GLEASON WORKS INDIA PRIVATE LIMITED,BANGALORE vs. DCIT, CIRCLE-3(1)(1), BANGALORE

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ITTPA 2140/BANG/2024Status: DisposedITAT Bangalore07 July 2025AY 2021-225 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal noted that neither the TPO nor the DRP had addressed the crucial issue of the FAR test for selecting comparables to benchmark the international transactions. It was an admitted fact that the assessee had obtained RBI approvals for payments to its AE. Therefore, the Tribunal held that the TPO should re-examine the case afresh, applying the FAR test for selecting comparables. The Tribunal referred to the jurisdictional High Court's decision in CIT Vs. GE Technology (2021), which held that RBI-prescribed rates are a relevant factor in determining the applicable interest rate for commercial borrowings. The TPO was directed to examine the case in light of these observations. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Gleason Works (India) Pvt. Ltd., is engaged in the manufacture and sale of gear cutting tools and servicing of gear processing machines. For Assessment Year 2021-22, the assessee filed its return declaring an income of Rs. 1.04 crores. The case was selected for scrutiny, and a reference was made to the Transfer Pricing Officer (TPO) due to international transactions. The TPO, vide order dated 10.10.2023, made an adjustment of Rs. 19,86,084/- concerning interest paid on External Commercial Borrowing (ECB) loans, determining the Arm's Length Price (ALP). The Assessing Officer (AO) passed a draft assessment order incorporating these adjustments. The Dispute Resolution Panel (DRP), vide order dated 28.10.2024, affirmed the TPO's view and sustained the adjustments. The assessee has appealed this order.

What were the issues?

1. Whether the rate of interest applied to ECB loans obtained from an Associated Enterprise (AE) should be benchmarked using the rates prescribed by the Reserve Bank of India (RBI), as argued by the assessee. 2. Whether the TPO correctly selected comparable companies and calculated the interest rate at 3% for benchmarking the ECB loans, considering the assessee's contention that the TPO failed to perform the Function, Asset, and Risk (FAR) analysis and that the comparables were not similar to the assessee's profile. Assessee's Arguments: The assessee argued that the RBI prescribed rates should be applied for benchmarking the interest on ECB loans. It further contended that the TPO wrongly calculated the interest rate at 3% and failed to perform the FAR test for selecting comparables, asserting that the selected comparables were not similar to the assessee's business profile. The assessee also highlighted the voluminous paper books filed. Revenue's Arguments: The Revenue (represented by the D.R.) relied upon the orders of the lower authorities (TPO and DRP).

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE

Before: SHRI LAXMI PRASAD SAHU & SHRI PRAKASH CHAND YADAV

For Appellant: Smt. Rajeshwari, A.R
Hearing: 03.07.2025Pronounced: 07.07.2025

PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:

Present appeal of the assessee is arising from the order of ld. AO dated 11.09.2024 having DIN No. ITBA/AST/S/143(3)/ 2024- 25/1068613468(1) and relates to assessment year 2021-22.

2.

The assessee has raised following grounds of appeal:

IT(TP)A No.2140/Bang/2024 Gleason Works (India) Pvt. Ltd., Bangalore Page 2 of 5

3.

Brief facts of the case as coming out from the orders of authorities below are that the assessee is a company engaged in manufacture and sale of gear cutting tools and servicing of Gelson Gear Processing Machines. It has filed its income tax return for the impugned assessment year on 14.3.2022 declaring an income of Rs.1.04 crores. Thereafter, the case of the assessee was selected for

IT(TP)A No.2140/Bang/2024 Gleason Works (India) Pvt. Ltd., Bangalore Page 3 of 5 scrutiny. Observing international transactions, a reference was made to the Transfer Pricing Officer (“TPO”) on 7.10.2022 with the approval of concerned ld. PCIT. Thereafter, the TPO vide its order dated 10.10.2023 made certain adjustments with respect to the transactions interest paid on External Commercial Borrowing (ECB) loans. The TPO made an adjustment of Rs.19,86,084/- and determined the ALP of the assessee. Thereafter, the AO passed the draft assessment order on 30.11.2023 after adding the ALP adjustments made by the TPO. Against the draft assessment order, the assessee filed its objection before the ld. DRP and the ld. DRP vide its order dated 28.10.2024 decided the objections raised by the assessee. The ld. DRP has affirmed the view of the TPO and sustained the adjustments made by the ld. TPO.

4.

Aggrieved with the order of the ld. DRP, assessee has come up in appeal before us and has raised so many grounds as mentioned above. However, the solitary issue involved in this case is the rate of interest to be made applicable with respect to the ECB loans obtained by the assessee from its AE.

5.

Counsel for the assessee argued that rate of interest as prescribed by the RBI shall be made applicable for benchmarking the rate of interest paid by the assessee to its AE. Further, counsel for the assessee argued that ld. TPO has selected 97 comparables and has wrongly calculated the rate of interest @ 3%. It is the submission of the counsel for the assessee that the ld. TPO has not yet all performed the FAR test, which is required for selecting the comparables. All the comparables selected by the TPO are not similar to the profile of the assessee. Counsel for the assessee drawn the attention of the bench towards voluminous paper books filed before the lower authorities.

IT(TP)A No.2140/Bang/2024 Gleason Works (India) Pvt. Ltd., Bangalore Page 4 of 5 6. Ld. D.R. relied upon the orders of the lower authorities.

7.

After considering rival submissions, we observe that neither the TPO nor the DRP has dealt with the issue of FAR test, to be applied for selecting the comparables in order to benchmark the international transactions. Further, it is an admitted position of fact that the assessee has obtained RBI approvals for making payments to its AE. Therefore, we are of the view that the ld. TPO would examine the case of the assessee afresh after applying FAR test. It is worthy to mention here the judgement of Hon’ble jurisdictional High Court in the case of CIT Vs. GE Technology reported in 125 taxmann.com 168 (2021), wherein the Hon’ble jurisdictional High Court has held that the rates prescribed by RBI are relevant factor for determining the rate of interest applicable to the commercial borrowings. The ld. TPO will examine the case in the light of these observations.

8.

In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 7th July, 2025

Sd/- Sd/- (Laxmi Prasad Sahu) (Prakash Chand Yadav) Accountant Member Judicial Member

Bangalore, Dated 7th July, 2025. VG/SPS

IT(TP)A No.2140/Bang/2024 Gleason Works (India) Pvt. Ltd., Bangalore Page 5 of 5 Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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