DOOWON CLIMATE CONTROL INDIA PRIVATE LIMITED,ANANTHPUR vs. ACIT., CIRCLE-1, KURNOOL

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ITTPA 1352/HYD/2024Status: DisposedITAT Hyderabad06 August 2025AY 2021-2226 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

On the issue of basic customs duty adjustment, the Tribunal held that while differences in import composition and duty may affect margins, the burden is on the assessee to demonstrate this with verifiable data. Citing the DRP's observation that the assessee provided no data on differences in import reliance or duty expenditure compared to comparables, and that the industry is significantly import-dependent, the Tribunal found the assessee's computation based on only three out of eight comparables insufficient for a reliable comparison. The relied-upon judicial precedents were distinguished as not having issues of incomplete data. Therefore, the grounds related to basic customs duty were dismissed. On the issue of interest on trade receivables, the Tribunal followed a co-ordinate bench decision which held that when an assessee has significant interest-free payables to AEs, no adjustment is warranted on receivables. The adjustment made by the TPO/AO was deleted. On the issue of interest on ECB, the Tribunal found that the loan agreement clearly indicated the ECB was for capital goods purchase and expansion, not working capital as concluded by the TPO. The TPO's contradictory approach was deemed unsustainable. The Tribunal agreed that ECBs for capital expenditure require different benchmarking than for working capital, citing judicial precedents. The adjustment made by the TPO/AO was set aside, and the matter was restored to the AO/TPO for re-examination based on the loan's purpose, applicable RBI guidelines, and cited judicial precedents. The assessee was directed to furnish supporting documents. No issue was expressly left undecided.

What were the facts?

The assessee, M/s. Doowon Climate Control India Pvt. Ltd., is appealing an order passed by the Assessing Officer (AO) under Section 143(3) read with Sections 144C(13) and 144B of the Income Tax Act, 1961, for Assessment Year 2021-22. The assessee, engaged in Software Development Services (SDS) for its Associated Enterprises (AEs), filed its return declaring a total income of Rs.12,86,21,080/-. Due to international transactions, the case was referred to the Transfer Pricing Officer (TPO), who proposed an upward adjustment of Rs.4,27,09,960/-. The AO passed a draft assessment order, and after objections before the Dispute Resolution Panel (DRP), the AO finalized the assessment on 25.10.2024, making total additions of Rs.4,33,45,723/-, resulting in a total income of Rs.17,19,66,801/-. The assessee is pressing specific grounds of appeal.

What were the issues?

1. Whether the Tribunal had to decide if an adjustment on account of basic customs duty should be granted to the assessee, considering its higher dependency on imported raw materials compared to comparable companies. The assessee argued for an adjustment limited to the non-cenvatable portion of basic customs duty, citing its inability to pass on the burden due to a competitive market and reliance on decisions in Doowon Automotive Systems India Pvt. Ltd. vs. DCIT and ACIT vs. Doowon Electronics India Pvt. Ltd. The revenue contended that the assessee failed to submit data on differential import ratios or customs duty impact, that the industry is inherently import-dependent, and that the assessee's computation was incomplete and unreliable due to missing data for most comparables. 2. Whether the Tribunal had to decide if a Working Capital Adjustment (WCA) should be provided to the assessee when determining the margin of comparable companies. The assessee claimed it computed and claimed WCA based on differences in working capital levels, following OECD guidelines and Tribunal precedents. The revenue's arguments on this issue are not recorded. 3. Whether the Tribunal had to decide if an adjustment made by the TPO/AO on account of interest on trade receivables from AEs was justified. The assessee argued that interest-free payables to AEs should be considered, citing a co-ordinate bench decision in its favor. The revenue's arguments on this issue are not recorded. 4. Whether the Tribunal had to decide if the transfer pricing adjustment made by the TPO on account of interest on External Commercial Borrowings (ECB) availed from AEs was correct. The assessee contended that the ECB was for capital assets and expansion, not working capital, and its interest rate of 4.60% was consistent with RBI guidelines for such purposes, relying on Shakti Hormann Pvt. Ltd. vs. ACIT and Devgen Seeds & Crop Technology Pvt. Ltd. vs. DCIT. The revenue supported the AO/TPO's order, arguing that revised RBI guidelines made the assessee's reliance on earlier limits inapplicable and that the TPO correctly applied LIBOR + 200 bps.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad

Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA

Hearing: 02/07/2025

आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad श्री रविश सूद, न् याययक सदस् य एवं श्री मिुसूदन सावडिया, लेखा सदस् य के समक्ष । BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.1352/Hyd/2024 (निर्धारण वर्ा/Assessment Year:2021-22) M/s. Doowon Climate Control Asst. Commissioner of Income Vs. India Pvt. Ltd., Anantapur. Tax, PAN:AAGCD8013K Circle 1, Kurnool. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri S P Chidambaram, Advocate रधजस् व द्वधरध/Revenue by:: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 02/07/2025 घोर्णध की तधरीख/Pronouncement: 06/08/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. Doowon Climate Control India Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned Assessing Officer (“Ld. AO”) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) dated 25.10.2024 for the A.Y. 2021-22.

2.

The assessee has raised the following grounds of appeal :

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3.

The brief facts of the case are that the assessee is a company, engaged in the business of providing Software Development Services (“SDS”) to its Associated Enterprises (“AEs”). The assessee filed its return of income for the Assessment Year 2021-22 on 14.03.2022, declaring a total income of Rs.12,86,21,080/-. In view of the international transactions involved during the year under consideration, for determination of Arm’s Length Price (“ALP”), the case of the assessee was referred to Learned Transfer Pricing Officer (“TPO”). The Ld. TPO vide his order dated 19.10.2023 suggested upward adjustment of Rs.4,27,09,960/- on account of international transactions. Accordingly, the Ld. AO passed the draft assessment order on 22.12.2023.

4.

Aggrieved with the draft assessment order passed by the Ld. AO, the assessee preferred objection before the Ld. DRP. In pursuance to the directions of Ld. DRP dated 25.09.2024, the Ld. AO finalized the

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assessment on 25.10.2024 at total income of Rs.17,19,66,801/- by making total addition of Rs.4,33,45,723/-.

5.

Aggrieved with the final assessment order of Ld. AO, the assessee is in appeal before us. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that the assessee is pressing only ground nos.2.3 to 2.8 and 2.17 to 2.35 of appeal.

6.

The ground nos.2.3 to 2.6 of the assessee are related to basic custom duty adjustment, which was not considered for the purpose of working of profit margin of the assessee. In this regard, the Ld. AR submitted that the assessee is seeking an appropriate adjustment to its margin on account of higher basic customs duty paid by the assessee due to its greater dependency on imported raw materials. It was submitted that the import consumption to total consumption in the case of the assessee was 52.18%, whereas the average import consumption in the case of comparable companies stood at 47.22%. The Ld. AR submitted that the assessee could not fully localise its purchases and was compelled to import a substantial portion of its raw materials, incurring Rs.16,42,64,453/- towards basic customs duty.

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Since the non-cenvatable portion of the duty could not be passed on to customers due to the nature of the industry being highly competitive, the duty burden remained loaded in the assessee’s cost base, thereby impacting its margins. It was submitted that comparable companies, which sourced materials largely from domestic suppliers, were not similarly impacted, and hence, in the interest of fair comparability, the assessee should be granted an adjustment limited to the non- cenvatable portion of the basic customs duty. The Ld. AR placed reliance on the decisions of co-ordinate bench of the Tribunal in the case of Doowon Automotive Systems India Pvt. Ltd. Vs. DCIT in IT(TP)A No. 88/CHNY/2024 for A.Y. 2021-22 dated 30.05.2025 and ACIT Vs. Doowon Electronics India Pvt. Ltd. in IT(TP)A No. 15/CHNY/2024 dated 11.11.2024. In both decisions, the coordinate benches had allowed adjustment on account of customs duty when verifiable data on differences in import content and duty burden was produced.

7.

Per contra, the Ld. DR strongly opposed the claim and invited our attention to page no.39 of the Ld. DRP order, specifically para 2.3.2, wherein the Ld. DRP noted that no data had been submitted by

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the assessee with respect to the differential import ratios or customs duty impact vis-à-vis the comparables. The Ld. DRP had also observed that the same line of industry is inherently dependent on imports, and the assessee was not an exception to the industry norm. Hence, the assessee’s argument that its margin suffered uniquely on account of import dependency was not acceptable.

7.1 The Ld. DR further invited our attention to page no. 232 of the paper book, where the assessee had provided a computation of customs duty adjustment. It was pointed out that the working was based on a set of eight comparables, but for five out of eight, no data was available, and the assessee proceeded to perform its computation based on only three companies, rendering the analysis incomplete and unreliable.

7.2 In view of this, the Ld. DR submitted that the claim of adjustment was not supported by adequate data, and therefore, rightly rejected by the Ld. DRP.

