SCHNEIDER ELECTRIC SYSTEMS INDIA PRIVATE LIMITED,CHENNAI vs. NATIONAL FACELESS ASSESSMENT CENTRE - JAO -ACIT, CORPORATE CIRCLE, 3(1), CORPORATE CIRCLE

During the scrutiny assessment proceedings, the Transfer Pricing Officer (‘TPO’) and the AO made certain adjustments / disallowances to the assessee’s income. Against the draft assessment order of the AO, the Assessee filed objections before the Dispute Resolution Panel (‘DRP’). The DRP issued its directions dated 27.09.2024 by providing partial relief in some adjustment, upheld few adjustment and also enhanced certain adjustment.

Below is the summary of the quantum of adjustments post DRP direction:

The Assessee had raised Additional Ground No.10 on the issue that the final assessment order is barred by limitation and Ground No.5 on Non- consideration of relief granted by ld.CIT(A) in relation to adjustment made u/s.143(1) of the Act. However, during the course of hearing the Ld.AR not pressed these grounds and as such they are dismissed.

The Assessee has reimbursed its AE on cost to cost basis in relation to Support Services received from its AE during all above referred AY. However, the TPO during the course of assessment, has called upon the Assessee to furnish evidence to substantiate the receipt of support services. The Assessee seem to have not furnished the required evidence and therefore the TPO has disregarded TNMM and adopted “Other method” and held that ALP of Support Services as “nil”. Before the DRP also the Assessee did not seem to have furnished evidence and hence the adjustment came to be sustained/upheld by the DRP.

Before us the Ld.AR of the Assessee has filed additional evidence to substantiate the receipt of Support services and contended that “other method”

The ld.DR opposed request of the assessee for consideration of the additional evidence. However, he submitted that in case it is allowed the matter should be set aside to the file of the TPO/AO with this specific direction that while entertaining these additional evidence on the issue of transfer pricing adjustment.

We have heard the rival contentions and perused the material on record. The Assessee has filed additional evidence to substantiate the benefit derived from services received from its AE. The additional evidence filed is admitted like in the earlier AYs. This issue seem to be covered by the decision in ITA.Nos.2754 & 2757/Chny/2024, 2958 & 2959/Chny/2024 dated 11.09.2025. The relevant extract is as under:

The Assessee is engaged in the business of execution of contracts for manufacturer, supply and erection of distributed control systems, emergency shutdown systems and related equipment for the subject assessment year. The Assessee has benchmarked the international transaction with its AE by adopting TNMM and adopting a PLI of OP/OC. The Assessee has considered 21 comparable companies with range of 3.56% to 6.20% with a median of 4.39% vis a vis Assessee’s margin of 3.56%. The TPO tweaked the margin of the Assessee and has brought it down to 4.37% as against 6.45% reported in the TP documentation. Further, the TPO rejected 8 comparables of the Assessee and undertook a fresh search and finally identified 18 comparable companies with a margin in the range of 5.12% to 11.15%. The TPO has also revised the net margin of the Assessee from 3.56% to 1.07%. Since the revised margin of the Assessee was not within the range, TP adjustment of Rs.15,21,03,016/- was proposed. The DRP has directed the TPO to adopt margin of comparable companies from AR and also directed to consider the Forex gain as operating. Pursuant to DRP directions, the TPO has passed giving effect order wherein the TPO has revised the margin of comparable companies range as 5.12% to 9.97 with median of 6.38%. Consequently, the quantum of adjustment has reduced to Rs.11,99,02,871/-.

The Ld.AR submitted that the Assessee has raised grounds for inclusion of 6 comparable companies, however, he is now pressing only for inclusion of 2 comparable companies i.e. Penguin Electronics Ltd. and Powerica Ltd.

The Ld.DR contended that this comparable company is catering to different industry and hence it should not be accepted.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. The TPO and DRP have given a finding that Penguin Electronics Ltd. is into manufacture of electromechanical domestic appliances with self-contained electric-motor and parts. The DRP/TPO have given a finding that this comparable is into manufacturing of kitchen appliances. Whereas the Assessee is into manufacturing process control systems and temperature control systems. Though the major function i.e. manufacturing is similar to the Assessee, the industry to which Penguin is catering is different and as such we hold that Penguin Electronics Ltd cannot be considered as a comparable. Accordingly, Ground No.2.2 for inclusion of Penguin electronics Ltd is dismissed.

The Ld.AR contended that M/s.Powerica Ltd. should be included as that company is also into manufacturing, trading and other services related to diesel generating sets. In this regard, the Ld.AR also invited our attention to details filed at Pg. 301 to 305 of the paper book.

The Ld.DR contended that this comparable company is catering to different industry and hence it should not be accepted.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. The TPO and DRP have given a finding that M/s.Powerica Ltd. is into

Ground No.2.2 is dismissed as we have not agreed with inclusion of 2 comparables companies and the Ld.AR has not pressed for inclusion of balance 4 comparable companies.

