TE CONNECTIVITY INDIA PRIVATE LIMITED,BANGALORE vs. THE OFFICE OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 7(1)(1), BANGALORE

- Sales of manufactured goods - Sale return of raw materials - Payment of Royalty.

7.2 Accordingly, the median of 3 year weighted average margin (op/oc) of these 12 comparable companies were worked out at 12.05% and 35th percentile of the same computed at 9.04%%. As the 35th percentile of the comparable was more than the assessee’s PLI, the TPO computed the quantum of adjustment at Rs. 47,07,35,753/- to the license manufacturing segment.

9.2 Similarly, the assessee with respect to BIT Mapper Integration Technologies Pvt. Ltd. submitted that it should be excluded from the final comparable set as it is also functionally dissimilar. The company’s website and FY 2020-21 annual report show that BIT Mapper is a design-led, system-level electronics player catering largely to embedded/defence markets. Its portfolio spans electro-optic systems, rugged/smart/underwater/helmet/body cameras, UAV/vehicle surveillance gimbals, defence products (e.g., AICB barrel cleaning, Deepcatch), along with embedded electronics like SOMs/carrier boards and Smart USB hubs. Crucially, it also provides significant engineering/design services—ruggedised electronics packaging, high- speed PCB, FPGA/SoC, AI/ML & algorithm IP design, and other mid-spec electronics design services—indicating ownership/creation of product IP IT(TP)A No.2346/Bang/2024 Page 6 of 44 and R&D-intensive activities. In contrast, the Assessee is a catalogue electronic components/interconnects manufacturer (connectors, relays, sensors, switches, cable interconnects) focused on precision molding/stamping/plating and high-volume assembly with limited intangibles. The FAR thus differs materially in Functions (system design/integration vs component manufacturing), Assets/Intangibles (IP and specialized labs vs tooling/process know-how), and Risks (programme/qualification and defence-sector risks vs diversified OEM component risks). Further, reliable segmental data is unavailable to isolate any like-to-like component-manufacturing segment in BIT Mapper. The TPO’s reliance on only two products (SOMs/carrier boards and Smart USB hubs) selectively omits the broader product/service mix and overstates similarity. Applying Rule 10B(2) (characteristics of goods and FAR), BIT Mapper is not an appropriate comparable and should be excluded from the benchmarking set.

9.3 Likewise, the assessee prayed to exclude FCI OEM Connectors Ltd. (“FCI Connectors”) from the final comparable set because its FY 2020-21 financials are not reliable for TP benchmarking. The MCA copy of the annual report states that the company entered into related-party transactions with entities under common control on an arm’s-length basis for FY 2020-21, and the auditor acknowledges compliance with related-party disclosure requirements. However, the notes to accounts do not quantify or detail the amounts/nature of those related-party transactions for FY 2020-21. This clear disconnect between the narrative disclosures/auditor’s statement and the actual financial note disclosures makes it impossible to verify whether FCI Connectors passes the RPT filter adopted by the Ld. TPO and the Assessee (and to make any IT(TP)A No.2346/Bang/2024 Page 7 of 44 reasonably accurate adjustments as required under Rule 10B). In the absence of complete and reliable data, FCI Connectors’ margins cannot be used for a like-to-like comparison and the company ought to be removed from the final list of comparables for the year under assessment.

11. The Assessee submitted that “Vossloh” deserves inclusion in the final comparable set for the reason that it already appears in the Ld. TPO’s search and passes all quantitative filters applied by both sides. Its FY 2020-21 annual report shows that the company was engaged in manufacturing and sale of products i.e. electrical switches making it an appropriate, steady manufacturing benchmark. Vossloh is not a design- services/IP-heavy company; it undertakes routine industrial manufacturing activity which is comparable to the Assessee’s electromechanical component business. In these circumstances, and applying Rule 10B(2) on characteristics of goods and FAR, the Ld. Panel may kindly direct inclusion of Vossloh as a comparable in the manufacturing set. II. Sulakshana Circuits Ltd.

IT(TP)A No.2346/Bang/2024

IT(TP)A No.2346/Bang/2024

A plea with regard to the margin computation, we find it fit to direct the TPO to re- compute the margin of the comparable if found necessary.

B. On the plea of inclusion of comparable I. VosslohCogifer Turnouts India Pvt. Ltd. (Vossloh)

Functionally Comparable Passes all the filter

Panel: Having considered the submission of the assessee we note that the company is into the manufacturing of Switches. It is our considered opinion that the company is functionally different from the assessee as the assessee is into the manufacturing of connectors. Accordingly, the ground raised by the assessee to include this company is rejected.

II. Sulakshana Circuits Ltd. (Sulakshana)

Functionally Comparable Passes all the filter

Panel: Having considered the submission of the assessee we note that the company is into the manufacturing of the printed circuit board. It is our considered opinion that the company is functionally different from the assessee as the assessee is into the manufacturing of connectors. Accordingly, the ground raised by the assessee to include this company is rejected.

