SANGSIN BRAKE INDIA PVT. LTD.,THIRUVALLUR vs. ITO, CORPORATE WARD-6(1), CHENNAI

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ITTPA 28/CHNY/2026Status: DisposedITAT Chennai10 July 2026AY 2022-237 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that while the lower authorities had dealt with comparability analysis and granted partial relief, there was no comprehensive examination of the documentary evidence produced by the assessee to establish the actual mark-up earned by the AE. The orders did not disclose reasoned findings accepting or rejecting the evidentiary value of these documents. The Tribunal noted that in transfer pricing proceedings, where an assessee relies on contemporaneous documents filed before foreign tax authorities, the authorities have a statutory obligation to examine them objectively and record clear findings, which was absent. The Tribunal also found that the issues of comparables, PLI, foreign exchange fluctuation, loan/capex impact, managerial remuneration, and the evidentiary value of foreign documents were interlinked and required integrated appreciation. However, the Revenue authorities had not had the benefit of examining these documents as presented before the Tribunal. Therefore, to serve the interests of justice, the Tribunal restored the entire transfer pricing issue to the file of the TPO/AO for de novo adjudication. The TPO was directed to examine all documentary evidence, including AE's filings before foreign tax authorities, and determine the Arm's Length Price strictly in accordance with law, after granting an adequate opportunity of hearing. The TPO was also directed to independently examine objections regarding comparables, PLI, foreign exchange, loans, capex, managerial remuneration, and other relevant issues, passing a speaking order. The assessee was directed to cooperate fully. All grounds relating to transfer pricing adjustment were allowed for statistical purposes.

What were the facts?

The assessee, Sangsin Brake India Pvt. Ltd., filed its return of income for Assessment Year 2022-23 declaring Nil income. The case was selected for scrutiny due to international transactions with Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) proposed an upward adjustment of Rs. 5,99,19,293/-. A draft assessment order was passed by the Assessing Officer (AO) incorporating the TPO's order. The assessee filed objections before the Dispute Resolution Panel (DRP), which issued directions providing some relief. The TPO passed an order giving effect to the DRP's directions, resulting in a revised upward adjustment of Rs. 5,34,36,087/- and assessing the assessee's total loss at Rs. 6,33,161/-. The assessee appealed to the ITAT against the final assessment order passed by the AO.

What were the issues?

1. Whether the Tribunal had to decide on the selection of comparables, computation of Profit Level Indicator (PLI), treatment of foreign exchange loss/transaction impact on loan and capex costs, and inclusion of managerial remuneration in the transfer pricing adjustment (mixed question of law and fact, concerning Section 92C of the Income-tax Act, 1961). 2. Whether the Tribunal had to decide on the failure of the TPO/DRP to consider documentary evidence filed by the assessee, showing a mark-up of 2.9% on purchase cost from its AE (mixed question of law and fact, concerning Section 92C of the Income-tax Act, 1961). Assessee's contentions: The authorities failed to appreciate documents filed during assessment and before the DRP, which showed a mark-up of only 2.9% on purchase cost from the AE, amounting to Rs. 2.23 crores on total purchases of Rs. 77.04 crores. The assessee prayed for an opportunity to demonstrate the correctness of transactions by remitting the issue back to the AO/TPO. Revenue's contentions: The learned Departmental Representative supported the orders of the authorities and prayed for their confirmation.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 11.06.2026Pronounced: 10.07.2026

आयकर अपीलीय अधिकरण, ‘डी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री एस.आर.रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No. 28/Chny/2026 ननिाारण वर्ा / Assessment Year : 2022-23 Sangsin Brake India Pvt. Ltd. The Income Tax Officer Plot No.126, Ulundai Post vs. Corporate Ward 6(1) Samathuvapuram, Mappaedu Chennai. Thiruvallur 602 105. [PAN: AANCS8291F] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/Appellant by : Shri. Y.Sridhar, FCA प्रत्यर्थी की ओर से/Respondent by : Shri. Jenaradhanan, CIT सुनवाई की तारीख/Date of Hearing : 11.06.2026 घोर्णा की तारीख/Date of Pronouncement : 10.07.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

