a letter specifically addressing the SBO Chennai segment, together with detailed annexures.
In this letter, the assessee has:
•
started from the original 9 comparables in its transfer pricing study (including I Services India Pvt. Ltd.);
•
reduced the set for certain companies where foreign exchange earnings were below 25%;
•
mined the existing qualitative analysis dump for additional companies broadly similar to SBO Chennai functions; and •
thereafter applied RPT and foreign exchange filters to arrive at a refined set of 8 comparables.

40
dated 29th May June 2025, which is given below and reproduced for your ready reference:

―The Appellant had filed the captioned appeal before the Hon‘ble Tribunal on 20 September 2024 against the final assessment order dated 31st July 2024 passed by the Assessment unit under Section 143 (3) r.w.s. 144C (13) and 144B of the Income Tax Act, 1961 (‗the Act‘).

TP
Adjustment pertaining to Ground no.
3
for International Transaction of Provision of Services by SBO Chennai (TP Adjustment of INR 102,56,73,395)
The captioned appeal came up for hearing before the Hon‘ble
‗H‘ Bench of the Tribunal on 6th May 2025. Where our counsel argued on ground no. 3 pertaining to the provision of services by SBO Chennai.
The Hon‘ble ITAT members asked the Counsel/Appellant to submit list of comparable company‘s which are broadly similar to the functions of SBO Chennai segment. Considering Hon‘ble member‘s request, the appellant hereby submits the comparable analysis as under:
1. Summary of the comparable companies identified from the Qualitative Analysis:

Summary of the comparable
Count of comparable
Comparable count as per transfer pricing study report (‘TP
Report’) (including ‘I services India Pvt. Ltd.’)
9
Transfer Pricing Officer rejected only 1 comparable i.e. 'I
Services India Pvt. Ltd.'
-1
Comparable as per the TP Report (excluding ‘I Services India
Pvt. Ltd.’)
8
Analysis for identifying additional comparable which are broadly similar to SBOC functions, as requested by Hon’ble ITAT member as under:
Less: Comparable from TP report rejected, as Forex<25% (AR available as on today)
-2
Comparable as per TP report
6
Add: Addl. comparable considered, similar to SBO Chennai functions from the existing Qualitative Analysis dump
12
Add: ‘Accenture Solutions Pvt. Ltd.’ (considered in the final list of comparable basis suggestion from the Hon’ble ITAT member)
1
Total count at this stage
19
Less: Rejected under Forex<25% filter
-3
Less: Rejected under Related Party Transaction (‘RPT’) filter
-8
Count of comparable finally considered by appellant from the Qualitative Analysis
8
Shell India Markets Pvt. Ltd.

Sr.
No Data
Flag
Company
Name
Segment
Name
NCP
2018
(%)
NCP
2019
(%)
NCP
2020
(%)
Weighted
Average
(%)
1
P
Global
Healthcare
Billing Pvt Ltd*
1.33%
1.42%
1.21%
1.31%
2
P
Remunance
Systems Pvt.
Ltd.

Counts
8

Mean
11.36%

Median
12.33%

35th Percentile
7.55%

65th Percentile
15.83%

*TP Report comparable

The detailed PLI working along with the summary for the above 8 comparable is attached as Annexure 1. Based on three years‘ data, i.e. financial years 2017-18,
2018-19 and 2019-20, the 35th and 65th percentile of the weighted average
NCP earned by these broadly comparable independent companies performing functions similar to SBO Chennai ranges from 7.55 per cent to 15.83 per cent with median of 12.33 per cent.
Shell India Markets Pvt. Ltd.

The markup of 8% suo-moto offered by SIMPL for the said
SBO Chennai segment is within the arm‘s length range of weighted average NCP of the broadly independent comparable companies.

Based on the above, the said international transaction can be concluded to be adhering to arm‘s length principle, as required under the Indian TP Regulations.

43
•
Its own 8% suo motu mark-up falls within the 35th–
65th percentile arm‘s length corridor; and •
It is comfortably above the lower bound (7.55%), and is thus consistent with the arm‘s length principle.

Sr.
No Data
Flag
Company
Name
Segment
Name
NCP
2018
(%)
NCP
2019
(%)
NCP
2020
(%)
Weighted
Average
(%)
1
P
Global
Healthcare
Billing Pvt Ltd*
1.33%
1.42%
1.21%
1.31%
2
P
Remunance
Systems Pvt.
Ltd.

Counts
8

Mean
11.36%

Median
12.33%

35th Percentile
7.55%

65th Percentile
15.83%

44
restored to the TPO for a de novo comparability analysis considering the fresh data.
43. The legal position on the need for current-year comparability, and the constraints on wholesale reliance upon earlier-year comparables without proper justification, has already been discussed by us in the context of Ground
No. 2. The same reasoning applies mutatis mutandis to this segment as well. Here too, the TPO has not undertaken an independent contemporaneous search; the DRP has simply endorsed earlier-year directions; and the comparables adopted Infosys BPM and Tech Mahindra Business Services are prima facie large, brand-intensive entities that may not be readily comparable to a captive, low-risk shared services centre, unless a detailed functional and economic analysis so establishes.
44. We further note that the fresh analysis now placed on record for SBO Chennai is, in substance and structure, similar to that furnished for SBO IT. It is based on published data, adopts coherent filters, and seeks to identify a set of broadly comparable entities engaged in low-end ITES/back- office functions. This material, however, has not undergone the crucible of examination by the TPO.
45. In these circumstances, and in order to ensure that the arm‘s length character of the SBO Chennai segment is determined on a principled and complete record, we are persuaded to adopt the same course as in Ground No. 2. Accordingly, we set aside the impugned adjustment in Shell India Markets Pvt. Ltd.

45
relation to the provision of SBO services (Chennai) and restore the matter to the file of the TPO/Assessing Officer with the following directions:

(i) The TPO shall carry out a fresh, current-year comparability analysis for AY 2020–21 in respect of the SBO Chennai segment, in accordance with Rule 10B(5) and Rule 10CA, using appropriate current-year data and, where permissible, immediately preceding year data.

(ii) In doing so, the TPO shall examine the fresh comparable set and detailed workings placed by the assessee during the hearing, including the process by which the final set of 8
comparables is derived, and the computation of multi-year margins and percentiles.

(iii) The TPO shall undertake a detailed FAR analysis vis-à-vis each proposed comparable, recording a reasoned conclusion on inclusion or exclusion, and shall not mechanically adopt either the earlier-year comparables or the present 2-company set unless independently justified.

(iv) The assessee shall be at liberty to urge all contentions in law and on facts; and the TPO shall grant due and effective opportunity of hearing and shall deal with the submissions by a speaking order.

