ASANDAS & SONS PRIVATE LIMITED,MEHSANA vs. THE DY.CIT, CIRCLE- GANDHINAGAR, GANDHINAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.2243/Ahd/2025 (Assessment Year: 2022-23) Asandas & Sons Pvt. Ltd., Vs. Deputy Commissioner of R. S. No. 337, (Old Survey No. Income Tax, 189), Mehsana-Ahmedabad Circle Gandhinagar, Highway, Ganeshpura Kadi, Gandhinagar Mehsana-382705 [PAN No.AARCA6913E] (Appellant) .. (Respondent) Appellant by : Shri Dhinal Shah, AR Respondent by: Shri Sher Singh, CIT-DR Date of Hearing 26.03.2026 Date of Pronouncement 22.04.2026 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Deputy Commissioner of Income Tax Transfer Pricing (in short “Ld. DCIT(TP)”), DC/ACIT TP 1, Ahmedabad vide order dated 28.01.2025 passed for A.Y. 2022-23.

“1. Ground No. 1 - Upward transfer pricing adjustment of INR 23,01,101. 1.1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer ("AO") / Hon'ble Dispute Resolution Panel ("DRP") has erred in making certain observations against the Appellant, in as much as, the tax department is required to collect taxes as per law and not by mis-using certain bonafide inadvertent mistakes and therefore, the negative observations of the learned AO / DRP need to be disregarded from the order passed by Transfer Pricing Officer ("TPO") / DRP directions . 1.2. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in facts and circumstances of the case and in law, in re-computation of the arm's length price ("ALP") of the specified domestic transactions entered by the Appellant, by making an upward adjustment of INR 23,01,101.

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1.3. On the facts and circumstances of the case, the learned AO / Hon'ble DRP erred in taking Comparable Uncontrolled Price ("CUP") method as Most Appropriate Method ("MAM") by comparing certain selected transactions and observing that invoices do not reflects quality difference in as much as having regard to Potato being commodity and nature of business of the Appellant and COVID 19 situation, CUP may not be considered as MAM under the provisions of section 92C and rule 10B. 1.4. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in deciding the MAM as internal CUP on the ground that AE / HAPL is undertaking complex functions, in as much as, AE / HAPL is a routine trader of potato and does not undertakes any complex functions and the learned AO / Hon'ble DRP ought to have applied the correct MAM based on the facts and circumstances of the case. 1.5. On facts and circumstances of the case, the learned AO / Hon'ble DRP erred in working out upward adjustment of INR 23,01,101 by directly comparing the prices of potatoes sold by Associated Enterprise ("AE") i.e., Hyfun Agrilink Private Limited ("HAPL") to Appellant vis-à-vis prices of potatoes sold by AE to third parties without making pricing adjustments as per Rule 10B which could materially affect the price in the open market as are required to be made in the facts of the Appellant. 1.6. On the facts and circumstances of the case, the learned AO / Hon'ble DRP erred in not accepting the alternative benchmarking method by treating MAM as Transaction Net Margin Method ("TNMM") and by taking AE as testing party based on the nature of business and availability of reliable comparables though AE is least complex and does not own intangibles. 1.7. On facts and circumstances of the case, the learned AO / Hon'ble DRP failed to appreciate the fact that the net margin of the AE works out to 6.01% and that the net margin of AE is higher than the margins earned by comparable companies (i.e., 4.10% based on prowess database and range of 1.02% to 1.45% based on Capitaline and ACE TP database). Accordingly, the transaction meets the arm's length test. 1.8. Without prejudice to above, the learned AO / Hon'ble DRP has erred in not considering the margins of Appellant and the comparable company and consequently, failed to appreciate that provisions of specified domestic transactions on the facts of the case are applicable only when the eligible unit i.e., ASPL makes more than ordinary profits under section 80-18(13). 2. Ground No. 2-Initiation of penalty proceedings under section 270A of the Act 2.1. On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating the penalty proceedings under section 270A of the Act. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before hearing of the appeal. All the grounds of appeal stated above are without prejudice to each other.”

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 3– 3. The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing frozen potato-based food products such as French fries and other potato specialties under the “Hyfun Foods” brand. The assessee filed its return of income for A.Y. 2022–23 declaring total income of ₹14,52,65,970/-, which was processed under section 143(1) of the Income-tax Act, 1961 (“the Act”). Subsequently, the case was selected for complete scrutiny under CASS on multiple risk parameters viz. high liabilities vis-à-vis income, existence of large specified domestic transactions attracting transfer pricing provisions, discrepancies in stock reporting, mismatch in personal expenditure disclosures, and non-compliance with Income Computation and Disclosure Standards (ICDS).

