TRIMEX INDUSTRIES PRIVATE LIMITED,CHENNAI vs. DCIT CENTRAL CIRCLE 1(3), CHENNAI

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ITTPA 131/CHNY/2024Status: DisposedITAT Chennai02 July 2026AY 2021-2210 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal addressed the grounds of appeal concerning the transfer pricing adjustment. Regarding the exclusion of M/s. Ashok Alco-Chem Ltd., the Tribunal, respectfully following a coordinate bench decision in the assessee's own case for AY 2020-21, directed the TPO to include this company in the list of comparables. For H D Micrones Ltd., Shivom Minerals Ltd., Gimpex Pvt. Ltd., and Naga Ltd., the Tribunal found merit in the assessee's submission that these companies were functionally dissimilar due to their primary engagement in manufacturing. It directed the TPO to exclude Shivom Minerals Ltd. and Naga Ltd. as they were primarily engaged in manufacturing. For Gimpex Pvt. Ltd., the Tribunal held it should be deleted from the list of comparables. For H D Micrones Ltd., the Tribunal noted that income was mainly derived from processed clay with no clear trading activity and directed its exclusion. The Tribunal also directed the TPO to examine records and consider correct margins while re-computing the Arm's Length Price (ALP). The legal contention regarding limitation was left undecided as the grounds were considered on merits. Additional grounds raised by the assessee were not pressed and hence not admitted.

What were the facts?

The assessee, Trimex Industries Private Limited, engaged in trading industrial minerals, filed a return for AY 2021-22 reporting a loss. The case was selected for scrutiny, and due to international transactions, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO). The TPO initially proposed an upward adjustment of INR 6,69,13,169/-. The AO passed a draft assessment order incorporating this adjustment. The assessee objected before the Dispute Resolution Panel (DRP), which reduced the adjustment to INR 4,86,74,832/-. The assessee is now appealing the final assessment order passed by the AO pursuant to the DRP's directions.

What were the issues?

1. Whether the Tribunal has the power to quash assessment proceedings as time-barred, considering the Hon'ble Madras High Court's decision in CIT vs M/s. Roca Bathroom Products Private Limited and M/s. Freight Systems (India) Private Limited. - Assessee's contention: The final assessment order is barred by limitation as the outer time limit prescribed for reference to the TPO under Section 153 of the Act applies to the final assessment order, not the draft order. - Revenue's contention: Not recorded. 2. Whether the exclusion of M/s. Ashok Alco-Chem Ltd. from the comparable companies by the TPO was justified, considering it made losses in two out of three years. - Assessee's contention: The TPO erred in excluding this company based on a loss-making filter applied for two out of three years, as a coordinate bench in the assessee's own case for AY 2020-21 rejected a similar exclusion. - Revenue's contention: Not recorded. 3. Whether the inclusion of H D Micrones Ltd., Shivom Minerals Ltd., Gimpex Pvt. Ltd., and Naga Ltd. as comparable companies was justified, given their primary engagement in manufacturing rather than trading. - Assessee's contention: These companies are primarily manufacturers, and the assessee is a pure trader. Their annual reports show manufacturing activities and lack segmental information for trading, making them functionally dissimilar. - Revenue's contention: Not recorded. 4. Whether the margins of the comparable companies considered by the TPO were correctly computed. - Assessee's contention: The margins were incorrectly computed compared to the annual reports, and directions are sought for re-computation. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 153,Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

For Respondent: Mr. K Jayaganesh, CIT

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of the assessment passed by Asst. Commissioner of Income Tax, Central Circle-1(3), Chennai (in short "AO") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short "the Act") dated 29.10.2024 for Assessment Year (AY) 2021- 22. The assessee raised the following grounds of appeal: “1. The learned Transfer Pricing Officer ("Ld. TPO") and the learned Assessing Officer ("Ld. AO") have grossly erred, in law and in facts of the case, by passing orders with unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the income tax

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Act, 1961, ("the Act") by adopting faulty assessment procedure to finalize the adjustment, such as, but not limited to, rejection of transfer pricing study, analysis of the functions carried out by the Appellant and those of the comparable companies and erroneous computation of profit margins of the comparable companies.

2.

The Ld. TPO has grossly erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962, ("the Rules") and undertaking a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transactions and thereby. holding that the Appellant's impugned transactions are not at arm's length.

3.