Ground No. 4 – Provision of Technical Services (P&T
Division – E&P Segment)
48. Ground No. 4 relates to the transfer pricing adjustment in respect of technical services rendered under the Project &
Technology
(P&T) division, specifically the upstream
Exploration & Production (E&P) segment.
 P&T Upstream - Explorations &Production (E&P) services INR 294.35 Crores. The E&P services have been provided by the assessee on cost-to-cost basis and no mark has either been charged or suo-moto offered in return of income. This is a subject matter of dispute before this Tribunal.
 P&T Downstream - Other services (other than E&P services) INR 1138.62 Crores. In the case of other services, the assessee has offered a suo-moto markup of 16% on the cost incurred. In order to benchmark the suo-moto markup of 16%, the assessee has used TNMM as the most appropriate method with OP/OC as the PLI and the assessee as the tested party. The assessee undertook benchmarking exercises and selected 9
comparables with arm‘s length range of 5:15% to 9.28%
and thus it concluded that the suo-moto markup of 16%
is at arm‘s length.The suo-moto margin of 16% offered
Shell India Markets Pvt. Ltd.

47
by the assessee on other services was not disputed by the TPO.
49. The TPO issued a show cause notice and asked the assessee to explain as to why the transaction not be treated not at arm‘s length. The TPO proposed to apply the set of comparables used for the purpose of benchmarking of ITES for AY 2017-18 and AY 2018-19. Detailed reply filed by the assessee has been summarised by the TPO at page number
91-94 of his order. Rejecting all the arguments of the assessee the TPO held that same set as finalized for ITES will be applied to this business segment also. The TPO, thereafter selected following two comparables for the purpose of benchmarking: -
S No. Name of the Comparable
Weighted
Average %
1
Infosys BPM
16.44
2
Tech Mahindra Business services
16.60

Mean
16.52

48
margin of 16% has been accepted and no adjustment has been made for the downstream P&T services.

49
line with the revenue‘s stand till departmental appeal against the decision reaches finality.
54. Aggrieved by the findings of the TPO and the DRP the assessee is before this Tribunal.
55. Before us, the Ld. AR drew our attention to the extensive submissions made before the lower authorities. He explained the peculiar economics and regulatory environment of upstream oil and gas operations under PSCs; the role of different consortium members; the cost-sharing and risk- sharing arrangements; and the rationale for the at-cost model for technical services among consortium partners. He also invited our attention to the independent expert opinion obtained from a reputed international tax expert (as reproduced in the draft order in italics), which, after analysing Indian transfer pricing regulations, OECD guidance and industry practice, concluded that the at-cost model adopted by the assessee for E&P services satisfies the arm‘s length principle.
56. Ld. AR referred to Page numbers 3497-3508 which is an opinion issued by some Mr. Hubert Hamaekers having his office address as IBFD, Amsterdam, The Netherlands. The opinion at page number 3507 has concluded as under: -
The charging of cost only in the case in hand is not conflicting with the arm‘s length principle as represented by the OECD
Transfer Pricing Guidelines and the legislation of major countries including India:
(1) Charges are made on an identical basis to related and non related members of consortium (similar to exact CUP),
Shell India Markets Pvt. Ltd.

50
(2) A functional analysis reveals that the entrepreneurial risk is totally absent for the service companies concerned, all costs are charged to the users, a profit and loss in a specific year does not constitute a result of the service company itself but only results in a retroactive recalculation of the cost sharing scheme,
(3) Contracts with government on oil and gas exploration and production stipulates the charging of cost without any markup,
(4) The inclusion of a profit element in (indirect) service charges is not a hard and fast rule under the OECD
Guidelines. A business strategy such as risk aversion –
as in the case in hand- justifies the charging of cost only.
(5) In particular much flexibility is left to CCAs, where a case by case approach is recommended. In several countries where MNEs are active, both as a service provided and service consumer, a profit element in CCAs is not mandatory or not allowed at all.
57. Ld. AR further submitted that the P&T upstream (E&P) services are rendered ‗at-cost‘ to all eligible companies within the Shell Group which is in line with the global industry practices. The assessee further produced the extracts of the annual reports and financial statements of its AEs to substantiate the fact that these AEs further supply the services to participants in PSCs at cost.The assessee also submitted that as per the policy followed by governments around the world, any consortium partner or its affiliates are not permitted to earn a profit from rendering services to the consortium. The costs charged by the service providers are the actual costs of providing such services only. The Assessee emphasized that the provision of technical services under the P&T- Upstream arrangement follows Shell Group‘s global policy of rendering such services strictly on an ―at cost‖ basis.
This approach, the Assessee argued, is consistent with Shell India Markets Pvt. Ltd.

51
established global industry practice in the upstream oil and gas sector, where consortium-based operations are common due to the high-risk and capital-intensive nature of exploration activities. These consortiums typically operate under Production Sharing Contracts (PSCs), which often include sovereign or contractual restrictions prohibiting profit margins on intra-consortium services.

52
―The Appellant had filed the captioned appeal before the Hon‘ble Tribunal on 20 September 2024 against the final assessment order dated 31st July 2024 passed by the Assessment unit under Section 143 (3) r.w.s. 144C (13) and 144B of the Income Tax Act, 1961 (‗the Act‘).
The said appeal came up for hearing before the Hon‘ble ‗H‘
Bench of the tribunal on 21st July 2025 which got adjourned to 21st August 2025. On 18th June 2025, the Ld. DR shared, letter dated 18th June 2025 with respect to ground no. 4, pertaining to the international transaction of Provision of Technical
Services. The said letter dated 18th June 2025 furnished by the DR has been enclosed as Annexure 1. Reply of the Appellant in respect of the said letter furnished by the DR is mentioned below.
I.
Nature of Services

The services in question were provided by the P&T
(Projects & Technology) unit of the Shell India Markets
Pvt. Ltd. (SIMPL) to its AEs engaged in the upstream oil &
gas business. These services are in relations to Production sharing Contract (‗PSC‘) entered with the relevant Governments by consortium for exploration and production of oil and gas.

II.
India‟s position on upstream services rendered by affiliates under PSC.
a) Model India – PSC - As prescribed by the Government of India
It is pertinent to note that the Indian transfer pricing regulations under Rule 10B(2) of Income tax Rules, 1962
(‗Rules‘), require that arm‘s length pricing to be determined taking into account the government instruction/policy/order/
restriction and legal obligations. Extract of Rule 10B(2)(d) is mentioned below for your easy reference:
‗(d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.‘
Shell India Markets Pvt. Ltd.

