BOSTIK INDIA PRIVATE LIMITED,BANGALORE vs. DC ACIT CIRCLE 2(1)(1), BANGALORE, DC ACIT CIRCLE

Per Balakrishnan S, Accountant Member : This appeal filed by the assessee against the Final Assessment Order passed under section 143(3) r.w.s. 144C(13) r.w.s. 144 B of the Act, dated 19.07.2024.

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international transactions with its Associated Enterprise (in short ‘AE’), referred the matter to the learned Transfer Pricing Officer (in short ‘TPO’) :

i. Payment of management fees - Rs.14,24,31,076/- ii. Payment of SAP Implementation Cost - Rs.59,27,736/- iii. Payment of Technology License and Trademark fee - Rs.17,69,11,470/- Total - Rs.32,52,70,282/-

Ground No. 1: Final assessment order is barred by limitation On the facts and in the circumstances of the case and in law, the final assessment order dated 19 July 2024, passed by the Learned Assessing Officer (‘Ld. AO’) under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation period provided in terms of section 153 of the Act, is void-ab-initio, illegal and bad in law and is therefore, liable to be quashed.

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Ground No. 2: General On the facts and in the circumstances of the case and in law, the Ld. AO based on the directions of the Hon’ble Dispute Resolution Panel (‘DRP’), erred in making adjustments of INR 34,74,78,202 (transfer pricing adjustment of INR 32,52,70,282) to the total income of the Appellant. Ground No. 3: Determination of Arm’s Length Price (‘ALP’) for payment of management fees as ‘Nil’ On the facts and in the circumstances of the case and in law, the Hon’ble DRP and Ld. AO/Transfer Pricing Officer (‘Ld. TPO’) erred in determining the ALP of the international transaction pertaining to payment of management charges by the Appellant to its Associated Enterprises (‘AEs’) as ‘Nil’ as against INR 14,24,31,076 and in doing so, grossly erred in:

Ignoring the transfer pricing documentation and agreements a. submitted by the Appellant to substantiate the needs of the intra-group services, receipt of services and benefits arising therefrom;

Holding that no services have been rendered by the AEs to the b. Appellant without any basis;

Questioning the commercial expediency in availing the services c. from the AEs and corresponding payment of management charges; Exceeding the jurisdiction in applying the benefit test to the payment d. of management charges;

e. Concluding that certain services are duplicative merely on the basis of nomenclature of these services and ignoring the nature of these services;

f.Rejecting the allocation methodology of the Appellant without providing any cogent reasons; Holding that the payment of management charges is towards g. shareholder activities of the AEs;

Concluding that the allocation in relation to the management fees h. produced by the Assessee is only based on employees count and sales, but

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not actual rendering of services and consequential benefits accrued to the Assessee and that these expenses are incurred at group level and the assessee is made to contribute as a share. i.Not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied;

j.Determining the arm’s length price of the transaction under Comparable Uncontrolled Price (‘CUP’) Method without identifying any valid comparable uncontrolled transaction;

Erroneously concluding that the transaction has been benchmarked k. by aggregating all the international transactions by using Transactional Net Margin Method (‘TNMM’) at entity level whereas in reality the management charges are separately benchmarked under TNMM; and

l. Erroneously concluding the imports from AEs have been compensated enough in the form of purchase price as well as payment towards technology from the AE and there is no separate requirement to make payment for management charges;

m. Applying the principles of various case laws, the facts in question under which are not similar to that of the Assessee to conclude that the AE did not render any services to the Assessee. n. Not appreciating that the ALP of the international transaction cannot be determined at NIL. The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of management fees ought to be accepted and the TP addition of INR 14,24,31,076 be deleted. Ground No. 4: Determination of ALP for payment of SAP implementation cost as ‘Nil’ On the facts and in the circumstances of the case and in law, the Hon’ble DRP and Ld. AO/TPO erred in determining the ALP of international transaction pertaining to payment for SAP implementation cost by the Appellant to its AE as ‘Nil’ as against INR 59,27,736 and in doing so, grossly erred in:

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a. Disregarding the transfer pricing documentation and evidence in support of SAP implementation cost paid by Appellant to AE (in the nature of cost incurred by the AE, determining allocable cost, allocation of the cost based on the allocation keys etc.) b. Concluding that such services were never requested by the Appellant and are just incidental expenses provided by AE; c. Disregarding the agreement and other documentation maintained and produced by the Appellant to substantiate the need for payment of SAP implementation cost, receipt of such allocation and benefits arising therefrom an ALP perspective; d. Holding that no services have been rendered by the AEs to the Appellant without any basis;

e. Questioning the commercial expediency of the Appellant for payment of such charges; f.Holding that the payment of SAP implementation cost is towards the shareholder activities of the AEs;

g. Exceeding the jurisdiction in applying the benefit test to the payment of SAP implementation cost;

h. Not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied; and i. Applying the principles of various case laws, the facts in question under which are not similar to that of the Assessee to conclude that the AE did not render any services to the Assessee. j. Not appreciating that the ALP of the international transaction cannot be determined at NIL

The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of SAP implementation cost ought to be accepted and the TP addition of INR 59,27,736 be deleted.

