FLORA BIOCHEM PRIVATE LIMITED,COIMBATORE vs. DCIT, COIMBATORE

ITA 1123/CHNY/2026Status: DisposedITAT Chennai29 September 2026AY 2022-2316 pages
AI SummaryAllowed

What were the facts?

The assessee, Flora Biochem Private Limited, filed an appeal against the final assessment order dated 16.12.2025 passed by the Assessment Unit under section 143(3) read with sections 144C(13) and 144B of the Income Tax Act, 1961, for Assessment Year 2022-23. The assessee is engaged in manufacturing and marketing animal healthcare products. The assessment involved international transactions with Associated Enterprises (AEs), including the purchase of poultry feed premix and the receipt of technical know-how fees. The Transfer Pricing Officer (TPO) proposed an adjustment of Rs. 1,61,54,610/- in respect of technical know-how fees, and the Assessing Officer proposed additions including this TP adjustment, disallowance of income tax paid, disallowance of provision for performance incentives of Rs. 76,50,000/- under section 40A(2)(b), and other additions. The assessee contested these additions before the Dispute Resolution Panel (DRP).

What did the Tribunal hold?

The Tribunal held that the technical know-how fees received by the assessee from its AE were inextricably linked with the purchase of poultry feed premix. The Tribunal found that the technical know-how was provided to facilitate the purchase of premix and that the AE could not commercially exploit the know-how independently. The Tribunal also noted that the provision of technical know-how was revenue neutral as any higher charge would be compensated by a higher purchase price of the premix. Therefore, the Tribunal directed the Assessing Officer to delete the Transfer Pricing adjustment of Rs. 1,61,54,610/- related to the receipt of technical know-how fees, allowing Ground of Appeal No. 2. Regarding the disallowance of the provision for performance incentives of Rs. 76,50,000/-, the Tribunal observed that the Assessing Officer invoked section 40A(2)(b) without recording a finding that the expenditure was excessive or unreasonable having regard to the fair market value of services, the legitimate needs of the business, or the benefits derived by the assessee. Citing precedents, the Tribunal held that the Assessing Officer must establish excessiveness or unreasonableness before invoking the provision. As no such finding was made by the Assessing Officer, the Tribunal directed the deletion of the addition of Rs. 76,50,000/-, allowing Ground of Appeal No. 3.

What were the issues?

1. Whether the Tribunal had to decide if the purchase of poultry feed premix and the supply of technical know-how (formulation) are interlinked transactions that cannot be benchmarked separately, and if the technical know-how cannot be commercially exploited by the AE with third parties to charge at Arm's Length Price (ALP), and if charging more for technical know-how is revenue neutral, and if the appellant charged its AE only to recover costs and is not in the business of selling formulations at ALP. (Assessee's contention: These transactions are interlinked and revenue neutral. The know-how cannot be exploited commercially by the AE. The charges are cost recovery. Revenue's contention: Not recorded in the judgment. 2. Whether the Tribunal had to decide if the RoyaltyStat Database comparables were wrongly applied by the TPO and DRP as they included other intangibles like trademarks, whereas only formulations were supplied without adjustments. (Assessee's contention: Comparables were inappropriate. Revenue's contention: Not recorded in the judgment. 3. Whether the Tribunal had to decide if the provision for performance incentives of Rs. 76,50,000/- was wrongly disallowed by the TPO and DRP solely on the ground of non-disclosure under section 40A(2)(b) in the Tax Audit Report, despite being disclosed in audited financials, and if the disallowance was made without appreciating that the company commenced manufacturing for the first time, achieved turnover increase, introduced new formulations, and that key managerial personnel had requisite qualifications and rendered services for the incentives, which were paid and offered to tax in the subsequent year. (Assessee's contention: Disallowance is erroneous on multiple grounds. Revenue's contention: Not recorded in the judgment.)

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 92B,Section 92CA(1),Section 92CA(3),Section 144C(1),Section 40A(2)(b),Section 40A(1A)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES, CHENNAI BENCH: D

Pronounced: 29.09.2026

PER INTURI RAMA RAO, ACCOUNTANT MEMBER :

This appeal filed by the Assessee-company directed against the final assessment order passed by the of the Assessment Unit of the Department dated 16.12.2025 passed u/s.143(3) r.w.s 144C(13) read with section 144B of the Income Tax Act, 1961 for the Assessment Year 2022-23. 1 FLORA BIOCHEM PRIVATE LIMITED

2.

The Assessee-company raised the following grounds of appeal :

“1. The impugned order of the Ld. AO in line with the directions of the Ld DRP is contrary to the law, facts and

The order continues below.

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