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 4– which was considered appropriate given the nature of transactions, but later attempted to shift to the Transactional Net Margin Method (TNMM) without proper justification. Therefore, the Transfer Pricing Officer observed that the assessee had originally benchmarked its specified domestic transactions by applying the Comparable Uncontrolled Price (CUP) Method, which was considered appropriate having regard to the nature of transactions and availability of comparable data; however, during the course of proceedings, the assessee sought to change its benchmarking approach and adopt the Transactional Net Margin Method (TNMM) without furnishing any cogent or convincing reasons for such shift, and therefore, the TPO held that such change in method was not justified and appeared to be an afterthought aimed at avoiding the transfer pricing adjustment rather than reflecting a genuine change in facts or circumstances. The TPO further held that the agreement between the parties appeared to be an afterthought and that the pricing of high-quality potatoes supplied to the assessee was not consistent with market realities. Accordingly, the TPO determined an upward adjustment of ₹23,01,101/- to the purchase price of potatoes under section 92CA(3), thereby increasing the income of the assessee.

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 5– of method, functional comparability, and alleged absence of profit shifting.

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 6– 11. At the outset, we find that an identical issue had come up for consideration before the Ahmedabad Bench of the Tribunal in the assessee’s own case for A.Y. 2021–22 in Asandas & Sons Pvt. Ltd. vs DCIT in ITA Number 1854/Ahd/2024 (order dated 25-06-2025). In the said decision, the Tribunal was dealing with the same associated enterprise i.e. Hyfun Agrilink Private Limited (HAPL), identical nature of specified domestic transactions involving purchase of potatoes under a cost-plus arrangement, and the same controversy regarding rejection of TNMM and adoption of CUP by the TPO and DRP.

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 7– and that “the most appropriate method has to be applied having regard to the nature of transaction and availability of reliable data and technical mistakes in initial selection cannot prevent determination of correct Arm’s Length Price.” The ITAT further held that CUP cannot be applied merely because it was mentioned in Form 3CEB or initially adopted, if in substance it does not satisfy comparability requirements. While passing the order, Hon'ble ITAT made the following observations:

“9. On perusal of above provisions, it could be noted that broadly, CUP method compares the price charged with regard to a controlled transaction for transfer of goods or services to the price charged for transfer of goods or services in a third- party scenario having comparable circumstances. Accordingly, while applying CUP there shall be certain adjustments i.e. type and quality of the products, Delivery terms, Volume of sales and related discounts, Contractual terms, Allocation of risk, Geographical factors, etc. which needs to be made to eliminate the differences in the transactions between independent enterprises which has material impact on the price to reasonable extent. 9.1. Thus the nature of end consumer/business model of consumer to whom the product is being sold needs to be considered for comparability analysis. The price at which the product sold by an entity to a consumer for end-use (B2C model) may not be comparable with the price of the product sold to a consumer, who is using such product for its business (ie., B2B model). In this regard, reference to the decision of the Kolkata Tribunal in the case of Philips Carbon Black Ltd. [2022] (142 taxmann.com 325) (Kolata - Trib.) wherein the Tribunal has also appreciated the difference between the business models of end customers. 9.2. Further, as held by Jurisdictional High Court in the case of PCIT -Vs- Gulbrandsen Chemicals (P) Ltd reported in [2020] 119 taxmann.com 52 (Gujarat), the application of CUP method was not justified, in view of the fact that intra AE transactions were fundamentally d ifferent in character in economic circumstances and contractual terms and these cannot be compared with the independent transactions entered into by the assessee. 9.3. Thus, the case laws relied by the Ld. CIT-DR are clearly distinguishable pursuant to the Special Bench of Mumbai Tribunal decision. Therefore, the reliance placed by the Ld. DR are clearly distinguishable. 9.4. Further, the Assessee has submitted the agreement entered into with HAPL which is effective from 1st April 2021. As per the Supply Agreement, HAPL shall sell the potatoes to third parties only when the quantity held by HAPL is in excess of the requirement of ASPL. Further, HAPL shall sell potatoes to ASPL at cost plus agreed arm's length markup. It may be noted that this agreement is recording the oral terms and conditions followed in the earlier years also and the said fact has