8.

We have heard the rival submissions and perused the material available on record. While we appreciate the argument of the assessee

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that differences in import composition and non-cenvatable duty may affect operating margins, the burden lies upon the assessee to demonstrate with verifiable data and working that such differences exist and materially impact the margin vis-à-vis comparables. We have gone through the page no.39 of the Ld. DRP order, specifically para 2.3.2, which is to the following effect :

“ 2.3.2 Regarding the plea of Custom duty adjustment – We note that the assessee has not submitted any data with regard to the differences in reliance over imports and degree of custom duty expenditure in its own case vis-à-vis the comparables and has merely made a ground in this respect, it is also our opinion that this industry is significantly dependent on imports and the assessee’s is not a singular case. Hence, we do not find any merit in this plea of the assessee. Ground rejected.” 8.1 We have also gone through the page no. 232 of the paper book, where the assessee had provided a computation of customs duty adjustment, which is to the following effect :

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8.2 On perusal of above, it is found that, the DRP has rightly observed that the assessee failed to furnish relevant data or analysis comparing the customs duty burden between the assessee and the comparables. In fact, as per page no. 232 of the paper book, the assessee admitted that data was not available for five out of eight comparables, and the computation was done based on three companies alone, which is insufficient to establish a reliable comparison. Further, the Ld. DRP has also noted that in the same line of industry itself is significantly dependent on imports and the assessee is not a singular outlier in that regard.

8.3 Further, the judicial precedents relied on by the assessee in the case of Doowon Automotive Systems India Pvt. Ltd. Vs. DCIT and ACIT Vs. Doowon Electronics India Pvt.(supra) are distinguishable on facts, as in those cases, the issue of incomplete data was not there.

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In the absence of complete data and due to the generalised nature of the claim, we are unable to direct any adjustment on account of basic customs duty.

8.4 In view of the above discussion, we find no infirmity in the order of the Ld. DRP in rejecting the assessee’s request for adjustment on account of basic customs duty. Accordingly, these grounds raised by the assessee are dismissed.

9.

Ground nos.2.7 & 2.8 of the assessee are related to non- provision of Working Capital Adjustment (“WCA”) while determining the margin of comparable companies. In this regards, the Ld. AR submitted that the assessee had duly computed and claimed WCA on the ground of differences in working capital levels between the assessee and its comparables. It was submitted that the WCA was calculated by the assessee in accordance with the OECD guidelines, using average opening and closing balances of working capitals. The Ld. AR contended that the adjustment methodology was well accepted in international transfer pricing standards and had also been followed by various benches of the Tribunal. In particular, reliance

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was placed on the decision of the coordinate bench of Tribunal in the case of Doowon Automotive Systems India Pvt. Ltd. Vs. DCIT and ACIT Vs. Doowon Electronics India Pvt.(supra), wherein a similar adjustment was allowed. The Ld. AR submitted that non-grant of WCA leads to an incorrect arm’s length margin and is contrary to the principle of comparability under Rule 10B(1)(e)(iii) of the Income Tax Rules, 1962 (“the Rules”).

10.

Per contra, the Ld. DR relied on the findings of the Ld. AO/TPO, and submitted that working capital differences could not be accurately measured, as the financial statements of comparables only disclose year-end balances of working capitals, and do not reflect their movement or average levels during the year. The Ld. DR argued that, in the absence of detailed information about the working capital cycle, it would be speculative to allow such an adjustment. The Ld. AO/TPO was therefore justified in rejecting the adjustment.

11.

We have considered the rival submissions and perused the material available on record. It is a settled principle under Rule 10B(1)(e)(iii) of the Rules that while applying the Transactional Net

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Margin Method (TNMM), reasonable adjustments must be made to eliminate differences between the tested party and the comparables that materially affect the net profit margin. Working capital level is one such economic difference that has a direct impact on operating profitability, and international transfer pricing guidelines, including the OECD Guidelines, recognise the legitimacy of WCA. We find that the assessee had computed the WCA based on standard methodology, using opening and closing balances of working capitals, which is an accepted practice. While it is true that average balances may not reflect exact movements during the year, the absence of daily data is not fatal to the claim, as the use of opening and closing figures is a reasonable approximation. Further we have gone through the decision of the coordinate bench of Tribunal in the case of Doowon Automotive Systems India Pvt. Ltd. Vs. DCIT (supra) wherein, the coordinate bench of this Tribunal has dealt with the issue at para nos.9 & 10 of its order, which is to the following effect :

