TETRA PAK INDIA PRIVATE LIMITED,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 7 PUNE AND ASSESSMENT UNIT, INCOME TAX DEPARTMENT, NFAC, PUNE

Facts of the case, in brief, are that the assessee is a private limited company and is engaged in the business of developing, manufacturing and commercializing processing and packaging systems for liquid and other food products and in the process of that business carries on manufacturing for export of packaging solutions, distribution of imported equipment and spare parts, and manufacturing and distribution in Indian market of packaging solutions. It filed its return of

Since the assessee had entered into certain international transactions, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determining the arm's length price of the International Transactions entered into by the assessee. Accordingly, the TPO issued a notice u/s 92CA(2) on 10.03.2022. Subsequently notice u/s 92D(3) and 92CA(2) r.w.s. 129 of the Act on 10.03.2022 and 22.06.2022 respectively along with a questionnaire were issued. The assessee in response to the same filed various details.

The TPO during the course of TP proceedings noted that the assessee had benchmarked the international transactions under different business segments (Export segment, Domestic segment, Distribution of capital equipment segment, Processing business solution segment and HUB segment) by using the Transactional Net Margin Method ('TNMM') as the most appropriate method. Based on above, all the international transactions under all the business segments were concluded to be at arm's length from Indian transfer pricing regulations perspective. The TPO in the order passed u/s 92CA(3) dated 31.07.2023 proposed an upward adjustment of Rs.100,56,21,929/- on account of the following segments:

The Assessing Officer in the draft assessment order accordingly made addition of the same on account of TP adjustment.

The assessee approached the Dispute Resolution Panel (DRP) who gave part relief to the assessee. The Assessing Officer accordingly made addition of Rs.87,08,86,024/- in the final order by observing as under:

Aggrieved with such order of the Assessing Officer / TPO / DRP, the assessee is in appeal before the Tribunal by raising the following grounds: On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the Ld. AO / learned Transfer Pricing Officer (‘Ld. TPO')/Hon. DRP has 1. Erred in passing Final Assessment Order beyond time limit as prescribed under section 153 of the Act. 2. Erred in assessing the total income at INR 252,14,21,860 as against income of INR 161,72,14,240 (as per the return of income filed by the Appellant on 09 February 2021) 3 Erred in proposing transfer pricing adjustment with respect to Manufacturing and Distribution of Packaging Material in Indian Markets segment amounting to INR 80,48,40,605

Ground of appeal No.1 was not pressed by the Ld. Counsel for the assessee for which the Ld. DR has no objection. Accordingly, the same is dismissed as ‘not pressed’.

Ground of appeal No.2 being general in nature, is dismissed.

Grounds of appeal No.3 to 3.6 relate to the TP adjustment of Rs.80,48,40,605/- with respect to the manufacturing and distribution segment in the Indian market.

The Ld. Counsel for the assessee submitted that the assessee in the TP study prepared by it had arrived at set of 14 comparables with 35th percentile and 65th percentile of 4.16% to 6.72% respectively for the domestic segment. The assessee had earned net profit margin of 5.40% during the impugned assessment year and had selected TNMM method as the most appropriate method. Accordingly, the transactions were concluded to be at arm’s length. However, the TPO in his TP order rejected 7 comparables selected by the assessee and added 8 additional comparables which have been upheld by the DRP.

Referring to page 460 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the 14 comparables selected by the assessee as comparables for this segment which are as under:

He submitted that the TPO carried out fresh search and thereafter rejected 7 comparables selected by the assessee and added 8 comparables and determined the final list of 15 comparable companies which are as under:

Accordingly the TPO arrived at a profit margin of 10.54% as against 5.40% determined by the assessee and made addition of Rs.80,48,40,605/-.

So far as the comparables selected by the TPO are concerned, the Ld. Counsel for the assessee submitted that Holistik India Limited is not at all a comparable company. He submitted that Holistik India Limited is engaged in the business of printing and allied activities i.e. manufacturing of holograms, holographic films and paper labels, marketing expenditure. It has also incurred marketing expenses and also engaged in R & D activities. He submitted that the DRP in its directions held that the company is engaged into similar activity as that of the assessee and fits into the criteria of broad comparability.

Referring to page 564 of the paper book he drew the attention of the Bench to the details of principal business activities contributing 10% or more of total turnover of company and submitted that the name of main product / service as mentioned in the financial statements are as under: “Printing and allied activities i.e. Manufacturing of Holograms, Holographic Films and paper labels.”