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Ground No. 5: Determination of ALP for payment of Technology license and Trademark license fees as ‘Nil’ On the facts and in the circumstances of the case and in law, the Hon’ble DRP and Ld. AO/TPO erred in determining the ALP of transaction pertaining to payment of Technology license and Trademark license fees to its AE as ‘Nil’ instead of INR 17,69,11,470 and in doing so, grossly erred in: a. Disregarding the economic analysis carried out by the Appellant with respect to payment of Technology license fees and Trademark license fees without providing any justification for rejecting the economic analysis provided by the Appellant; b. Ignoring the transfer pricing documentation and agreement submitted by the Appellant to substantiate the need for payment of license fees for technology and trademark, and benefits arising therefrom; c. Questioning the business / commercial expediency of the Appellant for payment of Technology license and Trademark License fees without providing adequate reasons for the same;

d. Considering that the Appellant has not received any benefit from payment of Technology license and Trademark license fees;

e. Observing that the growth advantage of the Appellant from payment of such fees is insignificant;

f. Not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied.; and

g. Holding that payment of Technology license and Trademark license fees should not be made by the Appellant as the AE had certain obligations towards the Appellant as a shareholder;

h. Not appreciating that the ALP of the international transaction cannot be determined at NIL The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of Technology licence and

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Trademark license fees ought to be accepted and the TP addition of INR 17,69,11,470 be deleted. Ground No. 6: Erroneous addition made as per intimation issued under section 143(1) – Rs. 2,22,07,920 On the facts and in the circumstances of the case and in law, the Ld. AO/ Ld. DRP erred in making/confirming an addition of INR 2,22,07,920 as per intimation issued under section 143(1) by the Centralized Processing Centre (‘CPC’) and while doing so, the Ld. AO erred in: a) not issuing a show cause notice before confirming the adjustments made in the intimation under section 143(1) and thereby, not granting an opportunity of being heard; b) without prejudice to the rectification application filed by the Appellant dated 30 December 2022 and the written submission made by the Appellant against the intimation u/s 143(1) dated 01 July 2024, the Ld. AO erred in making an adjustment w.r.t. the below: - Dual disallowance of interest under section 23 of MSME Act, 2006 - Dual disallowance of delay in payment of employee contribution under general head in lieu of specific head - Dual disallowance of depreciation on tangible assets - ICDS VI adjustment pertaining to changes in foreign exchange rates The Appellant, therefore, submits and prays that the aforesaid additions, confirmed in contravention of principles of natural justice, ought to be deleted. Ground No. 7: Levy of Interest u/s 234A, 234B and 234C On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest u/s. 234A, 234B and 234C of the Act. The Appellant prays that the Ld. AO be directed to delete the levy of interest u/s. 234A, 234B and 234C of the Act. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing.

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“9. After considering the rival submissions and perusing the materials available on record, we observe that similar issue has come up in assessee’s own case in IT(TP)A No.837/Bang/2016, IT(TP)A 626/Bang/2017 & IT(TP)A 2031/Bang/2017 dated 10.5.2022 for the assessment years 2011-12 to 2013-14 respectively, wherein the ITAT in its order has observed as under:

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“16. We have heard rival submissions and perused the material on record. The issue raised before the ITAT are as follows:-

Sl. Transactions AY 2013-14 AY 2012-13 AY 2011-12 No. 1. Commercial services Nil Nil 19,97,000 (IT Support services) 2. Technology License 52,58,825 54,21,169 56,40,000 Renewal fee 3. Management Fees 4,22,69,056 3,01,67,905 2,67,01,782 Total 4,75,27,881 3,55,89,074 3,43,38,782

16.1 We shall first adjudicate the payments made for Technology License renewal fees and management fees. With respect to the above two payments to AE, the choice of method of benchmarking, the assessee has considered TNMM as MAM and the TPO has considered `hypothetical CUP’ by rejecting TNMM. The basis of rejection of the method of benchmarking was by placing reliance on the ruling of ITAT Delhi Bench in the case of Knorr Bremse. (Refer TPO’s order at para 6.4 for A.Y.2011-12). The decision relied on by the AO / TPO was, however, carried in appeal to the Hon’ble High Court and the Hon’ble High Court vide judgment dated 06.11.2015 remanded the matter to ITAT for reconsideration, whether the transaction ought to be benchmarked separately or whether TNMM could be adopted. The Delhi Bench of the ITAT in ITA No.5097/Del/ 2011 (order dated 31.05.2018) (Refer page 556 to 575 of the paper book-3 of A.Y. 2013- 2014) ruled in favour of the assessee upholding TNMM for benchmarking license fee and Management Fee. Further, the ITAT Delhi Bench for subsequent years, i.e., A.Y. 2008-09, 2009-2010 and for A.Y. 2010-2011 (page 622 to 658 of the paper book-3) in the case of the same assessee, concluded that in the absence of proper benchmarking being available in the public domain for the CUP method, TNMM would be the most appropriate method for benchmarking of license fee and management fee.

