ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE 1(1), CHENNAI vs. DANFOSS INDUSTRIES PRIVATE LIMITED, PERUNGUDI

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ITTPA 95/CHNY/2024Status: DisposedITAT Chennai30 April 202610 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the Revenue's appeals. Regarding the exclusion of M/s. Acropetal Technologies Ltd., the Tribunal noted the CIT(A)'s reliance on the Chennai Tribunal's decision in Doosan Power Systems India Pvt Ltd. This decision excluded Acropetal due to clear findings of fraud in its financials by SEBI, which significantly impacted its operating margins. The Tribunal agreed that such fraud provides a valid reason for exclusion. Regarding the deletion of TP adjustments based on the Advance Pricing Agreement (APA), the Tribunal observed that the CIT(A) considered the APA for subsequent years (AY 2014-15 to AY 2018-19) and found its mark-up of cost plus 5% to be persuasive. The Tribunal acknowledged that judicial precedents consistently hold that if the nature of transactions and the Functional, Asset, and Risk (FAR) analysis remain identical, the margin accepted by an APA can be applied to years not covered by the APA. The CIT(A) also considered supporting evidence submitted by the assessee. Therefore, the Tribunal found no infirmity in the CIT(A)'s order deleting the TP adjustment based on the APA and supporting evidence. The operative direction was to dismiss the appeals.

What were the facts?

The Revenue has filed two appeals against the orders of the CIT(A) for Assessment Year 2013-14. The assessee, Danfoss Industries Pvt. Ltd., is engaged in the business of refrigeration and AC equipment, automation, and control industries. For AY 2013-14, the assessee declared a total income of Rs. 3,46,81,150/-. The case was selected for scrutiny, and due to international transactions, a reference was made to the Transfer Pricing Officer (TPO). The TPO proposed an adjustment of Rs. 2,98,96,842/- in the EDS segment and a downward adjustment of Rs. 7,92,08,336/-. The Assessing Officer (AO) initially omitted the EDS segment adjustment but later included it via a suo-moto order under Section 154. The CIT(A) deleted the entire Transfer Pricing (TP) adjustments. The Revenue is appealing these deletions.

What were the issues?

1. Whether, on the facts and circumstances of the case, the CIT(A) was correct in deleting the adjustment proposed on the basis of an Advance Pricing Agreement (APA) entered into for subsequent years for a non-APA year, ignoring the option of rollback provision under Section 92CC(9A) of the Income Tax Act, 1961? 2. Whether, on the facts and circumstances of the case, the CIT(A) was correct in deleting the adjustment by excluding M/s. Acropetal Technologies Ltd. as a comparable, considering a SEBI report that dealt with fraud in dividend, which had no bearing on profit margins? Assessee's Contentions: - Regarding the APA: The assessee contended that it entered into an APA for AY 2014-15 to AY 2018-19, where a cost plus 5% mark-up was accepted. The assessee argued for a similar approach for AY 2013-14, citing precedents like M/s Lotus Footwear Enterprises Ltd. and M/s Ranbaxy Laboratories Limited, which held that APAs have a bearing on previous years and should be followed if the FAR remains the same. - Regarding Acropetal Technologies Ltd.: The assessee argued for the exclusion of Acropetal Technologies Ltd. based on jurisdictional ITAT decisions in Bloom Energy India Pvt Ltd and Cameron Manufacturing India Pvt Ltd, and a Chennai Tribunal decision in Doosan Power Systems India Pvt Ltd, which excluded the company due to abnormal profits and financial fraud impacting operating margins. Revenue's Contentions: - Regarding the APA: The Revenue argued that the CIT(A) erred in deleting the adjustment based on the APA, as the APA was for subsequent years (AY 2014-15 to AY 2018-19) and the assessee had not opted for the rollback provision. - Regarding Acropetal Technologies Ltd.: The Revenue argued that the sole ground for exclusion was alleged fraudulent transactions related to IPO fund misuse, which had no impact on the company's margins, making the exclusion unacceptable.

Which sections of the Income-tax Act were involved?