He submitted that the website screenshot reproduced by the DRP also clearly states that the company is engaged into multiple activities like anti-counterfeiting,

Referring to page 652 of the paper book, he submitted that the revenue from sale proceeds had been shown at Rs.188084.85 lakhs. Referring to page 639 of the paper book he drew the attention of the Bench to the segmental details and submitted that there are no details of income from packaging. Therefore, it is not known about the profits from packaging business, if any and the main products cannot be compared as packaging and it is also not known as to what type of packaging Holistik is carrying on. Therefore, it is not a comparable entity at all. The Ld. Counsel for the assessee drew the attention of the Bench to Taxtual Information (42) and (43) which reads as under: “Textual information (42) Disclosure of enterprise's reportable segments explanatory [Text Block] The Company has identified two primary reporting segments based on geographic location of the sales viz. Domestic & Export. The information regarding secondary reporting segments based on products / services is not available. Textual information (43) Disclosure of enterprise's reportable segments explanatory [Text Block] The Company has identified two primary reporting segments based on geographic location of the sales viz. Domestic & Export. The information regarding secondary reporting segments based on products services is not available. Details of Segment assets, liabilities, expenses have not been given as the same is not separately identified.”

He accordingly submitted that Holistik India Ltd is not a comparable and has to be excluded.

So far as Naini Papers Ltd selected by the TPO as comparable is concerned, he submitted that Naini Papers Ltd is engaged in the business of manufacturing of soda ash, soda lye, writing and printing paper. It is also engaged in R & D activities. He submitted that the Ld. DRP has accepted the inclusion of this company on the basis of broad comparability. The Ld. Counsel for the assessee submitted that Naini Papers Ltd operates its business primarily in two segments namely paper and inorganic chemical. The company’s product offerings in paper segment includes Naini perfect print, sea white, super print, prime era, premium, naini maple, absorbent kraft, naini Kristal card and naini pack. Referring to page 665 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the product or services which are as under:

He accordingly submitted that this company is not comparable to that of the assessee company. He submitted that the business of Naini Papers Ltd i.e. manufacturing of papers cannot be comparable to that of the assessee which is engaged in manufacturing of aseptic packaging for beverages and hence it should be rejected from the set of final comparables.

So far as Sri Luxmi Tulasi Agro Paper Pvt. Ltd. is concerned, he submitted that the said company is engaged in the business of manufacturing of kraft paper and in the business of generation of power. However, the DRP rejected the submissions made by the assessee and accepted the inclusion of this company on the basis of broad comparability.

Referring to page 1093 of the paper book, he submitted that no segmental details are available in the audited financials of this company. Referring to the decision of the Tribunal in assessee’s own case for assessment year vide ITA Nos.1610/PUN/2013, 1647/PUN/2013 and 1609/PUN/2013 order dated 24.05.2019, he submitted that at para 45 of the order the Tribunal has observed as under: “45. Karur KCP Packaging Ltd. : The TPO considered this is a good comparable in his TP study. The case of the assessee against such include that the said company is engaged in the manufacturing of craft paper from wood pulp and waste paper. Further, this company also engaged in the manufacturing of polypropylene bags, which are required in the cement industries. The TPO considered this is a good comparable merely on the ground that the same is engaged in the packaging industries and ignored the fact that the packaging by the said company is for storing of cement. In this regard, ld. Counsel brought our attention to page 464 of the Paper Book and demonstrated the difference in the packaging material and uses of such material by the respective industries. He

He submitted that the revenue reported in the financial statement for the relevant product i.e. kraft paper is amounting to INR 153,06,88,196 which fails the 10 times turnover filter applied by the TPO. He submitted that this company has not maintained separate segmental information for its operations relating to kraft paper and electrical energy and consequently, the margins earned by the company from manufacture of kraft paper and paperboards cannot be ascertained. He accordingly submitted that this company cannot be considered as comparable and has to be excluded from the set of final comparables.