53
In this context, Your Honor‘s will appreciate that Government of India, itself has published/displayed a Model PSC, which every organization has to follow in case they are entering into exploration and production contract. These PSC‘s mandates that any services rendered by consortium members or their affiliates are to be charged at cost only. This Model India
PSC is available on the Indian Government Website (attached as Annexure 2). As will be noted that the draft Model PSC of India available on the Govt. of India website under the New Exploration Licensing Policy (NELP) (see section 3.1.4 Charges for services of Appendix C of the Model
PSC) strictly mandate the “at cost” principle as the norm for charging by affiliates.
(Refer
Website link:
56cee2dfb848d4_MPSC_NELP-IV.pdf).
Website screenshot below for easy reference:

Relevant paragraph of the said Draft Model PSC of India clearly states that only cost is to be charged by the affiliates of the Contractor. And the same is highlighted below for easy reference.
Shell India Markets Pvt. Ltd.

(Refer page no. 115 of Annexure 2)

 From a bare reading of the above clauses, it is clear that the Govt. of India strictly mandates the globally and industry wide practice of „at cost‟ principle for PSC.
 The Government of India signs PSCs which are based on the aforesaid model PSC; and thereby it is a government order/restriction of ‗At cost‘ pricing for all consortium members
(including the affiliates).
 Further, the Production Sharing Contracts are drafted and issued by the Ministry of Petroleum & Natural Gas in India and once it is signed and activated, it has the sovereign sanctity. This clearly implies that such PSCs signed by Govt. of India is legally enforceable and has a standing in eyes of law. The Comptroller and Auditor General
(CAG) of India also audits the PSCs applied and enforced from time to time. Hence, the terms of PSC cannot be disputed under the Income Tax Act (which is also enacted by Parliament only).
Hence, the generalized statements/contentions of the DR in his letter does not hold good both in practice and law.
Shell India Markets Pvt. Ltd.

55
 In accordance with Rule 10B(2)(d) of the Income Tax Rules, the order/mandate of Government of India in the PSC regarding ―at cost‖ has to be followed and adopted for the purpose of arm‘s length price determination.

b) Signed PSCs by Government of India strictly mandate “at cost” –– Few signed PSCs enclosed.
As per the ITAT hearing dated 4th June 2025, the Appellant submits the signed PSCs executed in India, by Shell Group, for similar services (i.e., when Indian entities are availing services from overseas AEs), are also required to follow „At cost‟
principle. Accordingly, this ‗at cost‘ principle is uniformly followed & adopted for both services availed and rendered.
 The Signed PSC attached as Annexure 3A:Parties to Contract are Government of India, ONGC, and BG
Exploration & Production India Ltd.
 The Signed PSC attached as Annexure 3B:Parties to Contract are Government of India, ONGC, Enron Oil & Gas
India Ltd. (which was later acquired over by BG Exploration &
Production India Ltd.), and Reliance Industries Ltd.
In this context, it is relevant to mention that both the above- mentioned PSC‘sreiterates the fact that no element of profit shall be charged by contractors' affiliates while rendering services.
Relevant paragraph (from Annexure 3A) stating the fact that only cost is to be charged by the affiliates of the Contractor is highlighted below for easy reference.
Shell India Markets Pvt. Ltd.

(Refer page no. 111 of Annexure 3A)

Relevant paragraph (from Annexure 3B) stating the fact that only cost is to be charged by the affiliates of the Contractor is highlighted below for easy reference.

(Refer page no. 113 of Annexure 3B)

Conclusion: In light of the above, PSC‟s signed by the Government of India, (being sovereign restriction) bind the Shell Group of entities to render services only „At cost‟ principle. This „At cost‟ principle being mandated by the Government, would need to be respected and consequently the transaction ought to be considered at ALP. Further, the principle of „at cost‟ is uniformly
Shell India Markets Pvt. Ltd.

57
followed whether the Indian entity is rendering the service or availing the service.

III.
Technical position under Indian Transfer Pricing
Regulations a) Rule 10B(2)(d) of the Income Tax Rules

Considering the above PSC‘s and the nature of services, the law makers themselves have provided for such exigency under Rule 10B(2)(d) of the Income Tax Rules.
The said rule supports the contention of the Appellant that parties should operate, considering the conditions prevailing in the markets/laws and Government orders in force.

As per Rule 10B(2)(d) of the Rules, conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail must be given due regard to while determining whether a particular transaction is at ALP.

The appellant would like to place on record the fact that the Hon‘ble Mumbai ITAT in case of Reliance Industries
Ltd. (ITA 579/ Mum./ 2021) has given complete relief to the assessee for exactly the same transaction, where
Reliance Industries Ltd. has provided similar services to its AE at cost. The summary of Reliance decision is mentioned in the below section.

b) Reliance Industries Ltd. (ITA 579/ Mum./ 2021)

The Appellant would like to highlight that in case of Reliance
Industries Ltd. (ITA 579/ Mum./ 2021), it was held that where there is a legal condition precedent in entering transaction in respective Production Sharing Contract market that the AE's affiliates are not allowed to have any mark up on a supply of services to AE, the ALP is required to be determined having regard to this condition. The relevant extract from Reliance judgment is extracted below:
Extract of ITAT ruling (Para 71)
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58
―…Having heard both the parties and perused the material available on record, we find that this is a recurring issue and has been decided in favour of the assessee in preceding assessment years. We further find that in assessment years 2014-15 and 2015-
16, coordinate bench of the Tribunal vide order dated
08/03/2022, observed as under…‖
Extract of ITAT ruling [Para 71 (Para 73 of coordinate bench ruling)]
―…Undoubtedly, one of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it's a legal condition precedent in entering the transaction in the respective PSC market is that the AE's affiliates are not allowed to have any mark up on a supply of services to the AE, the determination of ALP is required to be having regard to this condition. Viewed thus, the cost-to-cost rendition of services can indeed be viewed as an arm's length transaction. In view of these discussions, and being consistent with the co-ordinate bench decisions, we uphold the action of the CIT(A) and decline to interfere in the matter…‖

Further, the Appellant has summarized below the similarity between the ITAT ruling in case of Reliance Industries Ltd. vis a vis the Appellant‘s fact of the case.

