ZUARI CEMENT LIMITED,YERRAGUNTLA vs. DCIT., CIRCLE-1, NELLORE

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ITTPA 274/HYD/2025Status: DisposedITAT Hyderabad04 September 20269 pages
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What did the Tribunal hold?

The Tribunal held that the transfer pricing adjustment of Rs. 8,24,83,899/- on account of interest on Masala Bonds is not sustainable. The Tribunal noted that the Unilateral Advance Pricing Agreement (APA), entered into on 16.02.2024, covers the assessment year 2021-22 and stipulates an arm's length interest rate of not more than 8.70% per annum for this transaction. Since the assessee paid interest at exactly 8.70% per annum, which is within the agreed arm's length rate, the adjustment made by the TPO and AO cannot be sustained. The Tribunal directed the Assessing Officer to delete this adjustment. Grounds nos. 5 to 7 were allowed. Regarding the transfer pricing adjustment of Rs. 4,16,720/- for IT support services, the Tribunal followed its earlier decision in Xilinx India Technology Services Private Limited vs. DCIT. It held that companies with disproportionately high turnover should be excluded and that a turnover range of ten times on both sides of the assessee's turnover should be applied for benchmarking. The Tribunal directed the Assessing Officer/TPO to apply the turnover filter uniformly to all comparables using this range and then determine the arm's length price. Grounds nos. 8 and 9 were allowed for statistical purposes.

What were the facts?

The assessee, Zuari Cement Ltd., filed an appeal before the ITAT Hyderabad Bench against the assessment order for AY 2021-22, passed by the Dy. CIT. The assessment order, finalized under section 143(3) r.w.s. 144C(13) r.w.s. 144B, incorporated transfer pricing adjustments of Rs. 8,29,00,619/-. These adjustments comprised Rs. 4,16,720/- for IT support services and Rs. 8,24,83,899/- for interest on Masala Bonds. The assessee had initially declared a total income of Rs. 208,36,76,860/-. The case was referred to the TPO due to international transactions with Associated Enterprises. The Ld. DRP sustained the proposed adjustments, leading to the final assessment order. The appeal was filed with a delay of 51 days, which was condoned by the Tribunal.

What were the issues?

1. Whether the transfer pricing adjustment of Rs. 8,24,83,899/- on account of interest on Masala Bonds is sustainable, considering the assessee entered into a Unilateral Advance Pricing Agreement (APA)? (Question of law and fact, concerning Section 92CA). - Assessee's contention: The APA, effective from 16.02.2024, covers AY 2021-22 to 2025-26, with an agreed arm's length interest rate of not more than 8.70% per annum. The assessee paid interest at 8.70%, which is within the APA limit. A modified return was filed post-APA. Therefore, the adjustment should be deleted. - Revenue's contention: Not recorded. 2. Whether the transfer pricing adjustment of Rs. 4,16,720/- on account of provision of IT support services is sustainable, specifically concerning the application of a turnover filter for comparables? (Question of law and fact, concerning Section 92CA). - Assessee's contention: The Tribunal's decision in Xilinx India Technology Services Private Limited vs. DCIT (ITA No. 1761/Hyd/2019) should be followed, which mandates the exclusion of companies with disproportionately high turnover and the application of a turnover range of ten times on both sides of the assessee's turnover. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 143(2),Section 92CA(3),Section 144C(1),Section 144C(5),Section 92CA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A‘ Bench, Hyderabad

Before: Shri Ravish SoodShri Madhusudan Sawdia

Hearing: 20/08/2026

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.274/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2021-22) Zuari Cement Ltd, Vs. Dy. CIT Yerraguntla Circle – 1 PAN: AACZ1270E Nellore (Appellant) (Respondent) िनधा�रती �ारा/Assessee by: CA Nitin Narang राज� व �ारा/Revenue by: Smt. Seema Meena, CIT(DR) सुनवाई की तारीख/Date of hearing: 20/08/2026 घोषणा की तारीख/Pronouncement: 04/09/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:

This appeal is filed by Zuari Cement Ltd (“the assessee”), feeling aggrieved by the assessment order passed by the Assessing Officer under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) as per the directions of the Learned Dispute Resolution Panel-1 Bengaluru (“Ld. DRP”) dated 30.10.2024 for the A.Y. 2021- 22. 2. At the outset, it is observed that there is a delay of 51 days in filing the appeal before this Tribunal, for which the assessee has filed a condonation petition along with an affidavit explaining the reasons for the delay. The Learned

2 Departmental Representative (“Ld. DR”) has raised no objection to the condonation of delay. We have gone through the material available on record and find that the assessee has shown sufficient cause for the delay in filing the appeal. Accordingly, we condone the delay of 51 days in filing the appeal before this Tribunal and admit the appeal for adjudication on merits.