So far as S J S Enterprises Ltd which has been added by the TPO in the final list of copmarables is concerned, he submitted that SJS is engaged in the business of manufacturing of self-adhesive labels like automotive dials, overlays, badges, andlogos for the automotive, electronics and appliances industry. Further, the company owns significant intangibles i.e. technical knowhow. Referring to the order of the DRP, he submitted that the DRP has directed for inclusion of the company on the principle of broad comparability. Referring to the website of the company, he submitted that SJS is engaged in the business of wide range of aesthetics products catering to two-wheelers, passenger vehicles, commercial vehicles, consumer durables / appliances, medical devises, farm equipment and

So far as Garware Hi-Tech Films Ltd considered by the TPO as comparable is concerned, he submitted that Garware Hi-Tech Films Ltd is engaged in the business of manufacturing and exporting of specialty polyester films used for food grade packaging and food packaging bottle shrink label application. It is also engaged in R & D activities. Referring to the order of the DRP, he submitted that the DRP has directed for inclusion of this company on the basis of broader comparability. Referring to the copy of the annual report of the said company for financial year 2019-20, copy of which is placed at page 1285 of the paper book, he drew the attention of the Bench to the same and submitted that Garware Hi-Tech Films Ltd is engaged in the manufacturing and exporting of specialty polyester and all types of films. He submitted that the company is engaged in manufacturing paint protection films, automotive films, architectural films and polyester films like

So far as S M L Films Ltd is concerned, he submitted that SML Films Ltd is engaged in the business of manufacturing and exporting of BOPET film, metallized film, lacquered film, coated films, metallic yarn, metallized yarn and jari powder. Further, the company owns non routine intangibles i.e. brands and trademarks. Referring to the order of the DRP, he submitted that the DRP has directed the inclusion of the company on the basis of broad comparability. He submitted that this company cannot be considered as comparable since SML Films Ltd is engaged in the business of manufacturing and exporting of BOPET (biaxially oriented polyethylene terephthalate) which is a polyester film made from

So far as Astron Paper & Board Mill Ltd is concerned, he submitted that Astron Paper & Board Mill Ltd is engaged in the business of manufacturing kraft paper from waste paper and corrugated paper and paper board. It has also incurred marketing expenses. Referring to the order of the DRP, he submitted that the DRP has directed the inclusion of this company stating that it is comparable to that of the assessee. Referring to page 210 of the legal paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the corporate information which reads as under:

He accordingly submitted that this company is engaged in the manufacturing of kraft paper from waste paper. Referring to page 212 of the Legal paper book he drew the attention of the Bench to the operating segment where it has been mentioned as under:

Referring to page 238 of the legal paper book, he drew the attention of the Bench to clause (k) i.e. event after the reporting date and submitted that a fire broke out in Astron premises affecting financial numbers of the company. He drew the attention of the Bench to the same which read as under:

Further, the paper and paper boards are used as a raw material in the process of the manufacturing of packaging materials of the assessee. The paper used cannot be recycled paper in the manufacturing process while the comparable company uses recycled / waste paper to manufacture the kraft papers. He submitted that the kraft paper has been removed as comparable in assessee’s own case by the Tribunal in assessment year 2005-06. He accordingly submitted that Astron Paper & Board Mill Ltd be excluded from the final set of comparables.

So far as Ruchira Papers Ltd is concerned, the Ld. Counsel for the assessee submitted that Ruchira Paper Ltd is engaged in the business of manufacturing kraft paper and writing & printing paper. It has also incurred marketing expenses and also engaged in R&D activities. He submitted that the DRP directed the inclusion of the company on the basis of broad comparability. Referring to page 2159 of the paper book he drew the attention of the Bench to the same and submitted that as per the annual report the name of main product / service is paper & paper products. So far as the description of main product / service is concerned, it is kraft paper and writing and printing paper. Referring to page 2307 of the paper book he submitted that the revenue from operations has been shown at 481,01,39,714/- for the financial year 2019-20 and Rs.493,99,03,805/- for the financial year 2018-19. Referring to page 2487 of the paper book he submitted that no segmental details are available. Referring to website product reference, he submitted that the manufacturing of kraft paper and writing paper are not comparable to the assessee’s business activity of manufacturing of aseptic carton packages. Further, the paper used for production by the comparable company is manufactured by using waste paper and agricultural residue whereas in the assessee’s case recycled paper cannot be used in the manufacturing process. He accordingly submitted that Ruchira Papers Ltd be excluded from the set of final comparable companies.