Section 92CC(9A),Section 250,Section 143(3),Section 92CA,Section 154,Section 144C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

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

Hearing: 29.04.2026Pronounced: 30.04.2026

आदेश / O R D E R

PER PADMAVATHY.S, A.M: These two appeals by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals), Chennai-16 (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 27.08.2024 & 11.11.2024 for Assessment Years (AYs) 2013-14. The orders of the CIT(A) are emanating from the orders of the A.O passed u/s. 143(3) r.w.s 92CA and u/s. 154 of the Act. The Revenue raised the following grounds of appeal:

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 2 -:

IT(TP)A No.95/Chny/2024: 1. The order of the learned CIT(A) is contrary to the facts and circumstances of the case.

ii. Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct is deleting the adjustment proposed on the basis of the APA entered into in the subsequent years for a non-APA year ignoring the standard procedure and guidelines followed while entering into the Advance Pricing Agreement when the option of rollback provision is available to the appellant as per section 92CC(9A of the Income Tax Act, 1961.

iii. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in deleting the adjustment ignoring the benchmarking done by the TPO during the original TP Audit proceedings.

iv. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer restored.”

ITA No.279/Chny/2025:

“i. The order of the learned CIT(A) is contrary to the facts and circumstances of the case.

ii. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in directing to exclude the company, M/s. Acropetal Technologies Ltd by considering the SEBI report which actually dealt with fraud in dividend which was nothing to do with the profit margins?

ii. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in directing to exclude the company M/s. Acropetal Technologies Ltd without appreciating the fact that the purported financial fraud could have affected the OP margin only in a negative way and hence it should not be excluded from the final list of comparables.

iv. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer restored.”

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 3 -:

2.

The assessee is a private limited company engaged in the business of purchase and sale of vide variety of equipment of refrigeration and AC, CLT Drivers, Industries automation and quarter control industries. The assessee's segments of operation are classified as (a) distribution segment, (b) contract manufacturing segment and (c) EDS segment. For AY 2013-14, the assessee filed a return of income on 22.11.2023 declaring total income of Rs.3,46,81,150/-. 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 proposed an adjustment in the EDS segment to the tune of Rs.2,98,96,842/- and also made downward adjustment of Rs.7,92,08,336/- by computing the ALP of the support services received by the assessee at Rs.Nil. The A.O passed the final assessment order since the assessee preferred further appeal before the CIT(A). However, the A.O while passing the final assessment order u/s. 143(3) r.w.s 144C r.w.s 92CA of the Act omitted to include the TP adjustment proposed in the EDS segment. Therefore, the A.O passed a suo-moto order u/s. 154 of the Act incorporating the TP adjustment made in the EDS segment. The assessee preferred appeal before the CIT(A) against both the orders of the A.O. The CIT(A) while considering both the appeals deleted the entire TP adjustments while passing the impugned order. The Revenue is in appeals before the Tribunal against the orders of the CIT(A).

ADJUSTMENT IN THE EDS SEGMENT:

3.

In the EDS segment, the assessee has arrived at margin of 14% and since the margins of the comparables are worked out at 4.46%, the assessee

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 4 -:

concluded that the margins in the EDS segment are within Arm's length. The TPO during the proceedings did not allow the working capital and risk adjustment made by the assessee and initiated fresh search for comparables. The TPO selected the following comparables to arrive at a margin of 27.90%:

4.

Accordingly, the TPO arrived at the adjustment as per below computation:

5.

Before the CIT(A), the assessee contended inclusion of the comparable M/s. Acropetal Technologies Ltd (Acropetal). The CIT(A) directed the TPO to exclude the above comparable by holding that: “5.3.1 One of the grounds relate to the selection of Mis Acropetal Technologies Ltd as a comparable. It was stated that the company had abnormal/super normal profits of 51.3% and therefore could not be considered as a comparable as such companies would skew the results and cannot be a representative of the industry. It was further stated that the margins of M/s Acropetal Technologies Ltd were highly fluctuating for 5 years from FY 2010-11 to FY 2014-15. The appellant requested for exclusion of the said company on the basis of the jurisdictional ITAT decisions in the case of Bloom Energy India Pvt Ltd ITA No 2857/Chny/2017 and Cameron Manufacturing India Pvt Ltd vs. DCIT

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 5 -:

