M/S. SAME DEUTZ FAHR INDIA PVT. LTD.,VELLORE vs. ACIT, CIRCLE-1,, VELLORE

Brief facts emanating from the records are that the assessee is engaged in the business of dealing in parts and accessories of motor vehicles and engines during the relevant year under consideration. For the relevant AY 2021- 22, the assessee had filed its return of income on 15.03.2022 declaring total income of Rs.723,32,06,246/-. The case of the assessee was selected for scrutiny under CASS and the AO issued notice u/s.143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) and thereafter, a reference was made u/s.92CA of the Act was made to the TPO for determination of Arms Length Price (ALP) with reference to the transaction reported by the assessee.

The assessee in its TP study had aggregated the international transactions and benchmarked them at entity level by applying Transactional Net Margin Method (in short ‘TNMM’). The assessee is noted to have computed its margin at 3.69%. The TPO vide his order dated 19.10.2023 accepted the selection of TNMM method as the most appropriate method and also acceded to the PLI adopted by the assessee. The TPO however was not agreeable to the manner of computation of ‘operating profits’. According to the TPO, the ‘Export Incentives’ were non-operating in nature and therefore excluded the same from the computation of PLI. Accordingly, the TPO reworked the margin of the assessee at 2.85%. The TPO also rejected the search conducted as per TP study report and performed a fresh search and included some additional comparable companies while retaining some comparable companies of Assessee, totalling to Eleven (11) comparable companies and arrived at the markup range of 5.71% to 10.81% with a median of 7.67%. While computing the margins of the comparables, the TPO considered ‘Miscellaneous expenses’ as non-operating though the same was considered as operating for the working out the assessee’s margin. The TPO accordingly proposed an upward adjustment of Rs.33,36,50,000/-

Apart from the above, the TPO also considered the “Outstanding receivables” as a separate international transaction and benchmarked the same

Pursuant to the TPO’s order, the AO passed draft assessment order dated 29.11.2023. Against the said draft assessment order, the assessee filed objections in Form 35A before the DRP. The DRP vide order dated 22.08.2024 confirmed the treatment of ‘Export incentives’ as non-operating in nature. In so far as treatment of ‘Miscellaneous Expenses’ is concerned, the DRP held that Miscellaneous Expenses is non-operating in nature, however, the DRP applied the parity principle and directed the TPO to treat the miscellaneous expenses as non-operating for both the assessee as well as for comparable companies. In so far as TP adjustment on account of interest on outstanding receivables is concerned, the DRP directed the TPO to consider the foreign currency risk and thereby increased the benchmark for Interest on outstanding receivables from LIBOR+350% BPS to LIBOR+450 BPS i.e., 5.186%.

Thereafter, the AO passed the final assessment order u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Act on 26.09.2024. Aggrieved by the aforesaid action of the AO, the assessee is in appeal before us.

We first take up the issue relating to primary transfer pricing adjustment in relation to margin adjustment in manufacturing of tractors. At the outset, the Ld.AR submitted that the Assessee has raised three additional grounds viz., a) Addl Ground No.1: Internal TNMM between AE and Non-AE segment b) Addl Ground No.2: Final assessment order is barred by limitation in terms of jurisdictional High Court decision in the case of Roca Bathroom c) Addl Ground No.3: Foreign Exchange gain/loss should be treated as operating in nature and only weighted average of 3 years of Assessee’s margin should

The Ld. AR submitted that he is not pressing Additional Ground Nos. 1 & 2 as above and hence these additional grounds of appeal are dismissed as not pressed.

Further, the Ld.AR submitted that in respect of Additional Ground No.3 as herein above, he is not pressing the additional ground with respect to comparison of 3 years margin of Assessee with comparables 3 years margin. The Ld.AR specifically mentioned that if Additional Ground No.3 in relation to Foreign Exchange gain/loss is held to be operating in nature, then the margins of the Assessee would be 6.46% vis a vis margins of comparable companies would be in the range of 5.29% to 9.05% resulting in the Assessee’s margin being within the arms length range. Accordingly, the Ld.AR contended that adjudication of other main grounds of appeal would become academic. In view of this submission, we shall by-pass the main grounds of appeal and see whether the Additional Ground No.3 as mentioned herein above could be admitted and adjudicated on the basis of the data already available on record.

The Ld.AR contended that the Assessee chose to raise this additional ground of appeal after it became aware of the jurisdictional Tribunal decision in the case of Caterpillar India Ltd in ITA.No.2749/Chny/2017 wherein it was held that Forex loss should be treated as operating in nature. The Ld.DR vehemently opposed the admission of this additional ground as according to him that this is not a legal ground and that the Assessee has not pointed out in the petition for admission of additional ground as to what prevented the petitioner from raising this ground before the TPO or before the DRP.