The impugned order passed by the Ld. AO under section 143(3) r.w. section 144C(13) of the Act is contrary to the law, facts, and circumstances of the case.

Grounds of appeal in relation to adjustment made on international transaction involving export of barite (INR 4,86,74,832):

4.

The Ld. TPO and Ld. AO have grossly erred, in law and in facts, by unreasonably rejecting one company from the final set of comparables, namely, Ashok Alco-Chem Ltd by erroneously applying additional filters to the comparable set which has already been subject to a defined set of qualitative and quantitative filters, thereby resulting in cherry picking of comparables and excluding low margin companies solely for the purpose of making TP adjustment to the impugned transaction.

5.

The Ld. TPO and Ld. AO have grossly erred, in law and in facts, by erroneously applying loss making filter on a two out of three-year basis to reject the comparable companies chosen by the

Appellant in its transfer pricing study, as against the settled position of applying loss criterion on all three consecutive years.

6.

The Ld. TPO and Ld. AO have grossly erred, in law and in facts, by selecting certain functionally dissimilar companies for the purpose of undertaking comparability analysis, without appreciating the functional profile and business operations of the Appellant.

7.

The Ld. TPO and Ld. AO have grossly erred, in law and in facts, by erroneously computing the operating margins of the companies chosen for benchmarking the impugned international transaction without considering the annual reports of the companies available in the public domain.

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8.

The Ld. TPO and Ld. AO have grossly erred in law and in facts, by erroneously considering miscellaneous expenses as non-operating in nature while computing operating margins of the comparable companies chosen for benchmarking the impugned international transaction without appreciating the fact that the same has been treated as operating in nature while computing the operating margins of the Appellant. 9. The Ld. TPO and Ld. AO have grossly erred, in law and in facts, by not making suitable adjustments to account for differences in the working capital position of the Appellant vis-à-vis the comparable companies, thus acting against the principles of law. Other grounds of appeal: 10. The Ld. AO and Ld. TPO have grossly erred, in law and facts, by not appreciating the legal principle that the outer time limit prescribed in case of reference to the Ld. TPO under Section 153 of the Act, would not refer to passing of the draft assessment order, but to the final assessment order and hence, the entire assessment proceedings would need to be quashed as time barred, invalid and void as held by the Hon'ble Madras High Court in the case of CIT vs M/s. Roca Bathroom Products Private Limited and M/s. Freight Systems (India) Private Limited in Writ Appeal Nos. 1517, 1519, 1609, 1610 and 1854 of 2021.”

2.

The assessee is a company engaged in the business of trading in industrial minerals and caters to the oil well drilling companies, steel plants, pigment industries, alumina industries located in middle east China, Africa, Japan and Southeast Asian countries. The assessee filed a return of income for AY 2021-22 on 24.02.2022 admitting loss of Rs.10,19,28,887/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to complete the Arm's Length Price (ALP) of the international transactions. The TPO made an upward adjustment of Rs. 6,69,13,169/- towards export of barite segment. The A.O passed the draft assessment order incorporating the TP adjustment and also made a disallowance u/s. 14A of the Act. Aggrieved, the assessee raised its objections before the Disputes Resolution Panel (DRP). The DRP gave partial relief to the assessee whereby the TP adjustment was reduced to

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Rs.4,86,74,832/-. The assessee is in appeal before the Tribunal against the final order of assessment passed by the A.O pursuant to the directions of the DRP.

3.

The assessee in the Transfer Pricing Study Report (TPSR) has chosen Transaction Net Margin Method (TNMM) as most appropriate method (MAM) for benchmarking the transaction of export of barite and computed the PLI by adopting OP/OC. As per TPSR the PLI computed by the assessee was at 0.63%. Since the average margin of the four comparables chosen by the assessee came to 0.57%, the assessee in the TPSR has stated that the ALP of the export of barite is within arms length. The A.O rejected one of the four comparables chosen by the assessee namely M/s. Ashok Alcochem Ltd. The TPO conducted fresh search to arrive at final list of seven comparables the average margin of which was computed at 5.53%. Accordingly, the TPO made an upward adjustment of Rs.6,69,13,169/-. The DRP gave partial relief to the assessee whereby the average margin of the comparables was reduced to 4.2% and thus the TP adjustment was reduced to Rs. 4,86,74,832/-. The assessee is in appeal before the tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