The present appeal of the assessee is against the final assessment order passed by the Assessing Officer, Assessment Unit, NFAC (hereinafter referred to as “the AO”) u/s.143(3) r.w.s 144C(13) and 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the Assessment Year 2022-23, dated 25.11.2025, passed in pursuance of the directions issued by the Dispute Resolution Panel-2, Bengaluru (hereinafter referred to as the “DRP”). 2. The brief facts of the case emanating from the records are that the assessee is a company engaged in the manufacture of brake pads and brake

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linings for the automotive industry, the products are asbestos disk pads and brake shoe assemblies brake linings assemblies and air hydro brake systems. The assessee filed its return of income on 19.10.2022 for the AY 2022-23 by declaring a total income of Rs.Nil. The return of income was picked up for complete scrutiny under CASS and accordingly statutory notices were issued to the assessee. Since the assessee had international transactions with its AEs, the same had been reported in Form No.3CEB by the assessee. Accordingly, the case was referred to the TPO for determining the Arms Length Price with reference to international transactions. The TPO proposed an upward adjustment of Rs.5,99,19,293/- and passed an order u/s.92CA(3) dated 29.11.2024. Subsequently, the draft assessment order was passed by the AO on 13.02.2025 incorporating the order of the TPO. 3. Aggrieved by the draft order of the AO, the assessee filed its objections before the DRP on 12.03.2025. On perusal of the submissions made by the assessee in respect of its objections, the DRP passed an order by giving its directions on 25.11.2025 granting certain relief on comparables. Later, the TPO passed an order giving effect on 18.12.2025 by excluding two comparables and estimating the revised PLI. Subsequently, the assessment order was passed by the AO u/s.143(3) r.w.s. 144C(13) r.w.s. 144B of the Act on 20.12.2025 by incorporating the order of TPO by making an upward adjustment of Rs.5,34,36,087/- and thereby assessing the total loss of the assessee at Rs.6,33,161/-. 4. Aggrieved by the order of the AO, the assessee is in appeal before us by raising various grounds of appeal on selection of comparables, adjustment / exclusion of the foreign exchange loss / transaction impact on account of loan and capex costs, inclusion of managerial remuneration estimating the PLI and also non-consideration of the documents of the AE which have been filed before the respective countries tax authorities, to show the mark up with the Indian entity as 2.9% over its purchase cost. The ld.AR for the assessee submitted that the authorities have failed to appreciate the documents which have been

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filed during the assessment proceedings as well as before the DRP and passed the orders thereby arriving at the upward adjustments to the international transactions. The ld.AR stated that since the assessee has filed the detailed submissions along with the documents related to the AE, which have been filed before the tax authorities of the respective countries, wherein the mark up on the purchase cost respect of Indian entity transactions was only 2.9%. The ld.AR submitted that the total upward adjustment in respect of Indian entity transactions with the AE was only Rs.2.23 crores, i.e., 2.9% of the total purchase of Rs.77.04 crores. Therefore, the ld.AR prayed for giving one more opportunity before the AO / TPO by remitting the issue back to the files of the AO to enable the assessee to demonstrate the correctness of the transactions. 5. Per contra, the ld.DR supported the orders of the authorities and prayed for confirming the same. 6. We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the material placed on record. The controversy involved in the present appeal relates to the transfer pricing adjustment made in respect of the international transactions entered into by the assessee with its Associated Enterprises (AEs). The adjustment ultimately sustained pursuant to the directions of the DRP amounts to Rs.5,34,36,087/-. The grievance of the assessee is primarily directed against the selection of comparables, computation of the Profit Level Indicator (PLI), treatment of foreign exchange loss and transaction impact relating to loans and capital expenditure, inclusion of managerial remuneration, and more particularly, the failure of the TPO/DRP to appreciate the documentary evidence produced by the assessee to substantiate the pricing of the international transactions. 7. It is an undisputed fact that the assessee had furnished before the TPO as well as before the DRP various documents relating to its Associated Enterprises, including the transfer pricing documentation and the documents filed by the respective AEs before the tax authorities of the countries in which they are assessed. According to the assessee, these documents demonstrate