Subject
In case of Reliance Industries
Limited (RIL) (as extracted from the Mumbai
ITAT order)
Appellant’s (SIMPL) fact of the case
PSC
The RIL’s AE had entered into production sharing agreement with the Government of Kurdistan for exploration and development of petroleum
Pursuant to said PSC, any professional or administrative services provided by AE’s affiliate (i.e. RIL) shall be on cost-to-cost basis.
The appellant’s AE had entered into production sharing agreement with the various foreign
Government
(i.e.
Nigeria, Arab republic of Egypt, etc.) for exploration and development of petroleum
Pursuant to said PSC, any services provided by AE’s affiliate (i.e. SIMPL) shall be on cost-to-cost basis
Pursuant to PSCs (in our case Nigeria
PSC), charges for providing technical
P&T (E&P) related services shall reflect the actual cost only and must be consistent with international market prices and shall not include any element of profit.
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59
Subject
In case of Reliance Industries
Limited (RIL) (as extracted from the Mumbai
ITAT order)
Appellant’s (SIMPL) fact of the case
Scope of work
Professional or administrative services pertaining to drilling operations for exploration and development of petroleum
Professional, administrative, scientific and technical services for the direct benefit of Petroleum Operations which includes drilling operations for exploration and development of petroleum
Application of Rule
10B(2)(d) basis the PSC
-
RIL provided support services to its AE for drilling operations carried out by the AE.
-
RIL charged its AE on cost to cost basis considering the restrictions mentioned in the PSC signed by overseas AEs
-
RIL submitted that since the transaction would get covered by Rule 10B(2)(d) and theamount charged by the RIL was at arm’s length.
-
SIMPL has provided support services to its AEs for drilling and exploration operations carried out by the AE.
-
SIMPL charged its AE on cost to cost basis considering the restrictions mentioned in the PSC signed by overseas AEs.

-
SIMPL submits that the transaction is governed by the PSC (Model
India PSC and overseas PSC) and hence would get covered by Rule
10B(2)(d) and the amount charged by the Appellant is at arm’s length.
Accordingly, under both the cases i.e., SIMPL and RIL, the taxpayer is bound by provisions mentioned in PSC i.e. to render services at cost.

c)
Enron Global Exploration and Production Ltd (Delhi
ITAT No 861 of 2005)
Further, the Appellant would like to highlight the fact that Indian companies under PSC arrangement also receive services from their foreign counterparts on a cost-to-cost basis.
Reference in this regard can also be made to the case of ACIT vs Enron Global Exploration and Production Ltd (IT Appeal no.861 (Delhi) of 2005) wherein foreign affiliate had rendered services to its Indian counterpart on cost-to-cost basis without any mark-up.
The relevant extract from ITAT decision in case of Enron Global
Exploration and Production Ltd. is extracted below.
Shell India Markets Pvt. Ltd.

Considering the above ITAT ruling, which support the cost-to-cost rendering of services under PSC we submit that similar cost to cost rendition of services by the Appellant should be considered at arm‟s length and the addition made be deleted.

d) High Court/Supreme Court respecting „No profit clause of the PSC‟ and „Provisions of PSC should prevail‟.
The Appellant would like to bring to your Honor‘s notice that in a separate and independent case of Enron Oil & Gas
International Inc. the Uttarakhand High Court vide its judgement dated 11 September 2009, has upheld that the clauses of PSC has to be respected by the parties to the Contract and the affiliates of parties to contract. The relevant paragraphs from the High Court‘s judgment is extracted below: (The said HC judgement is attached as Annexure 4)

‗23. As has been discussed above, in terms of the Article
3.1.4.b of appendix C of the PSC the assessee cannot charge a profit from the joint venture as it is an affiliate of EOGIL. The PSC has been passed by both the Houses of Parliament as required under Section 42(1) of the Act. The assessees have clearly substantiated the fact that there is no element of profit.
22. In view of discussion made above, the questions raised in these appeals are answered in favour of the assessee and against the Revenue. The finding recorded by the CIT (Appeals)
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61
as well as by the Tribunal, that there is no element of profit, ………. The appeals filed by revenue have no force and the same is liable to be dismissed. The appeals filed by the assessees are liable to be allowed‘

Further, the said High Court judgment also gives reference to the Supreme Court‟s decision as under:

‗12. The aforesaid view taken by the Division Bench of this Court has been affirmed by the Hon‘ble Supreme Court in the case reported as CIT versus Enron Oil and Gas India
Limited : [2008] 305 ITR 75 (SC).‟

In conjunction with the above HC order, the Appellant also relies on the Judgement of Supreme Court in the case of Commissioner of Income Tax, Dehradun &Anr. v/s. Enron
Oil & Gas India Ltd., Appeal 5433 of 2008, dated 2
September 2008. Wherein the Supreme court has mentioned that provisions of PSC would prevail.
‗16. Section 42 of the 1961 Act was enacted to ensure that where the structure of the PSC was at variance with the accounting principles generally used for ascertaining taxable income, the provisions of the PSC would prevail.‘
Basis the above judgement, it is crystal clear that the provisions of the PSC would prevail. Accordingly, all parties to the PSC including Government will have to abide by and accede to the clauses of the PSC which includes, no markup to be charged by affiliates of parties to the Contract. Hence, rendering of services to AE by the Appellant on cost-to-cost basis on the strength of the PSC, should be considered at Arm‟s Length.

IV. Global position on upstream services rendered by affiliates under Production Sharing Contracts (PSC) a) Global PSC‟s

The Production Sharing Contracts (PSCs) are binding agreements signed by the Government with Oil & Gas operators and their affiliates for the drilling and exploration
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62
activities. These contracts mandate that any services rendered by consortium members or their affiliates are to be charged at cost only, with no profit margin permitted.

In relation to the same, the appellant had submitted before the TPO, the Global PSC signed by Shell group company (situated in Nigeria), where it is mentioned that the services shall reflect the actual cost only and must be consistent with international markets. The extract of Nigeria PSC is attached as Annexure 5 and screenshot for the relevant paragraph from the PSC is captured below:

The Global PSC requires that the contractor and it‘s affiliates (in this case, SIMPL) should charge for services
‗at cost‘. This is in line with the global industry practice and in terms of agreement under the PSCs with any Government.

V.
Global Policy uniformly and consistently followed across Shell Group
In line with the Global PSC as well as the India Model/signed
PSC‘s, Shell India Market Pvt. Ltd. Is required to adopt a uniform ‗at-cost‘ pricing policy for upstream services. In accordance with these principles, the Shell group affiliates render‘s support/ technical services without charging any markup.
This principle based on standard industry contracts gets implemented through PSCs and Joint Operator Agreement
(JOAs), which prohibit the operator and its affiliates from earning a profit (or incurring a loss) while executing the contracts.
These clauses mandate cost recovery only, without margin.
This is reflected in the Shell Global TP documentation, particularly Annexure 6 (Refer page number 24). In the O&G industry, it has been a common and long-standing
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63
practice that services to projects, especially in Upstream, are provided at fees that ensure recovery of only costs, without the inclusion of a profit margin for the service provider. This so- called ‗at-cost principle‘ is directly linked to a common characteristic of the O&G industry, namely that the operator is not allowed to benefit or lose from its position and therefore the services have to be rendered on cost-to-cost basis.
Relevant paragraph of said Shell Global policy (Annexure
6) , stating the said facts is highlighted below for easy reference.