Inclusion of M/s. Ashok Alcochem Ltd.: 4. The TPO excluded the comparable for the reason that the company has made loss continuously in two out of three years i.e., in FY 2018-19 and 2019-20. The Ld. AR in this regard submitted that the TPO has excluded the same comparable in assessee's own case for AY 2020-21 for the identical reason and that the Coordinate Bench has rejected the exclusion of the comparables. The relevant findings of the Coordinate Bench in this regard are extracted below:

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“13. We have heard the rival contentions perused the materials available on record and gone through the orders of the authorities along with the paper book and case laws relied on by both the parties. Firstly, we will take up the issue of rejection of 2 comparable in TP adjustment by TPO, which was confirmed by the DRP.

The TPO accepted the economic analysis and TNMM but rejected the two comparable companies by applying certain quantitative filters as tabulated below:

Sl.No. Name of the comparable Whether Reasons for rejection, if company accepted by any TPO 1. Ashok Alco-Chem Limited No Failed in PBIT filter (segmental) (persistent loss making companies) 2 Ashwa Minerals Private No Failed in PBIT filter Limited (persistent loss making companies). Failed in sales filter (Sales less than INR 1 crore

Further, we find that the DRP upheld the filters applied and the comparable chosen by the TPO.

In respect of the rejected comparable of M/s.Ashok Alco-Chem Limited and M/s.Ashwa Minerals Private Limited, we find from the following table that the comparable companies have earned profit in 1 year out of 3 years prior to the impugned assessment year 2020-21.

M/s.Ashok Alco-Chem Limited Particulars FY 2019-20 FY 2018-19 FY 2017-18 Net profit (as -7,60,89,000 -2,81,10,000 5,29,44,000 (page no. 500 (page no.544 per financial (page no.460 statements) of paper book) of paper book) of paper book)

M/s.Ashwa Minerals Private Limited Particulars FY 2018-19 FY 2017-18 Net Profit (as per financial 5,45,930/- -64,83,556/- statements) (page no.591 of (page no.597 paper book of the paper book). Turnover(as per financial 1,12,94,552/- 1,43,16,107/- statements) (page no.591 of (page no.597 paper book) of the paper book)

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As held in the case of Genesys Telecom Labs India Pvt. Ltd., by the co- ordinate Chennai ITAT “D" Bench the PBIT filter cannot be applied if the comparable earns profits in 1 year out of 3 years. Therefore, considering the above view, we are of the opinion that the TPO and that of ld.DRP have erred in rejecting the said comparable. The relevant extract of the tribunal order is given below:

"7.6 From the above order of ITAT, Chennai in the very next year, we find that it had accepted the same comparable i.e., Gordon Woodroffee Logistics Ltd., in the final list of comparables wherein it has incurred losses in two years (AYs 2010-11 and 2011-12) and it made a profit in one year (AY 2012-23). 7.7 Moreover the Bangalore Bench of ITAT in the case of Inteva Products India Automotive Pvt. Ltd., in IT(TP)A No. 2843/ Bang/ 2017 (order dated3.12.2020) and KBACE Technologies Pvt. Ltd., in lTA No.3189/ Bang/ 2018 (order dated 29.01.2020) had held that persistent loss filter can be applied only if there is successive losses in three years and if there is a profit in any one financial year out of three successive financial years, then that company cannot be excluded from the list of comparable on the basis of persistent loss making filter. 7.8 In light of the aforesaid reasoning and judicial pronouncements cited surpa, we direct the TPO to include Rheal Software Pvt. Ltd., in the list of comparable companies. It is ordered accordingly. Therefore, the Ground Nos. 6 & 6.1 is allowed."

14.

In the present facts and circumstances and respectfully following the decision of the tribunal supra, we are of the considered view that the rejection of above comparable chosen by the assessee is erroneous and hence, AO is directed to consider the comparable as claimed by the assessee and re-compute the ALP accordingly.”

5.

We have heard the parties, and perused the material available on record. The Coordinate Bench in the above case has held that the company would be held to be a persistent loss making company only when successive loss is made in all three years. We notice that the comparable has incurred a profit of Rs. 340.96 Lakhs for the financial year 2019-20 and therefore the company has incurred loss only for two out of three years. Accordingly, respectfully following above decision, we direct the TPO to include M/s. Ashok Alcochem Ltd. to the list of comparables.