“ 9.0 We have heard rival submissions in the light of material available on records. We have noted that an Hon’ble Coordinate Bench of this tribunal has considered similar issue, of working capital adjustment, in

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the assessment year 2013-14 and vide its order ITA No 3061/Chny/2017 vide order dated 23.11.2021 as held as under: “5.2 We have heard the rival contentions. With regard to the allowability of working capital adjustment, the Tribunal has considered similar issue in the assessment year 2011-12 and vide its order in I.T.A. No. 692/Mds/2016, the Tribunal has observed and held as under: "7. The Ld. AR argued that the Assessing Officer/DRP has confirmed the action of the TPO in not providing working capital adjustment while determining net profit margin of the assessee. In the assessee’s own case in the assessment year 2009-10, DRP in its order dated 20.12.2013 has directed the TPO to examine the issue and consider working capital adjustment. Whereas, the Ld. TPO observed that the assessee company is actually buying the parts from the AE and working capital adjustment to be allowed if the assessee demonstrates with AE of allowing the credit period to the assessee and DRP confirm the action of the TPO and the Ld. AR demonstrated the Arithmetic Mean of 4.58% of seven comparables selected at Page 41 of paper book and referred to the working capital adjustment PLR of 12.26% with the comparables current assets being sundry creditors, sundry debtors and inventories at Page 42 and supported working capital adjustment of comparables company based on the financial statements. The Ld. DR relied on the order of TPO and prayed for no adjustment is required. Considering the facts and material on record the financial statements and the paper book, there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration. " 5.3 By giving effect to the order

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of the ITAT, vide order dated 28.10.2018-, the TPO had examined and allowed the benefit of working capital adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, · for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the working capital component while determining the ALP.” 10.0 Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, we deem it appropriate to remit the matter to the file of Ld.AO with directions to readjudicate the matter de novo after giving suitable adjustment against for working capital. The assessee shall be at liberty to produce all the evidences in its possession before the Ld.AO for consideration. The assessing officer shall give due opportunity of being heard to the assessee. Thus, all the grounds of appeal Nos. 2.8 to 2.10 on this issue are allowed for statistical purposes.” 11.1 On perusal of above, we found that the Tribunal has allowed the assessee’s claim for WCA. Respectfully following the decision of the Tribunal, we direct the Ld. AO/TPO to grant appropriate WCA to the profit margins of the comparables while determining the arm’s length price, after verifying the correctness of the computation provided by the assessee. Accordingly, these grounds raised by the assessee are allowed.

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12.

Ground nos.2.17 to 2.30 of the assessee are related to the adjustment made on account of interest on outstanding trade receivables from its AEs. In this regard, the Ld. AR submitted that the assessee had outstanding receivables from AEs amounting to Rs.9,81,67,443/-. However, the assessee also had outstanding payables to AEs amounting to Rs.89,22,12,132/-, which is nearly nine times the amount of receivables. It was contended that the Ld. TPO benchmarked interest only on the trade receivables without giving any set-off or consideration to the interest-free outstanding payables to the AEs. The Ld. AR invited our attention to page no.18 of the Ld. DRP’s order, specifically para no. 2.1.25, wherein the Ld. TPO himself has categorically recorded that the assessee has not paid any interest on the outstanding payables to AEs. This is an admitted position. The Ld. DRP, however, did not provide any relief on this ground, merely observing that allowing a set-off for interest-free payables would result in an overall reduction of taxable income of the assessee, and hence was not permissible in view of Section 92(3) of the Act.

12.1 The Ld. AR further submitted that the approach of the Ld. DRP is flawed. The factual finding that the assessee has not paid any

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interest on trade payables, which far exceed the receivables, must be given due consideration. If no interest is paid on significant outstanding payables, then charging interest on relatively small receivables is not warranted. It distorts the true arm’s length nature of the transactions. The Ld. AR placed reliance on the decision of this Tribunal in the case of Shakti Hormann Pvt. Ltd. vs. ACIT in ITA No.451/Hyd/2022, wherein at para nos. 20 to 22, this Tribunal, after considering similar facts, directed the Ld. TPO to delete the adjustment made on account of interest on trade receivables where interest-free payables to the AEs were found to be substantially higher than the receivables. Based on these submissions and the judicial precedent, the Ld. AR prayed for deletion of the adjustment made on account of interest on trade receivables.

13.