(Refer relevant Page no. 24)

Independent auditor‟s certificates confirming that Shell
Group companies (in USA and Netherlands) also charge to the Operator „at cost‟, for the year 2019 and 2021
To further substantiate the application of ‗at-cost‘ pricing, the Appellant has furnished independent auditor certificates from other
Shell group companies
(e.g.,
Shell
International
Exploration and Production B.V. & Shell International and Production Inc.) confirming that similar upstream technical services are rendered globally by Shell Group on a cost-to-cost basis, without markup.
These certificates are attached as Annexures 7A, 7B, 7C and 7D, which validates the consistency of the cost-to-cost policy across Shell Group entities and support the Appellant‘s ‗At cost‘
approach in India. Summary of the above attached certificates is tabulated below:
Sr.
No.
Name of Operator
Name of AE
Year
Annexure
1
Shell
Petroleum
Development
Company of Nigeria Limited
Shell
International
Exploration and Production
B.V. &
Shell
International and Production
Inc.
(jointly
2019
Annexure 7A
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64
Sr.
No.
Name of Operator
Name of AE
Year
Annexure referred to as SIEP)
2
Shell Development
Oman LLC
SIEP
2019
Annexure 7B
3
Shell Egypt N.V.
SIEP
2019
Annexure 7C
4
Petroleum
Development Oman
LLC
SIEP
2021
Annexure 7D

The relevant extract of Independent auditor‟s certificate are extracted below for easy reference. And the entire copy of the said auditors certificate is attached as per the above table.

ReferAnnexure 7A
Refer Annexure 7A
Shell India Markets Pvt. Ltd.

Refer Annexure 7B

Refer Annexure 7B

Refer Annexure 7C
Shell India Markets Pvt. Ltd.

Refer Annexure 7C

Refer Annexure 7D

Refer Annexure 7D

VI.
DRP‟s observation in Assessee‟s own case for AY 2020-
21 and 2021-22 emphasizing on Rule 10B(2)(d)
With reference to the P&T division – EP segment, for AY 2020-
21 and AY 2021-22, the Appellant took a ground for ‗Other
Method‘, relying on the above mentioned judicial precedent in case of Reliance Industries Ltd. (ITA 579/ Mum./ 2021).
Considering the said decision of Reliance Industries Ltd., the Hon‘ble DRP in case of Appellant for AY 2021-22 and AY 2020-
21 commented as under:
Shell India Markets Pvt. Ltd.

For AY 2020-21, refer to para 8.3.3 of DRP directions dated 29 June 2024, wherein the Hon‟ble DRP mentioned that:
―8.3.3. Further, in its submission dated 25.04.2024, the applicant has relied on the ruling of Hon‟ble ITAT in the case of Reliance Industries Ltd. (ITA 579/ Mum/2021) to stress that if government regulations does not allow charge of mark-up on costs, then, benchmarking on cost to cost basis without mark-up has to be allowed‖

The Hon‟ble DRP of SIMPL in AY 2020-21, gave reference to the Reliance decision as under:

―8.3.3……Undoubtedly, one of the critical factors in determining the ALP, as recognized by rule 10B(2)(d), is conditions prevailing in the market in which AEs operate, and once it's a legal condition precedent in entering the transaction in the respective PSC market is that the AE's affiliates are not allowed to have any mark up on a supply of services to the AE, the determination of ALP is required to be having regard to this condition. Viewed thus, the cost-to-cost rendition of services can indeed be viewed as an arm's length transaction. In view of these discussions, and being consistent with the co-ordinate bench decisions, we uphold the action of the CIT(A) and decline to interfere in the matter…‖

Hon‟ble DRP‟s conclusion in case of SIMPL in AY 2020-21:

―8.3.4. With utmost reverence to the decision of the Hon‘ble
ITAT, the DRP being an extension of the assessment proceedings have to take a consistent stand in line with the Revenue‟s stand…….” as far as the Departmental appeals are concerned as once the Department has appealed against a particular issue decided against it by an appellate forum, the lower authorities have to follow the Departmental stand till it reaches finality. Hence the Panel follows the same stand as in previous years‖

Even for AY 2021-22, the Reliance ITAT decision has been acknowledged and exactly same observations were made by the DRP in its Directions for AY 2021-22. Shell India Markets Pvt. Ltd.

68
Accordingly, the Appellant hereby submits that even the DRP in Appellant‘s own case has been effectively conceded and concluded that SIMPL‘s case is squarely covered by the Mumbai ITAT‘s decision in the case of Reliance Industries Ltd.
(supra). However, the Hon‘ble DRP have chosen to confirm the addition in case of SIMPL, merely to support the stand taken by lower tax authorities (i.e. the TPO). Considering the same, it is submitted before Your Honor that provisions of Rule 10B(2)(d) is directly applicable in case of the services rendered by SIMPL and accordingly, the TP adjustment ought to be deleted. Viewed thus, the cost-to-cost rendition of such services by the Appellant can be considered to be at arm's length basis various rulings mentioned above.

VII. Attempt by DR to compare the transaction with some other controlled transactions:

In the concluding para of the letter dated 18 June 2025, the learned DR has made an absurd recommendation by stating that ‗the markup on technical services provided to down-stream AE be applied to mark-up technical services provided to upstream
AEs i.e.
transaction under evaluation‘.
As a matter of basic
Arm‘s length comparability principle it is absolutely incorrect to compare two different categories of services.
To support the above contention, the Appellant places reliance on Mumbai ITAT (TS-557-ITAT-2012(Mum)in case of Tecnimont ICB Pvt. Ltd. vs Additional
Commissioner of Income-tax. The relevant portion of the case law is mentioned below and the case law is attached as Annexure 8. ‗‗……In such later case, the ALP of the transaction or the arm's length profit cannot be considered as benchmark for the purposes of making comparison in other cases. That appears to be the probable reason for which the legislature has ignored the controlled transactions, even though at ALP, and restricted the ambit only to uncontrolled transactions for computing ALP in respect of international transactions between two AEs.
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69
17. I, therefore, answer the question referred to me u/s 255(4) in negative by holding that the net profit margin realized from a transaction with an AE cannot be taken as a comparable being internal comparable for computation of ALP of an international transaction with another AE even though the net margin from a transaction with AE is found and accepted at ALP.
18. Before parting with this matter, I consider it my duty to record that the Id. AR relied on certain decisions including UCB
Material Science Pvt. Ltd. VS. Addl. CIT (2012) TIL-09-ITAT-
MUM-TP and DCIT VS. BP India Services P. Ltd. (2011) 133 ITD
526 (Mum) in which it has been held that controlled transactions cannot be considered for determining ALP in other transactions…..
….I do not propose to embark upon these cases separately for discussion. I clarify that my decision in the foregoing paras is founded on the interpretation of the relevant bare provisions of the Act and Rules, without taking any assistance from decisions cited by the rival parties on the point, which differ in their conclusion as stated by the Id.
Representatives before me.
19. For the foregoing reasons I agree with the view expressed by the learned AM…...‘
(Refer Para 16, 17, 18 and 19 of the attached Case law i.e. Annexure 8)
Accordingly, the application of markup of one controlled transaction to another controlled transaction, would violate the principle of transfer pricing provision of the Indian Income Tax Act, and therefore ought to be rejected.