So far as incorrect rejection of the assessee’s comparable i.e. Huhtamaki PPL Limited is concerned, he submitted that the said company was rejected only on account of different financial filter. He submitted that Huhtamaki PPL Limited

Referring to the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. M/s. Mercer Consulting (India) Pvt. Ltd. vide Income Tax Appeal No.101 of 2015 order dated 24.08.2016 he submitted that the Hon’ble High Court in the said decision has held that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule (4) of Rule 10B. Referring and the decision of the Pune Bench of the Tribunal in the case of Vodafone Global Services Pvt Ltd. vs. ACIT vide ITA No.198/PUN/2022 order dated 12.04.2023 for assessment year 2017-18, he submitted that the results can be extrapolated for the comparative period and the Tribunal has directed the Assessing Officer / TPO to include the company R Systems International Limited selected by the assessee as comparable but rejected by the TPO and the DRP on account of different financial year. Referring to pages 3301 to 3302 of the paper book he submitted that Huhtamaki PPL Limited is a listed company and quarterly financial statements are available. Further, Huhtamaki PPL Limited does not fail the 10 times turnover filter applied by the TPO in the domestic segment. Referring to page 3303 of the paper book he drew the attention of the Bench to the turnover filter which are as under:

He accordingly submitted that Huhtamaki PPL Limited should be considered as a comparable.

So far as non-granting of working capital adjustment for manufacturing and distribution of packaging material of Indian market is concerned, he submitted that the assessee has been granted working capital adjustment in the TP order for Hub Service segment. He submitted that in the case of domestic segment, post working capital adjustment, median lowers down slightly. Further, in assessee’s own case the Tribunal has granted working capital adjustment for assessment year 2005-06. He accordingly submitted that the TPO should be directed to grant working capital adjustment.

Grounds of appeal No.4 to 4.8 relate to the TP adjustment with respect to Hub Services segment amounting to Rs.3,37,54,002/-.

The Ld. Counsel for the assessee submitted that the TPO rejected Bhilwara Infotechnology Limited, a company selected by the assessee, on the basis of forex / revenue filter of 75%. He submitted that there is no dispute about the functional comparability of the above company. He submitted that the assessee by way of

Referring to the provisions of Rule 10TA(e) of the Income Tax Rules, 1962, he submitted that as per the said rule, the Information Technology Enabled Services (ITeS) means the following business process outsourcing services provided mainly with the assistance or use of information technology namely inter- alia (vi) creation and maintenance of medical transcription excluding medical advice. Considering the same, the medical transcription segment of the comparable company is to be taken into consideration. He accordingly submitted that Bhilwara should be retained as a comparable under the Hub segment.

So far as Ideavate Solutions Pvt Ltd is concerned, he submitted that the TPO and DRP rejected the said company on the basis of related party transaction filter. the Ld. Counsel for the assessee submitted that the company cleared the RPT expense filter. Further, there is no dispute about the functional comparability of the company and there is no change in business profile / functional profile. Referring to page 2687 of the paper book, the Ld. Counsel for the assessee submitted that the RPT / Sales percentage is 21.64% which is as under:

The Ld. Counsel for the assessee submitted that the DRP has also directed the TPO to consider the claim of the assessee keeping in mind that while working out RPT ratio the numerator and the denominator shall have identical transactions. He submitted that the following two companies may be considered in the final set of comparables which are clearing all the filters: a) Thomson Reuters International Services Pvt Ltd. b) Global Healthcare Billing Partners Pvt Ltd.

He submitted that based on the annual report and website information, Thomson Reuters International Services Pvt Ltd is engaged into provision of similar services like that of the assessee and hence should be selected as a comparable in the final set.

Similarly, in the case of Global Healthcare Billing Partners Pvt. Ltd., the company is engaged in the business process outsourcing services in the field of healthcare, medical billing, claims processing, medical transcription, legal transcription etc. He submitted that despite submissions made before the TPO as well as the DRP they have not provided any comments on their comparability and ignored the proposed additional comparables.

Referring to the decision of the Pune Bench of the Tribunal in the case of Seco Tools India Pvt. Ltd. vs. DCIT reported in (2019) 112 taxmann.com 83 (Pune-Trib.), he submitted that the Tribunal in the said decision has held that simply because a company was wrongly not considered by the assessee as comparable, cannot act as a deterrent for claiming that this company is, in fact, comparable and be considered for evaluation.

Grounds of appeal No.5 to 5.2 relate to the transfer pricing adjustment with respect to manufacturing and distribution in the export packmat segment amounting to Rs.3,22,91,417/-.