The Ld.AR contended that Novateur Electrical and Digital Systems Pvt.Ltd. should be excluded as that company is into manufacturing wide range of products and trading. Since the company’s segmental information is not available, fails export revenue filter, owns significant intangible assets; has significant marketing expenses, indicating ownership of marketing intangibles, undertakes significant R&D activities, the company cannot be a comparable. In this regard, the Ld.AR also invited our attention to details filed at Pg.320 to 346 of the paper book, which had extracted from the Annual Report of the company.

The Ld.DR contended that though trading activity is there in this comparable company, the majority of the revenue i.e. 94% is from sale of products and therefore according to him the objection of the Assessee is irrelevant.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. The TPO and DRP have given a finding that since 94% of the revenue is from sale of products, absence of segmental is not going to have any impact. We do not agree with this finding. Having admitted that there are two different

The Ld.AR contended that Havells India Ltd should be excluded as that company is functionally not comparable as it has Diversified activities and significant inventory; fails export revenue filter; undertakes R&D activities; significant investment in tangible assets, indicating the company is a full- fledged manufacturer; owns significant intangible assets; has significant marketing expenses, indicating ownership of marketing intangibles. In this regard, the Ld.AR also invited our attention to details filed at Pg.348 to 362 of the paper book, which also had extracted from the Annual Report.

The Ld.DR contended that though activities are diversified in this comparable company, the majority of the revenue i.e. 99% is from sale of products and therefore according to him the objection of the Assessee is irrelevant.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. From the Annual Report extracted, we find that Havells India Ltd. is into manufacturing, assembling, altering, exchanging, buying, selling, importing, exporting, or otherwise dealing in all types of electrical goods and instruments and consumer durables and FMCG products. Further, this company also sells home appliances like Fans, Heaters and through another brand Lloyd it sells A/C, Refrigerator, Washing machine, TV etc. Since we have held that Penguin Electronics Ltd. cannot be considered as comparable for the reason that it is into manufacturing kitchen appliances, we apply the same principle herein and hold that since the products manufactured are diverse, this company cannot be

The Ld.AR contended that Aluminium Industries Ltd. should be excluded as that company is engaged in dissimilar activities and has significant inventories; fails export revenue filter, owns significant intangible assets; undertakes significant R&D activities. In this regard, the Ld.AR also invited our attention to details filed at Pg. 363 to 375 of the paper book, which had extracted from Annual Report of the company.

The Ld.DR contended that though they manufacture wide range of products, the majority of the revenue i.e. 96% is from sale of products and therefore according to him the objection of the Assessee is irrelevant.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. It is undisputed that this comparable company is manufacturing wide range of products catering to power transmission and distribution sector and they are also into secondary product line which is cone crusher machine. Further this company seems to have intangibles and incurred some R&D expense. Therefore, this company cannot be considered as comparable. Accordingly, Ground No.2.3 for exclusion of Aluminium Industries Ltd. is allowed.

The Ld.AR contended that Tricolite Electrical Ltd should be excluded as that company is engaged in dissimilar activities and has significant inventories; fails export revenue filter, owns significant intangible assets and significant marketing expenditure. In this regard, the Ld.AR also invited our attention to details filed at Pg.377 to 378 of the paper book filed, which had extracted from Annual Report of the Company. The Ld.AR also submitted that this comparable was excluded in the Assessee’s own case for AY 2015-16 by the ld.CIT(A) and

The Ld.DR contended that res judicata will not apply to income tax proceedings.

We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. The TPO and DRP (page 816 of the paper book) has accepted the contention of the Assessee and held that since the said comparable is engaged in manufacture of power distribution solutions which is a different sector, the same was excluded. Admittedly, the Revenue has not filed appeal against the said comparable. In view of the above and applying the principle of consistency, we exclude this comparable. Accordingly, Ground No.2.3 for exclusion of Tricolite Electrical Inds. Ltd is allowed.

The Assessee has benchmarked the international transaction with its AE by adopting TNMM and adopting a PLI of OP/OC. The Assessee has considered 8 comparable companies with range of 6.00% to 10.01% with median of 7.54% vis a vis Assessee’s margin of 10.69%. The TPO tweaked the margin of the Assessee and has brought it down to 2.94% as against 10.69% reported in the TP documentation. Further, the TPO added 3 comparables of the Assessee and undertook a fresh search and finally identified 11 comparable companies with margin in the range of 10.12% to 17.2%. Since the revised margin of the Assessee was not within the range, TP adjustment of Rs.11,16,92,429/- was proposed. The DRP has directed the TPO to include 3 comparables subject to verification. Pursuant to DRP directions, the TPO has passed giving effect order wherein the TPO has revised the margin of comparable companies range as 12.24% to 19.93% with median of 16.78%. Consequently, the quantum of adjustment increased to Rs.12,08,09,912/-.