ITA No.336/Chny/2018. During the course of hearings, reliance was also placed on the decision of the Honourable Chennai Tribunal in the case of Doosan Power Systems India Pvt Ltd in ITA No.1885/Chny/2017 & 665/Chny/2020 for AY 2013-14 wherein it was held as follows: "6. We have heard rival contentions on the issue of exclusion of Acropetal Technologies Ltd. We agree with the arguments of the Id. Counsel that if we compare the financial data of Acropetal Technologies Ltd, which is giving OP/OL at 61.11% with the present assessee which gives the OP/OC in manufacturing segment at 10.48%, the profit margin of Acropetal Technologies Ltd is very high but that alone cannot be a reason for exclusion but we have to see that the financials of Acropetal Technologies Ltd, are on the basis of a fraud committed as per clear cut finding of SEBI adjudicator, copy of which was filed before us, which is dated 05.11.2018. From the SEBI report, it is clear there are irregularities committed in the financials of the company by way of committing a fraud in utilization of funds raised in IPO and diverted majority of funds to non-business purposes which has a significant bearing on the operating margins. This is a very good reason for not accepting the Acropetal Technologies Ltd, as comparables and hence, we direct the TPO to exclude the same while computing operating margins of the assessee. In term of the above, we direct the TPO/AO accordingly." In view of the above decisions, I hold that M/s Acropetal Technologies Ltd cannot be adopted as a comparable company for AY 2013-14. Accordingly, the AO/TPO is directed to exclude the said company from the list of comparables for the purpose of benchmarking the international transactions in respect of EDS segment. Thus Ground No.2.5 is allowed and ground No.2.6 is not adjudicated as it has become infructuous.”

6.

The Ld. Departmental Representative (DR) submitted that the only ground for exclusion of Acropetal is that the comparable is found to be engaged in fraudulent transactions. The Ld. DR further submitted that the alleged fraudulent transactions pertain to the misuse of funds raised through IPO which has got no impact on the margins of the company. Accordingly, the Ld. DR argued that exclusion of the company on the said ground is not acceptable.

7.

The Ld. Authorized Representative (AR) of the assessee, on the other hand, submitted that the exclusion of Acropatel has been consistently held in

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 6 -:

favour of the assessee by the Coordinate Benches and that when irregularity is found in the financials the margins as declared by the assessee is unreliable. Accordingly, the Ld. AR supported the order of the CIT(A).

8.

We have heard the parties, and perused the material available on record. From the above findings of the CIT(A), we notice that the financial results of Acropatel has been showing high fluctuation from FY 2010-11 to 2014-15 and SEBI has adjudicated that there are irregularities committed in the financials of the company. In our view, when there is financial irregularity committed the financial resulted as declared by the company including its margins cannot be relied upon. We further notice that the Coordinate Benches of the Tribunal have been consistently directing the TPO to exclude the comparable on the ground that when the funds are fraudulently diverted to non business purposes it will have a significant impact on the operating margins. In view of this discussion, we see no reason to interfere with the decision of the CIT(A) in directing the TPO to exclude Acropatel from the list of comparables.

ADJUSTMENT IN SUPPORT SERVICES: 9. The TPO held that the services received by the assessee are routine in nature and does not require any charge whereas the assessee has made the payment along with a mark-up of 5%. The TPO further held that the services mentioned by the assessee can be performed based on in-house capabilities and that the assessee has not demonstrated the uniqueness of the nature of services availed from AE instead of domestic service providers. The TPO also held that the assessee has not demonstrated any evidences that the services are actually received from the AE and the benefit derived there from.

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 7 -:

Accordingly, the TPO computed the ALP of the support services at Nil to make downward adjustment of Rs. 792.08 lakhs. On further appeal the CIT(A) deleted the addition by holding that:

“3.6 The Appellant also submitted that this methodology is consistently adopted on a year on year basis and that the same has been accepted by the TPO in the previous years.

Advance Pricing Agreement signed for the subsequent years

The Appellant submitted that it has entered into an Advance Pricing Agreement for the covered period AY 2014-15 to AY 2018-19 and the transaction of receipt of support services is covered as part of the APA. The methodology adopted by the Appellant, with the AE charging a cost plus 5% mark-up has been accepted in the APA.