The Ld. Counsel for the assessee submitted that vide show cause notice dated 19.07.2023 the TPO for the purpose of determining the arm’s length price of the international transactions pertaining to Export Packmat Segment proposed to take average PLI margin of the comparables at 5.79% as against the PLI of the assessee at 4.88% and proposed an adjustment of Rs.2,26,03,992/-. He submitted that the assessee had benchmarked the same with 14 comparables out of which the TPO accepted 9 comparables, rejected 5 comparables and added 6 new comparables into the final set of comparables ranging from 5.02% to 8.02% with a median of 5.79% in the first show cause notice. He submitted that in the second show cause notice dated 22.07.2023, the TPO, for re-benchmarking of export segment, relying on BAPA signed for past years of the assessee enhanced the

Referring to the provisions of section 92CC(4) read with sub-section (9A) of the Act, he submitted that the APA is applicable only for the specified time span not exceeding five consecutive previous years. He accordingly submitted that since the period under consideration is not covered under the APA period, therefore, the terms and conditions set out in the aforementioned APA cannot be applied to assessment proceedings for assessment year 2020-21. For the above proposition, he relied on the decision of the Pune Bench of the Tribunal in the case of DCIT vs. M/s. AGS Customer Services India Pvt Ltd. vide ITA No.162/PUN/2022 order dated 16.09.2022 for assessment year 2010-11 and the decision of the Hon’ble Delhi High Court in the case of Aon Consulting Private Limited vs. PCIT and ors vide ITA No.244/2024 order dated 06.02.2025. He accordingly submitted that the approach proposed by the TPO to compare the

The Ld. DR on the other hand heavily relied on the orders of the AO/TPO / DRP. In his alternate contention, he submitted that the matter may be restored to the file of the TPO for fresh adjudication.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer / TPO / DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as the TP adjustment with respect to manufacturing and distribution of packaging material in Indian market segment is concerned, we find the assessee in its TP study had arrived at set of 14 comparables with profit margin varying 4.16% to 6.72% respectively for the domestic segment. Since the assessee had earned net profit margin of 5.40% during the financial year 2020-21 and had selected TNMM method as the most appropriate method, the transactions were concluded to be at arm’s length. We find the TPO in the TP order rejected 7 comparables selected by the assessee and added 8 additional comparables. So far as the 7 comparables selected by the assessee and rejected by the TPO are concerned, we find Holistik India Limited is not at all a comparable company. We find from the details furnished in the paper book that the said company is engaged in the business of

We find from the website screenshot, copy of which is placed in the paper book, that it clearly states that the company is engaged into multiple activities like anti-counterfeiting, labels and packaging and based on the review of the company’s website, Holostik is engaged in the business of manufacturing of holograms. A perusal of page 639 of the paper book which gives the segmental details shows that there are no details of income from packaging. We, therefore, find merit in the argument of the Ld. Counsel for the assessee that it is not known about the profits from packaging, if any and the main products cannot be compared as packaging and it is not known what type of packaging Holistik is carrying on. In view of above discussion, we hold that Holistik India Ltd. is not a comparable to that of the assessee and therefore we direct the TPO / AO to exclude the same from the final set of comparables.

So far as Naini Papers Ltd selected by the TPO as comparable is concerned, we find Naini Papers Ltd is engaged in the business of manufacturing of soda ash, soda lye, writing and printing paper. It is also engaged in R & D activities. We find the DRP has accepted the inclusion of the company on the basis of broad comparability. However, from the details furnished in the paper book, we find the above company operates its business primarily in two segments namely paper and inorganic chemical. The company’s product offerings in paper segment includes Naini perfect print, sea while, super print, prime era, premium, naini maple, absorbent kraft, naini Kristal card and naini pack. In our opinion manufacturing of papers cannot be comparable to that of the assessee who is engaged in manufacturing of aseptic packaging for beverages. In view of above discussion, we hold that Naini Papers Ltd is not a comparable to that of the assessee. We, therefore, direct the TPO / AO to exclude the same from the final set of comparables.

So far as Sri Luxmi Tulasi Agro Paper Pvt. Ltd. is concerned, we find the said company is engaged in the business of manufacturing of kraft paper and in the business of generation of power. We find the DRP rejected the submissions made by the assessee and accepted the inclusion of the company on the basis of broad comparability. From the audited financial statements of the company, we find no segmental details are available. We find the Tribunal in assessee’s own case for assessment year 2005-06 vide ITA Nos.1610/PUN/2013, 1647/PUN/2013 and

We find the revenue reported in the financial statement for the relevant product i.e. kraft paper is amounting to INR 153,06,88,196 which fails the 10 times turnover filter applied by the TPO. Further the company has not maintained separate segmental information for its operations relating to kraft paper and electrical energy and consequently, the margins earned by the company from manufacture of kraft paper and paperboards cannot be ascertained.

