VTS TF AIR SYSTEMS PRIVATE LIMITED,KARNATAKA vs. THE INCOME TAX OFFICER, WARD 7(1)(1) BANGALORE, KARNATAKA

ITTPA 710/BANG/2026Status: DisposedITAT Bangalore27 August 2026AY 2022-202330 pages
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What were the facts?

The assessee, VTS TF AIR SYSTEMS PRIVATE LIMITED, filed its return of income for Assessment Year 2022-23 declaring NIL income. The case was selected for scrutiny, and a reference was made to the Transfer Pricing Officer (TPO) due to large value international transactions with associated enterprises. The TPO made a total transfer pricing adjustment of Rs. 4,59,72,570/-. The Assessing Officer (AO) passed a draft assessment order incorporating these adjustments. The Dispute Resolution Panel (DRP) rejected the assessee's objections. Consequently, the AO passed the final assessment order dated 23.12.2025 under section 143(3) r.w.s 144C(13) r.w.s. 144B of the Income-tax Act, 1961. The assessee appealed this order to the ITAT.

What did the Tribunal hold?

The Tribunal held that the transfer pricing adjustment should be restricted to international transactions with associated enterprises, not the entire entity's transactions. Citing CIT vs. Thyssen Krupp Industries Pvt. Ltd. (2016) 70 taxmann.com 329 (Bom.), the Tribunal noted that Chapter X mandates adjustments only for international transactions, not those with independent third parties. Regarding delayed receivables, the Tribunal found that delayed trade receivables are an international transaction under Section 92B read with Section 92F(v). However, it directed the AO/TPO to compute and grant a working capital adjustment for the international transaction of 'sale of finished goods'. The Tribunal reasoned that once a working capital adjustment is granted under TNMM benchmarking, the impact of delayed receivables is subsumed, and no separate notional interest adjustment is warranted. Thus, grounds related to interest on delayed receivables were allowed for statistical purposes. Concerning unabsorbed depreciation, the Tribunal held that brought forward unabsorbed depreciation under Section 32(2) can only be set off against profits from business, not income from other sources. Therefore, this ground was dismissed.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the transfer pricing adjustment should be restricted to transactions with associated enterprises (AEs) and not applied to the entire entity's transactions, as argued by the assessee. The assessee contended that the adjustment was made considering transactions with unrelated parties, and out of total sales of Rs. 79.28 crores, only Rs. 13.41 crores were with AEs. The revenue relied on the lower authorities' orders. 2. Whether the TPO erred in treating delayed receivables from AEs as a separate international transaction and imputing interest thereon, as argued by the assessee. The assessee argued that the average realization period was only 7 days and no interest was charged on delays from non-AE transactions. The revenue relied on the lower authorities' orders. 3. Whether the AO erred in not setting off unabsorbed depreciation against income from other sources, as argued by the assessee. The assessee sought to set off Rs. 1,59,060/-. The revenue's position is not explicitly recorded on this point, but the AO's order reflects the denial.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 92CA(1),Section 92CA(3),Section 144C(1),Section 144C(5),Section 92D,Section 92B(1),Section 92F(v),Section 10B(3)(ii),Section 10B(1)(e),Section 32(2)

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Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL

PER SANDEEP SINGH KARHAI, JUDICIAL MEMBER:

The assessee has filed the present appeal against the impugned final assessment order dated 23.12.2025, passed under section 143(3) r.w.s

IT(TP)A 710/BANG/2026 VTS TF AIR SYSTEMS PRIVATE LIMITED

144C(13) r.w.s. 144B of the Income-tax Act, 1961 (“the

The order continues below.

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