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that the AE had earned only a mark-up of 2.9% over their purchase cost in respect of the products sold to the Indian entity and that the aggregate transfer pricing adjustment attributable to the Indian transactions would work out only to approximately Rs.2.23 crores on purchases aggregating to Rs.77.04 crores. The contention of the assessee is that these crucial evidences have neither been properly examined nor discussed by the TPO while determining the Arm's Length Price and the same have also not received due consideration by the DRP while issuing its directions. 8. On a careful perusal of the transfer pricing order, the directions of the DRP and the final assessment order, we find that though the authorities have dealt with the issues relating to comparability analysis and have granted partial relief by excluding certain comparables, there is no comprehensive examination of the documentary evidence relied upon by the assessee to establish the actual mark-up earned by the AE. The orders do not disclose any reasoned finding either accepting or rejecting the evidentiary value of such documents. In transfer pricing proceedings, particularly where the assessee seeks to rely upon contemporaneous documents filed before foreign tax authorities to substantiate the pricing mechanism adopted within the group, the authorities are under a statutory obligation to examine the same objectively and record clear findings thereon. Such an exercise appears to be absent in the present case. 9. We are conscious of the settled legal principle that transfer pricing determination cannot be made on presumptions or generalized observations without examining the complete economic circumstances of the international transactions. Equally, where the assessee produces material evidence having a direct bearing on the determination of the Arm's Length Price, the same cannot be ignored without assigning cogent reasons. The principles of natural justice require that every material document produced by an assessee must receive proper consideration before an adverse inference is drawn. The absence of such examination vitiates the decision-making process and renders the determination incomplete.

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10.

We also find merit in the submission of the ld.AR that the issues relating to the selection of comparables, computation of the Profit Level Indicator, treatment of foreign exchange fluctuation, transaction impact relating to loans and capital expenditure, inclusion of managerial remuneration and the evidentiary value of the foreign transfer pricing documents are interlinked. The determination of the correct Arm's Length Price depends upon an integrated appreciation of all these factors. Therefore, adjudicating each issue in isolation without first examining the primary documentary evidence relied upon by the assessee may not result in a proper determination of the transfer pricing adjustment. 11. At the same time, we are equally conscious of the fact that the Revenue authorities have not had the benefit of examining the aforesaid documents in the manner now canvassed before us. The Revenue must also be afforded an opportunity to verify the authenticity, relevance and applicability of the documents filed before the foreign tax authorities and to examine whether the alleged mark-up of 2.9% appropriately reflects the arm's length nature of the international transactions having regard to the provisions contained in Chapter X of the Act and the applicable Rules. 12. Having regard to the entirety of the facts and circumstances of the case, we are of the considered view that the interests of justice would be adequately served if the entire transfer pricing issue is restored to the file of the Transfer Pricing Officer/AO for a de novo adjudication. We accordingly set aside the orders of the lower authorities on the transfer pricing adjustment and remit the matter to the file of the TPO/AO with a direction to examine afresh all the documentary evidence furnished by the assessee, including the transfer pricing documents and filings made by the AE before the tax authorities of the respective foreign jurisdictions, and thereafter determine the Arm's Length Price strictly in accordance with law after granting adequate opportunity of hearing to the assessee.

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13.

While undertaking the fresh exercise, the TPO shall independently examine the objections raised by the assessee regarding the selection or rejection of comparables, computation of the Profit Level Indicator, treatment of foreign exchange gain or loss, adjustments relating to loans and capital expenditure, inclusion of managerial remuneration, and any other issue having a bearing on the determination of the Arm's Length Price. The TPO shall pass a speaking order dealing with each contention of the assessee and record clear reasons while accepting or rejecting the evidence produced before him. Needless to mention, the assessee shall extend full cooperation by furnishing all such information and supporting documents as may be called for during the course of the fresh proceedings. Since we have restored the entire transfer pricing issue to the file of the TPO/AO for fresh adjudication, we refrain from expressing any opinion on the merits of the individual grounds raised by the assessee. All the grounds relating to the transfer pricing adjustment are treated as allowed for statistical purposes with liberty to the assessee to raise all factual and legal contentions before the TPO/AO during the set-aside proceedings. 14. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the court on 10th July, 2026 at Chennai.

Sd/- Sd/- (जॉजा जॉजा के) (एस. आर. रघुनार्था) (GEORGE GEORGE K) (S. R. RAGHUNATHA) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनांक/Dated, the 10th July, 2026. Devadas

:-7-: IT(TP)A. No:28/Chny/2026 आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गाडा फाईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.07.14 14:46:14 +05'30'

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