In view of above discussion, we hold that Sri Luxmi Tulasi Agro Paper Pvt. Ltd. is not a comparable to that of the assessee and therefore we direct the TPO / AO / DRP to exclude the same from the final set of comparables.

So far as S J S Enterprises Ltd which has been added by the TPO in the list of copmarables is concerned, we find SJS is engaged in the business of manufacturing of self-adhesive labels like automotive dials, overlays, badges, andlogos for the automotive, electronics and appliances industry. Further, the company owns significant intangibles i.e. technical knowhow. We find SJS is engaged in the business of wide range of aesthetics products catering to two- wheelers, passenger vehicles, commercial vehicles, consumer durables / appliances, medical devises, farm equipment and sanitary ware industries. The company’s products include decals, body graphics, 2D/3D appliques & dials, 3D lux badges, domes, overlays, aluminum badges, in-mould label etc. We find the company is primarily engaged into manufacturing of decorative and aesthetic components for automotives and consumer goods and cannot be a comparable to the assessee company which is engaged in manufacturing of aseptic carton packages. We find from the financials of the company that it owns significant intangibles i.e. technical knowhow. In view of above discussion, we hold that S J S Enterprises Ltd is not comparable to that of the assessee company and therefore we direct the TPO / AO / DRP to exclude the same from the final set of comparables.

So far as Garware Hi-Tech Films Ltd considered by the TPO as comparable is concerned, we find Garware Hi-Tech Films Ltd is engaged in the business of manufacturing and exporting of specialty polyester films used for food grade packaging and food packaging bottle shrink label application. It is also engaged in

So far as S M L Films Ltd is concerned, we find SML Films Ltd is engaged in the business of manufacturing and exporting of BOPET film, metallized film, lacquered film, coated films, metallic yarn, metallized yarn and jari powder. Further, the assessee owns non routine intangibles i.e. brands and trademarks. We

So far as Astron Paper & Board Mill Ltd is concerned, We find Astron Paper & Board Mill Ltd is engaged in the business of manufacturing kraft paper from waste paper and corrugated paper and paper board. It has also incurred marketing expenses. We find the DRP directed the inclusion of the company stating that it is comparable to that of the assessee. We find the corporate information of the company reads as under:

We find clause ‘J’ of significant accounting policy i.e. operating segment reads as under:

We further find a fire broke out in Astron premises affecting financial numbers of the company. We find clause ‘k’ of Note 34 : Other Notes read as under: “k) Event After the Reporting Date: Subsequent to the financial statements reporting date i.e. 31st March, 2020, fire broke out at the factory premise of the subsidiary company i.e. Balaram Papers Private Limited on 1st June, 2020 destroying stock of raw materials i.e. waste paper of the company sent for job work to the subsidiary company. The value of stock destroyed by fire was approximately Rs.3.15 Crores as per initial assessment made by the management of the company. Since the event occurred subsequent to the financial statements reporting date and being indicative of conditions that arose after the reporting period (31st March, 2020) but before authorization of financial statements for issue by the Board of Directors (19th June, 2020) i.e. non-adjusting events after the reporting period, the financial statements have not been adjusted for the effects of loss of above raw materials and possible insurance claim realisable and has no impact on the financial position of the company as at 31st March, 2020 and net profit and other comprehensive income of the company for the financial year ended on 31st March, 2020.”

Further, we find the paper and paper boards are used as a raw material in the process of the manufacturing of packaging materials of the assessee. The paper used cannot be recycled paper in the manufacturing process while the comparable company uses recycled / waste paper to manufacture the kraft papers. We find the kraft paper has been removed as comparable in assessee’s own case by the Tribunal in assessment year 2005-06. In view of above discussion, we hold that Astron Paper & Board Mill Ltd is not comparable to that of the assessee and we direct the TPO / AO / DRP to exclude the same from the final set of comparables.

So far as Ruchira Papers Ltd is concerned, we find Ruchira Paper Ltd is engaged in the business of manufacturing kraft paper and writing & printing paper.