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Exclusion of H D Micrones Ltd., Shivom Minerals Ltd., Gimpex Pvt. Ltd. and Naga Ltd.:

6.

The TPO has included the above comparables stating that they are involved in trading of different minerals and that TNMM requires only broad comparability and functional similarity. In this regard, the Ld. AR submitted that these comparables are mainly involved in manufacturing and the assessee being a pure trader cannot be compared. The Ld. AR further drew our attention to the annual report of these companies to submit that the companies are engaged in manufacturing activities and there is no segmental information available even where the trading activity is also a part of the business. Accordingly, the ld. AR submitted that all the four above comparables are functionally dissimilar and cannot be part of the list of comparables.

7.

We have heard the parties, and perused the material available on record. We notice the following from annual report of the comparables submitted by the assessee:

HD Micrones Ltd. 7.1. The company is engaged in processing, trading and sales of China clay (crude, levitated, calcined, hydrous) [page 167 of paper book]. Further, from the financial statements of the company, we notice that the company has mainly derived its income from processed clay and no activities with regard to trading is demonstrated (page 177 of paper book). It is further notice that in the annual report of the company there is no segmental information available with regard to income derived from processing and trading. Therefore, we

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see merit in the submission that the company is functionally not similar to the assessee-company who is into trading in barite.

Shivom Mineral Ltd.: 7.2. From the perusal of the annual report of the company [517 to 535 of paper book], we notice that the company is engaged in the business of manufacturing of sponze iron. We further notice from the perusal of the disclosure in the annual report that the "manufacturing" activities of the company was severely affected due to covid pandemic, and the said disclosure substantiates contention of the ld AR that the assessee is engaged in manufacturing activities and not trading. We also notice that the TPO has excluded two other comparables for the reason that those comparables are deriving income from manufacture segment while the assessee is engaged in trading of minerals. Therefore, we are of the considered view that the TPO is not correct in including the company in the final list of comparables since the company is deriving income mainly from business of manufacturing of sponze iron which is functionally not comparable to the assessee. We therefore direct the TPO to exclude the same.

Gimpex Pvt. Ltd. 7.3. From the perusal of the description of the main product/service of the company, we notice that he is engaged in manufacture, buy, sell, import, export, trade, deal in all kinds of ores, metals, minerals, stones etc.(page 415 of paper book) However, we notice that there is no segmental information with regard to income derived from various activities carried on by the company. Therefore there is merit in the submission that the TPO is not correct in including the company to the final list of comparables considering

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the overall margin of the company. We therefore hold that the company be deleted from the final list of comparables.

Naga Ltd: 7.4. As per the financial statements [page 181 to 369 of paper book], we notice that the assessee is deriving majority of its income from manufacturing wheat and wheat products and detergents and minerals. We further notice that the trading activity of the comparables involves only wheat (page 296 of paper book) and the substantial portion of income (~97%) is from manufacturing activities. We also notice that there is no segmental information provided with regard to the various activities carried on by the company. Therefore, we are of the view that the company being functionally dissimilar from that of the assessee cannot be part of the list of comparables. Accordingly, we direct the TPO to exclude the same.

12.

The Ld. AR during the course of hearing submitted that the margins of the comparables considered by the TPO are incorrect when compared to the annual report of the companies and prayed for directions in this regard. We accordingly direct the TPO to examine the records and consider the correct margins while re-computing the ALP.

13.

The TPO is hereby directed to re-compute the ALP of the transaction of export of barite as per the directions given in this order.

14.

The assessee through ground No.10 has raised the legal contention that the final order of assessment is barred by limitation. Since we have

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considered the grounds on merits, the legal contentions thus raised are left open accordingly. The assessee vide letter dated 30.01.2026 has raised certain additional grounds. The Ld. AR during the course of hearing did not press for the admission of the same and hence they are not admitted for adjudication.

15.

In the result, the appeal of the assessee is partly allowed.

Order pronounced on 02nd day of July, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा सद�य सद�य /Accountant Member लेखा लेखा लेखा सद�य सद�य �याियक सद�य �याियक सद�य / Judicial Member �याियक �याियक सद�य सद�य चे�नई/Chennai, �दनांक/Dated: 02nd July, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF Digitally signed by EJTADA DURGA EJTADA DURGA NARESH NARESH Date: 2026.07.08 12:25:23 +05'30'

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