VIII.Our prayer
In light of the above facts, legal precedents, and documentary evidence, the Appellant humbly submits that the Provision of Technical Services at Cost to its AEs is:

In line with the Model India – Production Sharing Contracts
(PSC) - As prescribed by the Government of India;

In line with PSCs signed by the Indian government with third party (i.e. RIL and ONGC);
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70

In full compliance with Rule 10B(2)(d) of the Income Tax
Rules, supporting the contention that conditions prevailing in the markets/laws and Government orders in force should be considered;

In line with the facts of the case, mentioned by Hon‘ble
Mumbai ITAT in case of Reliance Industries Ltd;

In line with various other HC and SC rulings mentioned above; and 
Which is acceded to by the Hon‘ble DRP in assessee‘s owns case for AY 2020-21 and AY 2021-22

Therefore, we respectfully plead that the transaction on cost-to- cost basis be accepted as being at arm‟s length.‖

71
is a consortium and where the remuneration is embedded in the PSC framework.

72
accepted the at-cost model, or at the very least not disturbed it by applying routine ITES comparables. Tax administration must strive for a degree of coherence and consistency: having accepted a particular remuneration model as broadly arm‘s length in a highly specialised and regulated context, it is not open to the Department to jettison that model in a later year for one party alone, absent any change in facts or law or any finding of abuse.

•
the PSC framework;

•
the conduct of other consortium members;

•
the expert opinion on record; and •
the absence of any truly comparable third-party uncontrolled transaction for such specialised services,
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73
represents the most appropriate determination of the arm‘s length price within the meaning of section 92C, read with Rule 10B and Rule 10AB. The TPO‘s recourse to ITES comparables, and the resultant adjustment of INR
48,62,63,073, is therefore unsustainable.

Ground No. 5 – Cost Allocations (Adjustment of In response to the 269,01,24,471)

74
70. In the course of the transfer pricing proceedings the assessee drew a clear distinction between cost allocation pertaining to the services segment and cost allocation pertaining to the downstream business. It was pointed out that an amount of INR 202,51,27,301 representing cost allocation other than downstream had been fully recovered by the assessee from its own Associated Enterprises as part of the cost base in respect of captive services rendered by it. On this factual premise the assessee submitted that such cost allocations are revenue neutral at the level of the assessee and, being fully embedded in the revenue earning service segments which themselves have been benchmarked and accepted at arm‘s length, do not call for any separate transfer pricing adjustment.
71. The Transfer Pricing Officer noted, and recorded at page
98 of the order, that in so far as cost allocation other than downstream is concerned, the entire cost is recovered as part of the cost base for services rendered by the assessee and therefore does not adversely affect the profitability of the assessee. On this reasoning the Transfer Pricing Officer did not disturb the arm‘s length nature of cost allocation other than downstream amounting to INR 202,51,27,301 and accepted the same as being at arm‘s length price. The TPO however took a markedly different approach in relation to cost allocation pertaining to the downstream business. He examined the material placed on record to demonstrate the receipt of intra group services, the basis of allocation and the benefit allegedly derived by the assessee and issued a show
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75
cause notice as to why the arm‘s length price of such downstream cost allocation should not be determined at nil by applying what was described as the ―need evidence benefit‖ test under the category of ―other method‖. It was observed that this issue had recurred over multiple years.
After analysing the documents produced the Transfer Pricing
Officer formed the view that the basis of allocation of costs had not been provided in a satisfactory manner, that the actual rendering of specific services corresponding to the cost pool was not demonstrated, that the tangible benefit accruing to the assessee was not established, and that an independent party, acting in a purely commercial manner, would not agree to bear such costs.

76
73. Before us the learned
Authorised
Representative assailed the aforesaid adjustment on multiple fronts. At the threshold a distinction was drawn between the upstream exploration and production related activities of the group, where transactions are governed by the Production Sharing
Contract regime and have already been separately benchmarked in the context of SBO IT, SBO C and P and T segments, and the downstream non exploration business, where cost allocation essentially relates to strategic, management and functional support required for operating a complex integrated downstream business in India. It was submitted that the Transfer Pricing Officer himself had, in principle, accepted the commercial reality and need for group wide centralised services in part, since cost allocation pertaining to services segment had been left undisturbed, and therefore the wholesale rejection of downstream cost allocation stands on an inconsistent footing.

77
perpetual in nature and the benefits from such services flow on a continuous basis to the assessee‘s downstream business, thereby rendering these documents relevant for the year in appeal as well.

Application / Prayer for admission of additional evidence

In respect of the captioned appeal filed before the Hon‘ble members of the Tribunal on 20 September 2024 against the order dated 31 July 2024 passed by the Assessment Officer under Section 143(3) r.w.s. 144C(13) of the Income-tax Act,
1961 ('the Act') for the year under consideration i.e. AY 2020-
21, we state as under:

In relation to the transfer pricing adjustment made by the Learned AO/TPO for the Cost Allocation transaction, the Appellant prays to admit the following documents submitted before your Honors, which were not submitted before the lower authorities, as additional evidences under Rule 18(4) & (5) and 29 of The Appellate Tribunal Rules, 1963 (‗the Rules‘) for just and proper adjudication of Ground of Appeals raised in the captioned appeal:

Sr.
No.
Particulars of Documents
Page No.
1
Summary along with copy of email evidences of AY
2022-23 linked with AY 2020-21 so as to justify the service and benefit test, as these are continuing services and benefit of which has extended for more than a year
1 – 568
2
Copy of transfer pricing order/assessment order for the NR entity
(i.e.
Shell
International
Petroleum Co. Ltd.) for the following years
-
AY 2011-12 (TP Order)
-
AY 2012-13 (TP Order)
-
AY 2020-21 (AO Order)

569 – 570
571
572 - 651
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78
Sr.
No.
Particulars of Documents
Page No.
3
Copy of transfer pricing order/assessment order for the NR entity
(i.e.
Shell
Information
Technology Intl. BV) for the following years
-
AY 2012-13 (TP Order)
-
AY 2020-21 (AO Order)