The Appellant confirmed similarity of the facts and pleaded that a similar approach be adopted for AY 2013-14. The Appellant demonstrated that the methodology adopted is consistent for AY 2013- 14 and margins in line with the APA have been maintained for AY 2013-14 as well, post support service charges, as shown below:

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 8 -:

3.7 In its support, the Appellant relied on the ruling of the jurisdictional Tribunal In the case of M/s Lotus Footwear Enterprises Ltd (India Branch) (ITA No.779/Mds/2014, 801/Mds/2015 & 810/Mds/2016) which held that the APA has a considerable bearing on the previous years.

The Appellant also relied on the ruling of the Delhi Tribunal in the case of M/s Ranbaxy Laboratories Limited (ITA NO. 196/Del/2013), which held as below:

Para 28. "The agreement entered into by CBDT with the assesse, which has considered all the aspects of the manner of determination of ALP which are also similar for the this year, should be given highest sanctity and therefore mechanism suggest in that agreement should be necessarily followed in determining ALP of the transactions for this year."

A similar view has been reiterated in the case of Springer India Pvt Ltd vs. PCIT (TS-403-HC-2023(DEL)-TP) where the Delhi High Court held as below:

Para 11. "Thus, having regard to this limiting factor and given the complexity of the transaction which the respondent/assessee is involved in, the Tribunal thought it fit that the APA could be used to benchmark the transactions even for the AY in issue."

Para 17. "In light of the above, we find that the Tribunal, in a series of decisions, have consistently held that even if the year under dispute is not covered by APA, If the FAR Is same, APA should be adopted for international transact transactions for the year under dispute."

3.8 Taking the above submissions into account, and considering the APA signed by the Appellant, I am in agreement with the view that the conclusion of the APA, has a bearing on the arm's length price determination of the transaction for the impugned assessment year, having persuasive value and duly following the precedents laid down as mentioned in the para above, since the approach adopted by the Appellants in line with the arm's length price as agreed in the APA, the AO/TPO is directed to delete the adjustment of INR 7,92,08,000.”

10.

The Ld. DR argued that the CIT(A) has deleted the adjustment on the ground that the assessee has entered into Advance Pricing Agreements (APA) where cost + 5% mark-up has been accepted by the APA. The Ld. DR further argued that the assessee has entered into APA for AY 2014-15 to AY 2018-19

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 9 -:

and that the assessee has not opted for roll back option. The ld. DR also argued that the CIT(A) therefore erred in deleting the adjustment based on the APA which is not applicable for the year under consideration.

11.

The Ld. AR of the assessee, on the other hand, submitted that the CIT(A) has deleted the adjustment taking into consideration the persuasive value of the conclusions of the APA which has been upheld by various judicial precedence. The Ld. AR further submitted that the assessee has submitted various documentary evidences to substantiate the support services received before the TPO as well as the CIT(A) and that the CIT(A) has correctly considered the same for the purpose of deleting the addition.

12.

We have heard the parties, and perused the material available on record. From the perusal of the order of the CIT(A), we notice that the CIT(A) has deleted the TP adjustment considering that the APA has accepted the mark up of the assessee in the subsequent years. We further notice that the CIT(A) while holding so has considered the fact that the nature of services in various segments are similar and that the margin accepted by APA has a persuasive value. The issue of whether the margin accepted by APA has persuasive value on the margins of the assessment years not covered under APA is covered by various judicial precedence where it has been consistently held that if the nature of transactions involved are identical and if the FAR remains the same then the margin accepted by APA can be applied in those AYs also which are not covered by APA. Further we notice from the order of the CIT(A) that the adjustment is deleted not just based on APA but also after considering the various supporting evidences submitted by the assessee. Considering the facts and circumstances of the present case and the judicial

IT(TP)A Nos.ITA No.279/Chny/2025 & 95/Chny/2024 Danfoss Industries Pvt. Ltd. :- 10 -:

precedence, we of the view that there is no infirmity in the order of the CIT(A) in deleting the TP adjustment on the ground that the APA has accepted the margin.

13.

In the result, the appeal of the Revenue in IT(TP)A No.95/Chny/2024 and ITA No.279/Chny/20205 are dismissed.

Order pronounced on 30th day of April, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 30th April, 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: 2026.05.06 10:34:40 +05'30'

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