So far as the rejection of assessee’s comparable i.e. Huhtamaki PPL Ltd is concerned, we find the above company was rejected only on account of different financial year filter. From the submissions made by the assessee we find this company is a listed company and quarterly financial statements are available. We find the Hon’ble Punjab & Haryana High Court in the case of CIT vs. M/s. Mercer Consulting (India) Pvt. Ltd. (supra) has upheld the decision of the Tribunal in

We find the Co-ordinate Bench of the Tribunal in the case of Vodafone Global Services Pvt Ltd. vs. ACIT (supra), following the above decision, has directed the TPO to extrapolate the results for the comparative period by observing as under: “35. We find the said R Systems International Limited selected by the assessee as comparable. We note that the TPO rejected the same on the ground that the data of the said company are that of different financial year and excluded the same which is evident from page 400 of the appeal memo. The assessee challenged the same before the DRP and contended the exclusion of the said R Systems International Limited is inappropriate. The DRP since it approved application of quantitative turnover filter and the methodology adopted by the TPO, rejected the contention of the assessee and confirmed the exclusion of R Systems International Limited form the list of comparables. The ld. AR drew our attention to the decision of Mumbai Benches of the Tribunal in the case of Goldman Sachs (India) Securities Pvt. Ltd. in ITA Nos. 1115 & 1546/MUM/2015 for A.Y. 2010- 11. On perusal of the said order dated 17-02-2022 which is at page No. 195 of the paper book, wherein, the Tribunal discussed the issue of comparability of R Systems International Limited at para 18 at page 231 of the paper book. On an examination of the relevant para 18, we note that the Tribunal directed the AO to include the said company in the list of comparables though the accounting year is different. Further, the Tribunal directed the TPO to extrapolate the results for the comparative period. As we discussed above that admittedly, the TPO rejected R Systems International Limited as comparable only on the ground that the data is available of different accounting year and following the order of Tribunal in the

Since Huhtamaki PPL Ltd does not fail 10 times turnover filter, therefore, respectfully following the decisions cited (supra), we direct the TPO to accept the said comparable in the set of final list of comparables by extrapolating the figures.

So far as the working capital adjustment is concerned, we find the TPO himself in the TP order has granted the working capital adjustment for Hub Service segment. Further, the Tribunal in assessee’s own case for assessment year 2005-06 has allowed the working capital adjustment by observing as under: “D. Working Capital Adjustments 49. On the issue of grant of adjustment on account working capital, we find that it is a settled legal issue by the decision of the Pune Bench of the Tribunal in the case of ITO vs. Nevis Network (India) (P.) Ltd. vide ITA No.338/PUN/2012 dated 24.12.2014; wherein the Tribunal held that the ‘working capital adjustments’ are required to be granted as raised by the assessee vide additional grounds placed before us. 50. Considering the cover nature of this issue, we are of the opinion the additional grounds should not only be admitted but also the Assessing Officer should be directed to grant working capital adjustments. For this purposes, the above tables inserted in the preceding paragraphs of this order should be remanded to the file of the TPO/Assessing Officer for incorporating the above direction and benchmarking the transactions discussed above. The Assessing Officer should be granted reasonable opportunity of being heard to the assessee while examining the data and granting working capital adjustments as per the set principles of natural justice. Hence, relevant grounds stand allowed for statistical purposes.”

Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case for assessment year 2005-06, we restore the issue to the file of AO / TPO for allowing the working capital adjustment. Grounds of appeal No.3 to 3.6 are accordingly allowed as indicated above.

So far as the incorrect rejection of comparable companies with respect to Hub services segment is concerned, it is the contention of the Ld. Counsel for the assessee that Bhilwara Infotechnology Limited (“Bhilwara” in short) was incorrectly rejected as comparable company. We find from the various details furnished by the assessee in the paper book that Bhilwara is engaged in two segments – medical transcription and IT software. Out of both the segments, medical transcription segment is comparable to the ITeS business of the assessee and satisfies the export filter applied by the TPO.

We find Rule 10TA(e) reads as under: “10TA. For the purposes of this rule and rule 10TB to rule 10TG,— (a).. … (e) “information technology enabled services” means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:— (i) back office operations; (ii) call centres or contact centre services; (iii) data processing and data mining; (iv) insurance claim processing; (v) legal databases; (vi) creation and maintenance of medical transcription excluding medical advice; (vii) translation services; (viii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres; (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or (xv) clinical database management services excluding clinical trials, but does not include any research and development services whether or not in the nature of contract research and development services” (emphasis supplied)

In view of the above, we are of the considered opinion that medical transcription segment of the comparable company should be taken into consideration and therefore Bhilwara Infotechnology Limited should be allowed as a comparable in Hub Service segment.

So far as Ideavate Solutions Pvt Ltd is concerned, we find the TPO rejected this company on the basis of RPT filter. However, from the various details furnished by the assessee, we find RPT is less than 21.64%. We, therefore restore this issue to the file of the TPO with a direction to verify the details and find out the RPT / sales percentage and if it is less than 25% of the filter applied by the TPO, then to retain the same as comparable.