652
653 – 694
4
Copy of transfer pricing order/assessment order for the NR entity (i.e. Shell International BV) for the following years
-
AY 2011-12 (TP Order)
-
AY 2012-13 (TP Order)
-
AY 2020-21 (AO Order)

695 – 696
697 - 700
701 – 748
5
Copy of transfer pricing order/assessment order for the NR entity (i.e. Shell Global Solutions
International BV) for the following years
-
AY 2010-11 (TP Order)
-
AY 2011-12 (TP Order)
-
AY 2020-21 (AO Order)

749 – 764
765 – 778
779 – 826
6
Copy of transfer pricing order/assessment order for the Appellant (i.e. Shell India Markets Pvt.
Ltd.) for the following years
-
AY 2011-12 (TP Order)
-
AY 2012-13 (TP Order)
-
AY 2020-21 (TP Order)
-
AY 2020-21 (AO Order)

827 – 842
843 – 854
855 – 959
960 - 969

Background:
For the captioned year, the learned Transfer Pricing Officer
(‗TPO‘) has inter alia has made following Transfer Pricing adjustment in the hands of the Appellant:

Particulars
Amount in Rs.
Transfer Pricing Adjustment to the value of the international transactions entered into by the Appellant with Foreign AEs in respect of allocation of cost by Foreign AEs to Shell India Markets Pvt. Ltd. (SIMPL)
2690,124,471

Apart from the above, during the course of the assessment proceedings, the Assessing Officer (‗AO‘) has also proposed certain other transfer pricing additions to the returned income of the Appellant.

Aggrieved by the proposed adjustments, the Appellant filed objections with the Dispute Resolution Panel -2, Mumbai (‗DRP‘).
However, the Hon‘ble DRP confirmed the additions and accordingly final assessment order was passed by the learned
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79
AO. Aggrieved by the said final assessment order, the Appellant has preferred the captioned appeal before your Honors.

Reasons for non-submission of above documents before the lower authorities:

During the aforesaid assessment year, the AEs of the Appellant provided certain services on cost to cost basis to the Appellant, the cost of which was allocated to SIMPL based on reasonable allocation keys.

In a Shell group‘s typical set-up, a Shell entity, as per level of its expertise & specialization, provides services to all operating companies of the Shell group as per their need and requirements. Usually, such service provider entity will have global portals accessible to the group entities for availing required services.

In this regard, the Appellant wish to highlight that during the course of the transfer pricing assessment proceedings, the learned TPO considered the Arm‘s Length Price as NIL and stated that assessee has not demonstrated the service and benefit test. The TPO has erroneously without considering the submissions/evidences filed made by the Appellant for the service and benefit test considered the ALP as NIL and hence, the quantum of adjustment computed by the TPO is incorrect.

In this regard, the Appellant, under Counsel‘s guidance collated certain crucial evidences in the form of email evidences linked to AY 2020-21/PPT, to justify the service and benefit test as these are continuing services received from AE, the benefit of which extends beyond a year. Also the Appellant has collated, the transfer pricing order/assessment order copies of NR entities of the Appellant who has provided same services to the Appellant in the earlier year as well as AY 2020-21. Also the transfer pricing order/assessment order copies of SIMPL for the said respective year has been collated in the above additional evidence, to justify the Mirror ALP and Article 13(8) argument.

The Appellant submits that these additional evidences go to the root of the matter in arriving at the correct ALP of the international transaction entered with the AEs.
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In view of Counsel‘s guidance being available at a later point of time, it is humbly submitted that the Appellant could not submit these documents / evidences before the lower authorities for the captioned year.

More lenient view should be adopted by the Hon‟ble
Members, since this appeal before the Hon‟ble Tribunal is the first Appeal which has been argued fully in the Appellant‟s case based on merits

It is respectfully submitted that, in the Appellant‘s case, against the draft assessment order, the Appellant had filed its objections before the Hon‘ble DRP. Subsequently, the learned
AO passed the final assessment order under Section 143(3) read with Section 144C(5) of the Act, pursuant to the directions of the Hon‘ble DRP. Against the said final assessment order, the Appellant has preferred this appeal before your Honors.

Your Honors would appreciate that the proceedings before the Hon‘ble DRP is a continuation of assessment proceeding as it was only the draft assessment order which was being challenged before them. The final assessment order was yet to be passed by the assessing officer. Hence, the DRP is not an appellate authority and the proceedings before the DRP is continuation of assessment proceedings. This view is also fortified by the decision of the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. vs. Additional
Commissioner of Income
Tax
&
Ors.
[2013]
39
taxmann.com 201 (Bombay).

In view of the above, this being first appeal, the Appellant most humbly prays before your Honors that more lenient view should be adopted and above mentioned additional evidences should be admitted and should be considered for deciding the captioned matter.

Justification for additional evidence:

In the interest of natural justice, it is respectfully submitted that the above referred evidences are material and extremely relevant to support our contentions and are important documents for deciding the appeal, and, therefore, deserve to be admitted as additional evidences. It is also submitted that since
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this Hon‘ble Tribunal is the final fact finding authority, if these additional evidences are admitted it would enable substantial justice to the Appellant.

In view of the same, the Appellant submits that the above mentioned evidences are very relevant and material for deciding the issue on merits. The Appellant, therefore, request Hon‘ble
Members to admit the said crucial evidences under Rule 29 of the Rules and consider the same appropriately while disposing off the above appeal.

Prayer:

In view of the above submission, the Appellant most respectfully prays before your Honors to admit the above mentioned additional evidences and consider the same while adjudicating the captioned matter.

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been placed on record and the same is reproduced here and below and shall be incorporated in extenso in the final order.

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demonstrating any material difference in the nature of the underlying central functions or the allocation keys. The assessee emphasised that the cost pool for downstream allocation includes functions such as global brand management, risk management, treasury, IT platforms, governance, compliance, safety standards and other central functions, all of which are crucial to the operation of the downstream business in India and could not be replicated locally at a lower cost without sacrificing efficiency and global consistency.

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80. Once the additional evidences are brought into the fold, the next question is whether we should ourselves embark upon a fresh benchmarking exercise of the downstream cost allocations or remit the matter to the Transfer Pricing Officer for this purpose. We note that the Transfer Pricing Officer has determined a nil arm‘s length price for downstream cost allocation by invoking what is described as an ―other method‖, principally on the ground that the assessee failed to demonstrate the need, the actual rendition and the benefit.
The Transfer Pricing Officer has however not referred to any comparable uncontrolled transaction or to any objective benchmarking matrix as envisaged under section 92C read with rule 10B and rule 10AB.

