MANAKSIA STEELS LIMITED,KOLKATA vs. DCIT, CIRCLE 1(1), KOLKATA

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Kolkata 22, (hereinafter referred to as the “Ld. CIT(A)”] dated 25.03.2026 for the AY 2016-17.

ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17 ₹10,55,26,530/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) for the reason of the TP Risk Parameters as the assessee entered into international transactions with its AEs. The case of the assessee was referred to Transfer Pricing Officer for determination of Arm’s Length Price of international transactions. The Transfer Pricing Officer according Notice u/s 143(2) and 142(1) of the Act along with questionnaire were duly issued and served upon the assessee. The assessee also made the necessary compliances to the said notices. The assessee was engaged in the manufacturing of iron and steel products. The ld. Transfer Pricing Officer rejected the contention of the assessee that depreciation was always a part of operative expenditure and accordingly the PLI was determined at 3.36%. The assessee was following the Transactional Net Margin Method (TNMM) to benchmark the international transactions. So far as the comparable are concerned, there was no dispute as to the comparable which were considered by the ld. Transfer Pricing Officer for making Arm’s Length Price adjustments. However, the ld. Transfer Pricing Officer while computing the operating expenditure excluded the depreciation in respect of comparable but while computing the operating expenditure of the assessee, the depreciation was considered and accordingly the Arm’s Length of PLI (OP/OC) was determined at 4.59 and necessary adjustments were suggested by the ld. Transfer Pricing Officer as under:-

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ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17 3.4 Determination of Arm’s Length Price:- On the basis of the above discussion, the arm’s length price of the sale of finished goods and purchase of raw material from Associated Enterprises and corresponding adjustment is worked out as under:-

Particulars Amount (Rs. in Lac) Operating Cost 27960.31 Arm’s Length profit Margin 4.59% Arm’s Length OR (ALP) @ 104.59% of operating cost 29243.69 Operating Revenue of the assessee 28933.18 Shortfall in revenue 310.51 Total Value of AE transaction 10606.44 Percentage of transaction to Operating Revenue 36.66% Adjustment to be made downwards (36.66% of 310.51) 113.83 4. Accordingly, the ld. AO made addition in respect of Arm’s Length Price adjustment of ₹1,13,83,297/- suggested by the TPO.

“I have duly examined the material at hand including the impugned order, the submissions of the appellant, the citations and orders relied upon by the appellant as well as the citations that are more broadly applicable to the facts of this case. The appeal thereafter is being disposed in a ground-wise manner as under: Ground No.1, 2 &3:-These grounds of appeal are taken together. These grounds of appeal relate to the PLI (OP/OC) computed without reduction of depreciation, arm's length PLI (OP/OC) computed by the appellant rejected, and the Addition of ALP adjustment of Rs. 1,13,83,297/-respectively. The primary issue is that the inconsistency in the treatment of depreciation between the appellant and the comparable companies. The appellant submitted that TPO included depreciation in operating cost in its case but excluded in comparable and this created distortion. Depreciation is an operating in nature. It must be included in OP/OC under TNMM therefore, TPO's computations at 3.36% is correct. The appellant's contention that the depreciation excluded from the comparable cannot be accepted as no evidence has been filed. And secondly, Page 3 of 7

ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17 financials of comparable (public) data) normally include depreciation. The appellant has not demonstrated factual inconsistency. By removing depreciation OC reduces and OP increases and the margin shows increase from 3.36% to 5.94%. This is a manipulation of PLI base and no a legitimate adjustment. The appellant has failed to show the difference in assets intensity, difference in depreciation policy and difference in capacity utilization of the comparable. The depreciation is integral part of operating cost unless exceptional circumstances are proved. The appellant has submitted for selective adjustment by removing depreciation from its own cost and re- working comparable without proper evidences. Such computation is not acceptable, Hence the action of the TPO is upheld and these grounds of appeal are dismissed.” 6. After hearing the rival contentions and perusing the materials available on record, we note from the record/documents placed before us that assessee has entered into international transactions with its foreign AE's and followed TNMM method to benchmark its transactions with the AEs. We also note that so far as the comparable are concerned, there is no dispute but the only dispute is with regard to the methodology of computing the PLI (OP/OC). We note that the ld. AO has determined PLI (OP/OC) by excluding depreciation from the operating expenditure in the case of comparable but while computing the PLI in the case of the assessee the depreciation has been considered as part of operating expenditure. The ld. Transfer Pricing Officer determined the PLI at 4.9% in case of comparable while it was computed at 3.36% in case of the assessee. For the sake of ready reference, the Arm’s Length Price PLI (OP/OC) as computed by the Transfer Pricing Officer and the assessee are extracted below:-

Intentionally left blank

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ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17

Particulars With Depreciation (As per Without Depreciation (As TPO notice) per the assessee) Revenue From operation-A 28933.18 28933.18 Total Expenses 28215 28215 Less: Finance Cost 231.64 231.64 Less: Donation 23.05 23.05 Less: Depreciation - 748.83 Operating Expenses (OC)-B 27960.31 27211.48 Operating Profit (A-B) 972.87 1721.70 PLI (OP/OC) 3.36% 5.94% 6.1. Therefore, it is evident from the above that the profit margin as computed by the Transfer Pricing Officer after considering the depreciation as part of the expenses is 3.36% whereas without considering the deprecation as part of the operating expenses it is 5.94%. Therefore, the ld. Transfer Pricing Officer has committed an error in considering the depreciation as part of the operating cost in the case of the assessee and at the same time not considering the depreciation as part of operating cost in the case of comparable thereby making anomalous and fallacious comparison. If we calculate the Arm’s Length Price of the transactions without considering the depreciation as part of the operating cost, the same works different as under: Page 5 of 7

ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17 Particulars Without depreciation as part of OC Operation cost where 5.94% is profit margin 27211.48 Arm’s Length profit Margin 4.59% Arm’s Length OR (Arm’s Length Price) @ 104.59% of 28460.49 operating cost Operating revenue of the assessee 28933.18 6.2. Considering the above facts, we note that the transactions in the case of the assessee are at Arm’s Length Price and no adjustment is to be made to the income of the assessee in respect of Arm’s Length Price of the international transactions with its AEs. Accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO/ Transfer Pricing Officer to delete the addition of ₹1,13,83,297/-. The appeal of the assessee is allowed.

Order pronounced on 11.09.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 11.09.2026 Sudip Sarkar, Sr.PS

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ITA No. 1307/KOL/2026 Manaksia Steels Limited; A.Y. 2016-17

Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

(Manish Bhoi) Dy. Registrar Income Tax Appellate Tribunal, Kolkata

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