We have heard the rival contentions and perused the material on record. At the outset, it is necessary to determine whether the additional ground could be admitted. We find that the factual information/detail in relation to the

Similarly, the Chennai Tribunal in the case of Hyundai Motor India Ltd in IT(TP)A.No.3192/Chny/2017 has held as under:

Respectfully following the above decisions, we hold that foreign exchange gain should be treated as operating income for the Assessee as well as for the comparable companies. The Ld.AR submitted that if foreign exchange gain is considered as operating income, the margin of the Assessee would be 6.46% vis a vis average margin of comparable companies which is finally selected by TPO would be 5.29% to 9.05% and apparently, the Assessee’s margin falls within this range and hence no TP adjustment is required in the manufacturing sector. Accordingly, this additional ground of appeal is allowed. Since this ground of appeal is allowed and as indicated by the Ld.AR, adjudication of all the other grounds of appeal in relation to margin adjustment in manufacturing of tractor becomes academic and hence we refrain from rendering any decisions on the same.

We now take up Ground No.2.14 to 2.31 concerning the transfer pricing adjustment made on account of interest on outstanding receivables.

Briefly stated the facts relating to this issue are that the assessee did not report the outstanding receivables as a separate international transaction nor reported any secondary adjustment thereon. According to the TPO, the assessee has not charged any interest from its AE on this outstanding amount and therefore show caused the assessee as to why the interest amount should not be computed on outstanding receivables by adopting LIBOR + 350 bps @ 4.186% after allowance of credit period of 30 days. The assessee is found to have explained that it had adopted TNMM as most appropriate method and benchmarked the transactions on aggregate basis at entity level, and therefore no separate adjustment is required to be made in respect of outstanding receivables. The assessee also pointed out that it had allowed similar credit period to non-AEs as well and it had not charged any interest from the non-AEs customers and therefore, it was claimed that same treatment was meted out to the outstanding receivables from AEs. The TPO did not agree with the contention of the assessee, and he computed transfer pricing adjustment by way of interest on overdue receivables by adopting LIBOR + 350 bps @ 4.186% after giving a credit period of ‘30’ days. The DRP is noted to have rejected the objections raised by the Assessee and in principle concurred with the TPO’s findings. Having regard to the foreign currency risk borne by the Assessee, the DRP directed further markup of 100 bps and thereby, the interest on outstanding receivables stood increased to LIBOR + 450 bps i.e. 5.186%.

Aggrieved, the Assessee is in appeal before us.

At the time of hearing, the Ld.AR submitted that, if the primary transaction of manufacturing and export/sales is at arm’s length under TNMM, then there is no necessity to separately benchmark the underlying transaction of outstanding receivables as the underlying transaction gets automatically subsumed and forms an inseparable part of primary transaction. It was also contended that there is no interest paid to AE in respect of outstanding payables. Similarly, the

The Ld.DR contended that post amendment the outstanding receivables should be treated as international transaction and benchmarked separately.

We have heard the rival contentions and perused the material on record. At the outset, we hold that post amendment to the definition of international transaction u/s.92B of the Act, outstanding receivables will have to be treated as separate international transactions and benchmarked. However, in the Assessee’s own case in IT(TP)A No.45/Chny/2024 for AY 2020-21 it was held as under:

The Ld.AR pointed out that though initially the TPO had made adjustment to the primary transaction which also confirmed by DRP, the said adjustment would stand negated if foreign exchange gain is considered as operating income. We have in the preceding paragraphs decided that foreign exchange gain should be considered as operating income, post which the margins of the Assessee in the primary transaction is at arms length. Therefore, the ratio laid down by this Hon’ble Tribunal in the Assessee’s own is squarely applicable for the subject A.Y. also. Further, like in the immediately preceding A.Y., in this A.Y. also the Assessee has brought on record that AE is not charged interest on outstanding payables from the Assessee. The Assessee has also established that weighted average period of outstanding receivable from Non-AE’s is 137 days for Rs.45.65 crores whereas the outstanding receivables from AE is 110

In the result the appeal of the assessee is partly allowed. Order pronounced in the open court on 06th April, 2026 at Chennai. Sd/- Sd/- (मनु कुमार िग�र) (एस. आर. रघुनाथा) (MANU KUMAR GIRI) (S. R. RAGHUNATHA) �ाियक सद�/Judicial Member लेखासद�/Accountant Member