Per contra, the Ld. DR opposed the submissions of the Ld. AR and supported the orders of the Ld. AO/TPO. It was contended that trade receivables and trade payables are distinct international transactions, and cannot be netted off or clubbed for benchmarking purposes. The Ld. DR further submitted that the Ld. TPO has rightly made the adjustment based on delayed realization of receivables

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beyond a reasonable credit period, and such benchmarking is in line with accepted transfer pricing methodology. The Ld. DR finally prayed for upholding the adjustment made by the Ld. AO/TPO.

14.

We have heard the rival submissions and perused the material available on record. It is not in dispute that the assessee had outstanding receivables from AEs of Rs.9,81,67,443/-, whereas the outstanding payables to AEs were Rs.89,22,12,132/-, which is nine times the receivable amount. It is also an admitted fact recorded at para 2.1.25 of the DRP’s order that the assessee had not paid any interest on the outstanding payables to its AEs. This factual position has not been rebutted by the Department. Therefore, in our considered view, when no interest is paid on substantial payables to AEs, charging notional interest on relatively smaller receivables does not reflect arm’s length conduct. The benchmarking exercise, in such circumstances, becomes artificial and one-sided, ignoring the holistic commercial arrangement between the assessee and its AEs. In this regard, we have gone through the decision of this Tribunal in Shakti Hormann Pvt. Ltd. vs. ACIT (supra), wherein at para nos.20 to 22 of the order of the order, this Tribunal has held as under :

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“ 20. We have considered the rival submissions and carefully perused the orders of the authorities below. There is no dispute that for the year under consideration, the assessee has borrowed outstanding receivables from the AE as well as outstanding payables to the AE as under : Particulars Receivable HormannMiddle East 1,42,64,000 FEZ Total 1,42,64,000

Particulars Payable Hormann 58,17,000 Beteiligungs GMBH Hormann KG 4,14,49,000 Verkaufsgesellschaft Total 4,72,66,000

21.

The outstanding receivables and payables are not in dispute though the receivables and payables are from different AEs. The assessee has stated that the payables are in respect of the purchases made by the assessee from AEs, which was subsequently sold to another AE and therefore, the transactions are inter connected and when the assessee is not paying any interest on the payables to the AEs, which are more than the receivables from the AEs, then the adjustment made on this account is uncalled for. At the outset, we note that for the A.Y.2014-15, this Tribunal, in assessee’s own case, vide order dated 07.05.2021 (supra) considered an identical issue in para 6 as under : “6. We have heard the rival submissions and carefully perused the materials on record, and we find merit in the arguments advanced by the Ld. AR. Since, the transactions are cross-border, it would be appropriate to adopt LIBOR rate of interest while computing the notional interest on receivables from the AEs. This Bench of the Tribunal has held so on various earlier occasions with respect to the same issue. Further, it will also be appropriate for netting off the notional interest with respect to the debit and credit transaction with the assessee’s AEs because when notional interest is charged on receivables the same should also be charged on

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payables. Therefore, in the case of the assessee we hereby hold that LIBOR rate of interest shall be adopted while computing the notional interest on receivables and payables for the transaction with AEs. Further, on considering the nature of trade of the assessee, we find it appropriate to fix the grace period of 30 days while computing the notional interest towards the debit and credit transaction with the AEs. It is ordered accordingly.” 22. Thus, it is clear that the Tribunal has held that it will be appropriate for netting off the notional interest with respect to debit and credit transaction with the assessee’s AEs and only on the net receivables, the notional interest can be benchmarked for transfer pricing purpose. We further note that when the assessee is purchasing raw material from the AEs and selling the goods to the AEs, then the transactions of purchase and sale are directly connected with each other. Therefore, it will be appropriate to consider both the trade receivables as well as payables from the AEs, while bench marking the transactions of notional interest on the receivables. By following the earlier order of this Tribunal, adjustment made by the TPO/AO on this account is deleted as the payable for the year under consideration is substantially higher than the receivables.” 14.1 On perusal of above, we found that, this Tribunal held that when the assessee had significant interest-free payables to AEs, no adjustment was warranted on receivables. The Tribunal directed deletion of the interest adjustment. Therefore, respectfully following the above decision and in the interest of consistency and fairness, we direct the Ld. AO/TPO to delete the adjustment made on account of interest on trade receivables. Accordingly, these grounds of the assessee are allowed.

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15.