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84. Ground No. 5 is accordingly treated as allowed for statistical purposes, with the impugned adjustment on downstream cost allocations being set aside to the file of the Assessing Officer and Transfer Pricing Officer for fresh adjudication in the light of our observations.

Ground No. 6 – Recovery of Salary and Related Expenses
(Mark up on Recoveries) – Adjustment of INR 6,60,94,852

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method for benchmarking. A fresh set of five comparables, engaged in provision of support or business process services, was identified and an average margin of 9.88 per cent was computed. Applying this margin on the relevant cost base the Transfer Pricing Officer worked out an arm‘s length price which resulted in an upward adjustment of INR 66,094,852. 87. The assessee carried the matter in objection before the Dispute Resolution Panel pointing out, inter alia, that all relevant expenses incurred in connection with the secondees were fully recovered from the Associated Enterprises, that the assessee did not perform any substantive economic functions or assume any material risks in relation to such secondment, and that the transaction was undertaken purely for administrative convenience in order to centralise the payroll in India. It was emphasised that there was no independent intention to render services to the Associated Enterprises and that the assessee merely acted as a facilitating conduit. The Dispute Resolution Panel, however, agreed with the Transfer
Pricing
Officer‘s characterisation and confirmed the adjustment.

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economic beneficiaries of the secondees‘ work and the assessee was merely reimbursed the costs it had temporarily borne in India. Accordingly, the transaction represented a pure pass through item which, under well accepted transfer pricing principles, does not warrant the imposition of any mark up.

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alternative, it was prayed that even if some adjustment were to be considered necessary, the same should at least be restricted to the correct amount of the international transaction as per the rectification application and the additional ground already on record.

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Whether or not a particular item is truly pass through depends on the facts and requires an appreciation of the functional profile of the parties, the contractual terms and the conduct actually observed. In the present case the assessee has consistently maintained that it has not provided any independent service to the Associated Enterprises and has only facilitated the secondment of its employees.

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adjustment remain open for consideration by the Transfer
Pricing Officer.

Ground Nos. 7 and 13 – Disallowance under section 40(a)(ia) for alleged short deduction of tax

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the system had mechanically applied the rate of ten per cent plus cess. Notwithstanding these explanations the National
Faceless
Assessment
Centre proceeded to make a disallowance under section 40(a)(ia) of the Act treating the perceived short deduction as a trigger event.

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103. In the present case the Dispute Resolution Panel has, after appreciation of factual material, categorically directed deletion of the disallowance under section 40(a)(ia). In these circumstances we hold that the continuance of the disallowance in the final order is unsustainable. We therefore direct the Assessing Officer and the National Faceless
Assessment Centre to delete the addition forthwith in accordance with the directions of the Dispute Resolution
Panel. Grounds Nos. 7 and 13 are allowed in favour of the assessee.

Ground No. 8 – Disallowance due to mismatch under section 40(a)(ia)

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the computation and the records of the Centralised
Processing Centre. We therefore direct the Assessing Officer and the National Faceless Assessment Centre to verify, after affording a reasonable opportunity to the assessee, whether the impugned amount of INR 22,50,000 has already been disallowed by the assessee in its computation and return. If that be so, the authorities shall ensure that no further disallowance is repeated in the processing under section 143(1). To this limited extent the Assessing Officer shall grant consequential relief. Ground No. 8 is thus allowed for statistical purposes with the above directions.

Ground No. 9 – Short grant of advance tax credit

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Pennzoil Quaker State India Limited and that in view of the amalgamation the assessee is entitled to such credit. In our considered opinion this is a matter of arithmetical tax credit which ought not to pose any legal difficulty. We therefore direct the Assessing Officer and the National Faceless
Assessment Centre to verify the relevant challans and Form
26AS of the amalgamating company and, upon due verification, to grant the credit of advance tax of INR 5,33,124
to the assessee. Ground No. 9 is allowed for statistical purposes with these directions.

Ground No. 10 – Levy of interest under section 234B and Ground No. 12 – Initiation of penalty under section 270A

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the levy of interest under section 234B will be purely consequential and the Assessing Officer shall recompute the same, if at all warranted, while giving effect to this order in accordance with law.

Ground No. 11 – Levy of interest under section 234D
111. Ground No. 11 relates to the levy of interest under section 234D of the Act amounting to INR 65,95,467. In its written submissions the assessee has set out the factual matrix in considerable detail. The assessee had earlier filed appeals against an intimation under section 143(1) and a rectification order under section 154, both issued by the Centralised Processing Centre. Pursuant to the order of the Commissioner of Income Tax (Appeals) dated 3 August 2023, the Juri ictional Assessing Officer issued an order dated 10
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May 2024 giving effect to the appellate order. Along with this order a computation of income was issued in which a refund of INR 131,90,93,429 was determined as due to the assessee.
112. The assessee received an intimation dated 1 July 2024
under section 245 proposing to adjust a part of the said refund, namely INR 69,14,73,118, against the demand for assessment year 2018–19. Thereafter, the assessee received a final assessment order dated 31 July 2024 along with a computation of income. On examining this computation the assessee noticed that the proposed adjustment under section 245 had not in fact been given effect to and that no actual adjustment of refund had taken place. Nonetheless, interest under section 234D amounting to INR 65,95,467 had been calculated for a period of one month on the entire refund of INR 131,90,93,429. The assessee has emphasised that, as per the plain language of section 234D, interest is chargeable with reference to a refund ―granted‖ to the assessee in excess of what is ultimately found due on regular assessment, and not merely with reference to a refund that is arithmetically
―determined‖ but never actually paid or adjusted. On this basis a rectification application dated 14 October 2024 has already been filed before the Juri ictional Assessing Officer.
113. We have perused the written submissions and the factual narrative placed before us. The precise question whether any refund was in fact granted to the assessee and, if so, to what extent, is essentially factual and turns upon the actual flow of funds or adjustments as per the Department‘s records. These are matters best examined in the first instance
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by the Assessing Officer in the pending rectification proceedings. We therefore consider it appropriate to direct the Assessing Officer and the National Faceless Assessment
Centre to examine the assessee‘s grievance in the light of the factual sequence narrated, to verify whether any refund was actually issued or adjusted, and thereafter to decide, by a speaking order, whether interest under section 234D is at all leviable and, if so, to what extent.

Order pronounced on 19th November, 2025. (PADMAVATHY S) (AMIT SHUKLA)
ACCOUNTANT MEMBER
JUDICIAL MEMBER
Mumbai; Dated 19/11/2025
KARUNA, sr.ps
Shell India Markets Pvt. Ltd.

Copy of the Order forwarded to :

BY ORDER,

(Asstt.