3.

The assessee has raised the following grounds of appeal:

4.

The brief facts of the case are that the assessee is a company engaged in the business of production and sale of Portland cement for commercial, industrial and residential construction activities. The assessee filed its return of income

4 for the assessment year 2021-22 on 12.03.2022, declaring total income of Rs. 208,36,76,860/- under the normal provisions of the Income-tax Act, 1961 (“the Act”) and book profit of Rs. 210,02,78,948/- under the provisions of Minimum Alternate Tax (“MAT”). The case of the assessee was selected for complete scrutiny and, accordingly, notice under section 143(2) of the Act dated 28.06.2022 was issued by the Assessing Officer. As the assessee had entered into international transactions with its Associated Enterprises (“AEs”), the case was referred to the Transfer Pricing Officer (“TPO”) for determination of the arm’s length price. The TPO, vide order passed under section 92CA(3) of the Act dated 31.10.2023, proposed transfer pricing adjustments of Rs. 4,16,720/- on account of provision of IT support services and Rs. 8,24,83,899/- on account of interest on Masala Bonds. Accordingly, the Assessing Officer passed the draft assessment order under section 144C(1) of the Act dated 23.12.2023, proposing the aforesaid transfer pricing adjustments.

5.

Aggrieved by the draft assessment order, the assessee filed objections before the Ld. DRP. The Ld. DRP, vide directions issued under section 144C(5) of the Act dated 10.09.2024, sustained the transfer pricing adjustments proposed in the draft assessment order. Consequently, the Assessing Officer passed the final assessment order under section 143(3) read with sections 144C(13) and 144B of the Act dated 30.10.2024, making total transfer pricing adjustment of Rs. 8,29,00,619/-, comprising Rs. 4,16,720/- on account of provision of IT support services and Rs. 8,24,83,899/- on account of interest on Masala Bonds, thereby computing the total income of the assessee at Rs. 216,65,77,479/- under the normal provisions

5 of the Act and book profit at Rs. 218,31,79,567/- under the MAT provisions.

6.

Aggrieved by the final assessment order, the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee is pressing only two issues. The first issue relates to the transfer pricing adjustment of Rs. 8,24,83,899/- on account of interest on Masala Bonds, covered by grounds nos. 5 to 7, and the second issue relates to the transfer pricing adjustment of Rs. 4,16,720/- on account of provision of IT support services, covered by grounds nos. 8 and 9.

7.

So far as the transfer pricing adjustment of Rs. 8,24,83,899/- on account of interest on Masala Bonds is concerned, the Ld. AR invited our attention to the copy of the Unilateral Advance Pricing Agreement (“APA”) placed at page nos. 154 to 199 of the paper book and submitted that the assessee has entered into the said APA on 16.02.2024. Further inviting our attention to the relevant clauses of the APA, the Ld. AR submitted that the APA covers the assessment years 2021-22 to 2025-26 and, in respect of the international transaction relating to interest on Masala Bonds, the arm’s length interest rate has been agreed at not more than 8.70% per annum. Accordingly, it was submitted that for the year under consideration, the benchmarking of interest on Masala Bonds cannot exceed 8.70% per annum. The Ld. AR further invited our attention to para no. 3.1 of the order of the Ld. TPO and submitted that the assessee had paid interest at the rate of 8.70% per annum on the Masala Bonds during the year under consideration. Thus, according to the Ld. AR, the

6 interest paid by the assessee is within the arm’s length rate agreed upon under the APA and, therefore, no transfer pricing adjustment on account of interest on Masala Bonds survives. The Ld. AR also invited our attention to the modified return filed by the assessee on 29.05.2024, placed at page nos. 200 to 284 of the paper book, and submitted that the assessee had already filed the modified return consequent to entering into the APA. Accordingly, he prayed that a suitable direction be issued to the Assessing Officer to delete the transfer pricing adjustment of Rs. 8,24,83,899/- made on account of interest on Masala Bonds.