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not been disputed by the Ld DR. Now applying the above principles to the facts of present case and as to whether CUP is applicable, it can be observed that  The processing variety of potatoes sold to small parties/ traders may have a different commercial use as compared to potatoes sold by ASPL which is utilized in manufacturing of french fries.  Potato being a perishable product may be subjected to huge variation in the prices.  HAPL has sold total quantity of 7,67,04,643 kilograms (KGs) to ASPL. As against this, the aggregate quantity sold to all the non-AEs (102 non-AEs) taken together is merely 5,35,67,155 KGs i.e., average sales made by HAPL to non-AEs individually do not account even 1% of the total sales made to HAPL. · Business model is different - sale to small parties/traders is B2C as compared to potatoes sold to ASPL (which is B2C).  As per the Supply Agreement, HAPL shall sell the potatoes to the third parties only when the quantity held by HAPL is in excess of the requirement of ASPL and rates are market driven. Whereas HAPL sell potatoes to ASPL at cost plus agreed arm's length markup.  Even quality of products are different and are not comparable as can be observed from the quality wise details maintained in the books of account of the Assessee. 9.5. In view of the above, TPO/DRP has not taken any accurate adjustments in order to apply CUP method nor considered the impact of above factors/fundamental differences while applying CUP method. Further, in the absence of lack of data in public domain to make accurate adjustments, it can be concluded that CUP cannot be considered as the most appropriate method in the present case and the analysis undertaken by the Assessee in TP study as well as by the ld TPO as confirmed by DRP suffer from various flaws does not reflect the correct ALP. 9.6. Now once it is concluded that CUP cannot be applied in the present case, the next best possible option is to consider TNMM as the most appropriate method. We find that the Assessee has submitted alternative benchmarking methodology during the course of assessment proceedings. Before coming to search submitted by the Assessee, in order to apply TNMM, first step would be decide the tested party. The tested party is usually the participant in a transaction for which profitability can be ascertained most reliably and for which reliable data on comparables can be found. The tested party will also typically be the party with the least intangibles and least complex entity. 9.7. ASPL has obtained license from international breeder i.e., Stet Holand B.V. (Netherland based entity) to multiply seeds and produce potatoes of a specified variety for manufacturing of frozen french fries and other allied products for which it pays royalty. ASPL also provides guidance and support for the purpose of harvesting good quality potatoes and also extends support for company- ordination with the farmers for efficient contract farming by HAPL and it co- ordinates with the farmers for contract farming based on support and guidance received from ASPL. Accordingly, it could be concluded that ASPL is the one who has obtained license and possesses the know-how for harvesting the specialized potatoes and HAPL merely co-ordinates with the farmers for producing required quality potatoes. Thus, ASPL could be considered as a complex entity as against HAPL, which is a mere trader and does not own any intangible. Hence, HAPL can

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 9– be considered as a "tested party" for the purpose of application of TNMM method. Accordingly, once HAPL is considered as tested party and also a trader, the net profit margin earned by HAPL can be compared with net profit margins earned by comparable companies engaged in trading activities as identified from third party database. Thus, we find CUP is inapplicable due to fundamental differences not reasonably adjustable and that TNMM is most appropriate method. 14. The Tribunal in the said order undertook a detailed analysis of Rule 10B and Rule 10C of the Income-tax Rules and international guidance including OECD Transfer Pricing Guidelines and UN TP Manual, and held that CUP requires high degree of comparability and reasonably accurate adjustments for differences in quality, volume, contractual terms and risk allocation. In the absence of such reliable adjustments, CUP cannot be sustained. Applying these principles to the facts of the case, the Tribunal categorically held that “CUP is inapplicable due to fundamental differences not reasonably adjustable.”

ITA No. 2243/Ahd/2025 Asandas & Sons Pvt. Ltd. vs. DCIT Asst.Year –2022-23 - 10– under a cost-plus mechanism, and the dispute again revolves around rejection of TNMM and adoption of CUP by the TPO without making necessary comparability adjustments. The reasoning adopted by the TPO and affirmed by the DRP in the present year is substantially identical to that adopted in A.Y. 2021–22. Thus, both on facts and in law, the issue is squarely covered by the decision of the coordinate bench in assessee’s own case.

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Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 22/04/2026 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 20.04.2026 (Dictated over dragon software) 2. Date on which the typed draft is placed before the Dictating Member 20.04.2026 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 21.04.2026 5. Date on which the fair order is placed before the Dictating Member for pronouncement 22.04.2026 6. Date on which the fair order comes back to the Sr.P.S./P.S 22.04.2026 7. Date on which the file goes to the Bench Clerk 22.04.2026 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order……………………………………