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16.2 The subject payments (Management fee and Technology License Renewal Fee) are incurred with respect to the manufacture of industrial adhesives. It is undisputed that the assessee is engaged only in the manufacture, and marketing and therefore dependent on its group companies for intellectual property, skills, expertise, know-how, specialization and technology which are developed in-house by the group in all core areas of its business, benefits also the assessee in the form of consistency in business practice, the economics of scale with regard to global sourcing. The process improvements are also passed on by the group companies to the assessee and same is evident from facts on record. The subject payments are duly supported by agreements which details the nature of services performed by the associated enterprises to the assessee company. Given the above factual background, we find that the management fee and technology license fee are interlinked and interconnected with the business of manufacture.

16.3 The TPO /DRP in their order has expressed an inability to compute the ALP using CUP due to a lack of information in the public domain. Given the difficulty / impossibility in computing ALP using CUP and considering the close nexus between the manufacturing activity and payment of management / license fees, the method to be adopted for benchmarking the above international transactions by the assessee ought to be TNMM. The TPO is accordingly directed to consider TNMM as MAM for determination of ALP for payment of license and management fees.

16.4 The learned DR submitted that the order of the TPO as upheld by DRP has to be followed as the payments are made for continued services and the same has been availed by the assessee in the preceding years for which payments have not been made. He also highlighted that there is no change in the FAR profile of the assessee. It was also stated that the assessee has failed the service rendition test. Similarly, submissions were made with respect to payment of `Technology license renewal fee’ that the trademark was registered in 1986 and no payment was made towards it till A.Y.2011-2012. In this regard, we will follow the ruling of the coordinate bench in the case of Dresser Rand India Pvt. Ltd. in ITA No.8753/Mum/2010 wherein it had

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been held that “the fact that the assessee has availed services in the preceding years without any consideration or not is irrelevant. `The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that ALP of these services are Nil’. The contention of the TPO that the assessee has not submitted the documentary evidence for the benefit received on account of services rendered is factually incorrect in view of voluminous evidences filed as a paper book. The assessee has also submitted a detailed note explaining the benefits received on account of payment of license and management fees. The TPO and the DRP have failed to consider the same in an objective manner. The Delhi High Court in CIT v EKL Appliances Ltd [2012] 24 taxmann.com 199 held that so long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purpose of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. The TPO and the DRP in the present case have summarily rejected the evidences and submissions of the assessee on the 'benefit test' without bringing on record any contrary material. The TPOs reasoning of constructing a hypothetical CUP based on the study of thirdparty scenario is not envisaged as per the benchmarking exercise laid out in rule 10B. The TPO has also not explained the basis or reasoning in support of his impugned conclusion that no third party would make payment for services in a hypothetical CUP. The orders passed by the lower authorities therefore cannot be sustained.

16.5 As regards payments made for commercial service (IT support services), the issue pertains to only A.Y. 20112012 (see ground 8). The assessee has submitted that the cost allocation is on the basis of a number of IT users, i.e., head count. Since centralized IT services of the TOTAL group are distributed among all divisions, subsidiaries and associates who use this facility, the basis of cost allocation is reasonable and cannot be faulted. In addition to listing the services availed, the assessee has also furnished copies of invoices evidencing payments to the AE. The AR for the assessee invited our attention to the DRP directions for the A.Y. 2012-2013 and 2013-2014, wherein relief has been allowed considering the above basis to be the scientific basis of cost allocation. We direct the TPO to consider the above evidence, and if the facts remain the same as in the case of subsequent years, allow appropriate relief to the assessee. It is ordered accordingly.

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9.1 Perusal of the above order would show that the ld. TPO has invented a new formula in computing the ALP by applying hypothetical CUP method in those years also, which were there before the ITAT. In the present case also, ld. TPO has applied hypothetical CUP for arriving at the conclusion that the ALP of the intra-group services would be nil and the method applied by the assessee i.e. TNMM is not correct method. We further find that reading of para 16 of the order of ITAT, quoted above in the table, would prove beyond doubt that similar services were also in dispute in those years. Therefore, we are of the view that since facts of the case are pari- materia with those years which are already decided by the ITAT, we are allow the appeal of the assessee following the order of the coordinate bench for AYs 2011-12 to 2013-14. Before parting, it would be worthy to note that while giving order effect, consequent to the order of ITAT, the ld. TPO vide order dated 7.2.2025 has allowed the claim of the assessee with respect to the intra-group services expenses.”

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AO. The principle of audi alteram partem lies at the very heart of procedural fairness, ensuring that no one is condemned or adversely affected, without being given an opportunity to present their case. We therefore, remand the issues raised in Ground No 6 to the file of learned AO to decide the matter afresh in accordance with law, after providing opportunity of being heard to the assessee. Ground number 6, therefore allowed statistically.

Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- Sd/- (KESHAV DUBEY) (BALAKRISHNAN S) Accountant Member Accountant Member Bangalore. Dated: 23.07.2026. /NS/*

Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR, ITAT, Bangalore. 7. Guard file By order

Assistant Registrar, ITAT, Bangalore.