8.

Per contra, the Ld. DR fairly conceded to the submissions made by the Ld. AR.

9.

We have heard the rival submissions and perused the material available on record. We have also gone through the copy of the APA placed at page nos. 154 to 199 of the paper book. On perusal of the same, we find that the APA was entered into by the assessee on 16.02.2024 and covers, inter alia, the assessment year 2021-22 under consideration. Under the terms of the APA, the arm’s length interest rate in respect of the transaction relating to Masala Bonds has been agreed at not more than 8.70% per annum. We have further gone through para no. 3.1 of the order of the Ld. TPO and find that the assessee has paid interest at the rate of 8.70% per annum on the Masala Bonds during the year under consideration. Thus, the rate of interest actually paid by the assessee is within the arm’s length rate agreed upon under the APA. We also find that, consequent to entering into the APA, the assessee filed the modified return of income on

7 29.05.2024, a copy of which has been placed at page nos. 200 to 284 of the paper book. In view of the above, once the international transaction relating to interest on Masala Bonds for the assessment year under consideration is covered by the APA and the interest actually paid by the assessee at the rate of 8.70% per annum is within the arm’s length rate agreed upon therein, the transfer pricing adjustment of Rs. 8,24,83,899/- made on this account cannot be sustained. We, accordingly, direct the Assessing Officer to delete the transfer pricing adjustment of Rs. 8,24,83,899/- made on account of interest on Masala Bonds. Accordingly, grounds nos. 5 to 7 raised by the assessee are allowed.

10.

So far as the transfer pricing adjustment of Rs. 4,16,720/- on account of provision of IT support services is concerned, the only issue involved is regarding the application of turnover filter. We find that an identical issue has been decided by this Tribunal in the case of Xilinx India Technology Services Private Limited Vs. DCIT in ITA No. 1761/Hyd/2019 for the assessment year 2015-16, vide order dated 08.08.2025. At para no. 14.1.1 of the said order, the Tribunal has held as under:

“14.1 On perusal above, we find that this Tribunal has excluded Mindtree Ltd., L&T Infotech, and Infosys Ltd. on the ground that these companies were operating on a significantly larger scale and were not comparable to a mid-sized software development service provider like the assessee. The turnover of the assessee in the present case is only Rs.232.05 crores, whereas the turnover of these three companies is several thousand crores, clearly demonstrating scale and risk dissimilarity. Respectfully following the said precedent, we are of the considered view that Mindtree Ltd., L&T Infotech, and Infosys Ltd. are liable to be excluded from the final set of comparables. 14.1.1 Further, this Tribunal has persistently held that, companies with proportionately

8 high turnover should be excluded and the application of tolerance range of turnover of ten times on both sides of assessee's turnover was proper. There is no dispute about the fact that the turnover of Mindtree Ltd., L&T Infotech, and Infosys Ltd. are more than 10 times than the turnover of the assessee, which clearly breaches the tolerance range of turnover of ten times on both sides of assessee's turnover . Accordingly, we direct the exclusion of Mindtree Ltd., L&T Infotech, and Infosys Ltd. from the final set of comparables.”

11.

On perusal of the above, we find that the Tribunal has categorically held that companies having disproportionately high turnover should be excluded and that a turnover range of ten times on both sides of the assessee’s turnover should be applied for the purpose of benchmarking. Accordingly, respectfully following the decision of this Tribunal in the case of Xilinx India Technology Services Private Limited Vs. DCIT (supra), we direct the Assessing Officer/TPO to apply the turnover filter uniformly to all the comparables by adopting a turnover range of ten times on both sides of the assessee’s turnover and thereafter determine the arm’s length price in accordance with law. Accordingly, grounds nos. 8 and 9 raised by the assessee are allowed for statistical purposes.

12.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 4th September, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 4th September, 2026. Vinodan/SPS

9 Copy to: S.No Addresses 1 Zuari Cement Ltd, Krishna Nagar, Yerraguntla, Cuddapah 516311 A.P 2 Dy. CIT, Circle-1 Nellore-1 Andhra Pradesh 3 Pr. CIT, Tirupati 4 DR, ITAT Hyderabad Benches 5 Guard File By Order

TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.09.04 MALLESWARI 11:52:40 +05'30'

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