Ground No.3.3 inclusion of 3 comparable companies: Atlantis Labs Private Limited; Aabsys Information Technologies Private Limited; and Shivamtech Engineering Design Private Limited. The Ld.AR contended that DRP had issued directions to include these comparables. However, the TPO while giving effect to the DRP directions has not included these comparables. Therefore, the Ld.AR prayed that appropriate directions may be issued to the TPO to include these comparables. 34. The Ld.DR on the other hand submitted that the directions of the DRP was specific and it has been complied with by the TPO and as such there is no requirement to remand this issue once again. 35. We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. The direction of DRP at Para 4.4 is that these 3 comparable companies should be included in the final list of comparables if these 3 comparables are of the search matrix of the TPO. In the giving effect order, the TPO has given a finding that these 3 comparables are not forming part of the independent search undertaken by TPO in ProwessIQ. In the interest of justice and fair play, the TPO is hereby directed to re-run the search once again and see whether these comparables are appearing in the search matrix and if they appear include them in the final list. Accordingly, with these directions this ground of appeal no.3.3 is disposed of. Ground of appeal no.3.3 is allowed for statistical purposes. 36. Ground 3.2 exclusion of 3 comparable companies: Sundaram Business Services Ltd.; Microland Ltd.; and Concept Public Relations India Ltd. The Ld.AR indicated that he is not pressing exclusion of Microland Ltd. and as such exclusion of Microland Ltd. is dismissed. 37. The Ld.AR contended that Sundaram Business Services Ltd. is functionally not comparable as it is engaged in dissimilar activities and owns significant intangible assets; has significant marketing expenses, indicating

In the present facts and circumstances of the case and respectfully following the aforesaid decision, we also hold that the above categories of income ought to be treated as operating income while computing the margin of the Assessee. Accordingly, Ground nos.2.6, 2.7, 3.6 & 3.7 are allowed. Ground Nos. 2.5 & 3.5 Economic adjustment – Covid adjustment. 45. The Ld.AR contended that due to Covid there was considerable reduction in sales, no sales during lockdown, fall in demand, decline in third party sales. All these factors had significant impact on the fixed cost absorption. Accordingly, the Ld.AR contended that either one of the optional adjustment may be granted: Option 1 – Adjusted margins with revised revenue based on growth trend / budgeted revenue; and Option 2 – Exclusion of fixed costs pertaining to the lock-down period. Further, Ld.AR contended that only the current year margin of comparable companies should be considered with that assessee’s current year margin and relied on jurisdictional Tribunal decision in the case of Brakes India Ltd. The Ld.DR submitted that even the comparable companies faced covid lockdown and as such there is no requirement to grant any such adjustment. 46. We have heard the rival contentions and perused the material on record and gone through the orders of the authorities along with the paper books filed. In principle we agree that during Covid period all the companies faced severe decline in business, however, the impact of such decline varied from company to company. Therefore, we do not agree with the contention of the DRP that

In the present facts and circumstances of the case and respectfully following the aforesaid decision, we hold that the current year margin of the final set of comparable companies should be compared with current year margin of the Assessee. Accordingly, this ground of appeal no.2.5 and 3.5 is partly allowed.

The next issue raised in Ground No.5 is ‘Interest on overdue receivables’. The TPO adopted the rate of interest at 6-month LIBOR plus 350 basis points. Furthermore, the DRP directed the TPO to add a mark-up of 100 basis points over and above the 350 basis points.

The Ld.AR contended that the Assessee is a debt free company (Paper book Page No.15). The long-term borrowings in the Audited Balance sheet of the Assessee amounting to Rs.1,86,76,401/- is not a borrowing and it is only an Ind AS disclosure for Lease liability (Paper book Page No.25). Therefore, the company has not claimed any finance cost in the profit and loss account on account of interest expenses, as there is no borrowings. The Ld.AR also relied on the jurisdictional Tribunal decision in the case of ‘Temenos’ wherein it is held that if an Assessee is a debt free company, then there is no requirement to

On the other hand, the Ld.DR submitted that overdue receivables constitute a separate international transaction and interest has to be attributed for receipts beyond credit period.

We have the heard the rival contentions and also perused the Balance sheet and gone through the orders of the authorities along with the paper books filed and judicial precedents relied on. On perusal of the audited financials, it is clear that the Assessee is a debt free company and the due payable shown is an entry made is in relation to lease liability from an Ind AS perspective. Therefore, we gainfully rely on the jurisdictional Tribunal decision in the case of Temenos India Pvt Ltd in IT(TP)A.No.32/Chny/2024 dated 03.12.2024. The relevant extract is reproduced hereunder:

In the present facts and circumstances of the case and respectfully following the aforesaid decision, we delete the addition on interest on overdue receivables by allowing the corresponding grounds raised by the assessee. 53. In the result the appeal of the assessee is partly allowed for statistical purposes.