The ground nos. 2.31 to 2.35 raised by the assessee is with regard to the transfer pricing adjustment made by the Ld. TPO on account of interest on ECB availed from its AEs. In this regard, the Ld. AR submitted that, the assessee had availed an ECB loan of USD 20,00,000 from its AE for a period of five years on 26.08.2019, with an interest rate of 4.60% per annum. The Ld. AO/TPO benchmarked the interest rate at LIBOR + 200 bps, treating the ECB as working capital loan. The Ld. AR further submitted that the ECB loan was taken specifically for the purpose of purchase of capital assets and expansion of existing facilities, which is clearly evident from the loan agreement, particularly Article 6, which outlines the intended utilization. The Ld. AR invited our attention to para 7.3.3 at page no.9 of the Ld. TPO’s order, where the Ld. TPO, despite accepting that the loan was taken for purchase of capital goods and expansion of facilities, erroneously concluded that the loan was for working capital purposes and accordingly applied LIBOR + 200 bps for benchmarking the interest. Hence, the Ld. AR submitted that the said conclusion is factually incorrect and contrary to the evidences on record. The interest rate of 4.60% is consistent with the rate allowed

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under RBI guidelines applicable to ECBs for capital expansion. In support, the Ld. AR relied on the decisions of this Tribunal in the case of Shakti Hormann Pvt. Ltd. vs. ACIT (Supra) and Devgen Seeds & Crop Technology Pvt. Ltd. vs. DCIT – ITA No. 399/Hyd/2016, wherein, under the similar issue, this Tribunal has held the issue in favour of the assessee. Accordingly, the Ld. AR submitted that the adjustment made by the Ld. TPO on incorrect factual assumptions must be deleted.

16.

Per contra, the Ld. DR supported the order of the Ld. AO/TPO and submitted that the Ld. TPO had considered the overall facts and correctly applied LIBOR + 200 bps for benchmarking. The Ld. DR invited our attention to page 8 of the Ld. TPO’s order, where the Ld. TPO noted that the RBI guidelines relied upon by the assessee had been revised, and therefore, the assessee’s reliance on earlier limits was not applicable. The Ld. DR, therefore, prayed that the Tribunal may uphold the adjustment made by the Ld. AO/TPO.

17.

We have heard the rival contentions and perused the material available on record. It is evident from Article 6 of the loan agreement

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placed at page 306 of the paper book that the ECB loan availed by the assessee was for the purpose of purchase of capital goods and expansion of existing facilities, and not for working capital purposes as erroneously concluded by the Ld. TPO. The Ld. TPO, at para 7.3.3, has acknowledged that the ECB was for capital expansion but nevertheless proceeded to treat it as working capital loan without any cogent basis. This contradictory approach is unsustainable.

17.1 Further, we find merit in the submission of the Ld. AR that ECBs taken for capital expenditure require different benchmarking considerations than those for working capital. Reliance on judicial precedents in Shakti Hormann Pvt. Ltd. and Devgen Seeds & Crop Technology Pvt. Ltd.(supra) strengthens this position. In both these cases, this Tribunal has held that the interest rate should be assessed having regard to the nature and purpose of the loan, and comparable external borrowings, not by mechanically applying a fixed mark-up. Accordingly, we are of the considered view that the adjustment made by the Ld. TPO deserves to be reconsidered after correctly appreciating the purpose of the ECB and in light of the relevant judicial precedents cited above. We accordingly set aside the

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adjustment made by the Ld. AO/TPO on account of interest on ECB and restore the matter to the file of the Ld.AO/TPO with a direction to re-examine the issue in light of the actual purpose of the loan as evidenced in the loan agreement, the applicable RBI guidelines for ECBs used for capital expansion during the relevant period and the judicial precedents including Shakti Hormann Pvt. Ltd. vs. ACIT and Devgen Seeds & Crop Technology Pvt. Ltd. vs. DCIT (supra). The assessee is also directed to furnish all necessary supporting documents before the Ld. AO/TPO to facilitate adjudication. Accordingly, these grounds of the assessee are allowed for statistical purposes.

18.

In the result, the appeals filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 6th August, 2025. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad. Dated: 06.08.2025. * Reddy gp

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Copy of the Order forwarded to : 1. M/s. Doowon Climate Control India Pvt. Ltd., Plot No.6G-B Site B Gudipalli Indl. Park, Soamndepalli, Ananthapur District-515 122 Andhra Pradesh. 2. ACIT, Circle 1, Kurnool. 3. Pr.CIT, Kurnool. 4. DR, ITAT, Hyderabad. 5. Guard file.

BY ORDER,

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