So far as the selection of the 2 additional companies i.e. Thomson Reuters International Services Pvt Ltd and Global Healthcare Billing Partners Pvt. Ltd. as part of comparable set is concerned, we find although the Ld. Counsel for the assessee filed various details to substantiate his case that both the companies are engaged into the provision of similar services like that of the assessee and should be considered as comparable in the final set of comparables, we find the same has not been verified by the TPO and the DRP.

We find the Co-ordinate Bench of the Tribunal in the case of Seco Tools India Pvt. Ltd. vs. DCIT (supra) at para 5 of the order has observed as under:

In view of the above decision, we restore the issue to the file of the TPO with a direction to verify the details and if the assessee passes FAR test, then to include the same as comparable in the final set of comparables. Grounds of appeal No.4 to 4.8 are accordingly allowed in the above terms.

So far as the addition in respect of manufacturing and distribution in the Export Market Segment is concerned, we find the TPO issued show cause notice for determination of ALP of international transaction pertaining to Export Packmat Segment wherein he proposed to make an upward adjustment of Rs.2,26,03,992/-. We find the assessee in the instant case benchmarked the same with 14

We find an identical issue had come up before the Pune Bench of the Tribunal in the case of DCIT vs. M/s. AGS Customer Services India Pvt Ltd. (supra). We find the Tribunal at para 5 of the order has observed as under: “5. We have given our thoughtful consideration to the forgoing rival pleadings and find forced in the Revenue’s stand since an advance pricing agreement “APA” is applicable only for the specified time span not exceeding five consecutive previous years u/s.92CC(4) r.w. sub section (9A) of the Act. We make it clear that Chapter X in the Act is in the nature of a “SPECIAL PROVISION RELATING TO AVOIDANCE OF TAX” i.e. an anti avoidance measure introduced by the legislature. Hon’ble apex court’s recent landmark decisions PCIT V/s Wipro Ltd. (2022) 140 taxmann.com 223, Commissioner V/s Dilip Kumar & Co. 2018 (9) SCC 1(SC) FB & CIT V/s. GM Knitting Industries (P) Ltd.(2015) 376 ITR 456 (SC) have settled the law that the relevant provisions in the Act ought to be put to stricter interpretation only. Faced with this situation, we reverse the CIT(A)’s findings in issue going against sec. 92CC(4) r.w.s.(9A) of the Act (supra) and direct him to re-decide all of the assessee’s grounds in the lower appeal afresh as per law. This Revenue’s appeal ITA No. 162/Pun/2022 is allowed for statistical purposes.”

We find the Hon’ble Delhi High Court in the case of Aon Consulting Private Limited vs. PCIT and Ors (supra) has held as under: “32. It is clear from the above that MAP is a resolution process by competent authorities of contracting states by negotiations and consensus. 33. In a case of a transfer pricing adjustment, an assessee may not be aggrieved by an upward revision if the overall taxation between the assessee and its AE is acceptable to it. A multi-national group may accept a situation where an upward TP adjustment by a taxing authority of one country has a corresponding mitigating effect on the taxable revenue of its constituent entity in the other contracting state. It may do so even though it considers the same to be incorrect as the adverse effect in one jurisdiction may even out in another. However, this would not justify a TP adjustment in respect of transactions which are disputed and not subjected to MAP. 34. It is important to note that MAP procedure is based on an agreement between the competent authorities of the contracting states, which is accepted by the Assessee. The effect of imputing a framework arrived at between competent authorities of India and the US in respect of US Transactions to Non-US Transactions has an effect of imposing a consensual and negotiated settlement regarding one set of transaction to another where there is no such consensus. This

We, therefore, hold that the approach proposed by the TPO to compare the operating profit margin as agreed in the APA for assessment year 2014-15 to assessment year 2018-19 with the actual operating margin earned by the assessee for assessment year 2020-21 which is not a covered year of the said APA is inappropriate and against the provisions of the Act. However, no discussion has taken place regarding the first show cause notice issued proposing an upward adjustment of Rs.2,26,03,992/-. We, therefore, restore this issue to the file of the AO / TPO with a direction to re-adjudicate the issue of ALP of the manufacturing and distribution in the export market segment. Needless to say the AO / TPO shall give due opportunity of being heard to the assessee and decide the issue as per fact

In the result, the appeal filed by the assessee is partly allowed in the above terms.