III. Srinar Electronics Private Limited (‘Srinar Electronics’)

Fails persistent loss filter

Panel: Having considered the submission, we note that the company is failing the persistent loss filter two out of three year as applied by the TPO and panel already discussed in the preceding paras. The relevant portion of the annual report is as under;

Thus, the objection of the taxpayer is hereby rejected as the company is failing the persistent loss filter for AY 2020-21 & 2021-22

IT(TP)A No.2346/Bang/2024 Page 11 of 44

16.1 The learned AR further argued that the company FCI Oen Connectors Ltd data is not reliable as related party transaction are not fully disclosed. Further, the learned DRP himself in own case of the assessee for A.Y. 2020-21 has excluded this company from the list of comparable on the ground of unavailability of information of related party transaction.

17.1 In addition to the above the learned AR argued that Srinar Electronics Pvt. Ltd. is a contract-style electronics manufacturer with revenues predominantly from sale of goods. The persistent-loss filter has been misapplied. The record, shows profits in at least 1 of the last three years, hence it does not fail a “persistent loss” category as held by the IT(TP)A No.2346/Bang/2024 Page 12 of 44 Tribunal in own case of the assessee for A.Y. 2013-14 in ITA No. 2680/Bang/2017. Therefore, Srinar Electronics is squarely comparable. Sulakshana Circuits Ltd is purely PCB manufacturer (double- sided/multilayer boards) thus making it comparable to the assessee company. The learned DRP in own case of the assessee for A.Y. 2014-15 has held that companies which are in PCB manufacture should held to be comparable.

17.2 Vossloh Cogifer Turnouts India Pvt. Ltd’s. audited financials show a manufacturing business of electronic switches which is similar to assessee business. Therefore, the same should be included.

19.1 Before we examine each company eligibility of companrables, we record our guiding observations that under Rule 10B(2)–(3) and TNMM, the touchstone for selecting a comparable is functional similarity on a FAR basis and reliable audited data, not mere product labels. Suitable IT(TP)A No.2346/Bang/2024 Page 13 of 44 comparables are routine component manufacturers undertaking moulding/stamping/assembly/testing with limited intangibles, whose audited accounts permit a clean OP/OC working. Where a company combines manufacturing with design/engineering services or trading, it is usable only if audited segmental results isolate the manufacturing activity. If information in relation to such segments are absent, it must be excluded. Similarly, the entities that are design-led/IP-heavy (e.g., embedded/AI/FPGA, defence/system integration) generally fail comparability with a routine manufacturer. Likewise, the compliance with respect to the RPT threshold requires quantified disclosures. In case of unquantified RPTs data, render such the data unreliable. Differences in working capital, depreciation, or capacity utilisation should ordinarily be addressed through standard adjustments rather than outright exclusion. Finally, we strive for consistency with prior years unless there is a demonstrable change in facts. Proceeding on these principles, we deal with each impugned company below.

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27. The next issue raised by the assessee through Ground Nos. 12 to 16 of the appeal is that the revenue authority erred in making TP adjustment of Rs. 58,83,783/- towards notional interest on delayed receivable from the AEs.

30.1 The learned DRP in principle confirmed the view of the TPO by holding allowances of extended credit period is an international transaction and required to be separately benchmarked. The learned DRP also confirmed the rate of interest being SBI PLR for invoice raised in INR and LIBOR +450 BPS for invoice raised in foreign currency.

30.2 In consequence to the DRP direction, the learned TPO passed order giving effect as on 7th October 2024 but the TPO failed to consider the final amount of notional interest as per rectification order. As such the TPO in order giving effect considering the amount of notional interest at Rs. 58,83,783/- as computed in original order instead of Rs. 3,68,918/- as computed in rectified order. The AO in final assessment order also failed to incorporate the amount of notional interest as per rectified TP order.

IT(TP)A No.2346/Bang/2024

34.1 We also refer the decision of this Tribunal in the case of AMD India Pvt Ltd vs. DCIT reported in 95 taxmann.com 531 wherein it was held as under: "10. In our considered opinion, to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and. interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking. In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested, party with the prices charged by the IT(TP)A No.2346/Bang/2024

Page 20 of 44 comparables although when TNMM is adopted as MA.M, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested party is equal or above the profit of comparables, even after taking into account the effect of working capital adjustment and the ALP is less that the price charged by the tested party, it cannot be said that the extra credit allowed is not an independent international transaction and not required to be separately benchmarked. In our considered opinion, the first requirement is this that it has to be first decided that whether it is an independent international transaction or not and if it is found that it is not so, then obviously, no separate benchmarking is required but if it is found that it is an independent international transaction then separate bench making has to be done and TP adjustment is to be made as per law irrespective of whether any TP adjustment is required to be made in respect of main transaction of sale.

34.2 The above finding of the Tribunal was challenged by the revenue before the Hon’ble Jurisdictional High Court in the case of PCIT vs. AMD India Pvt Ltd reported in 98 taxmann.com 512 wherein the revenue appeal was dismissed by observing as under: 5. Having heard the learned counsel for the appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs.

Page 21 of 44 Tribunal in the case of DCIT Vs. Hewlett Packard India Software Operations Private Limited (2022) 149 taxmann.com 280 (Bang. Trib.) where it was held as under: 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly."

35.1 The above finding was further followed by coordinate bench of this Tribunal in the case of M/s IHS Global Pvt Ltd vs. ACIT bearing IT(TP) No. 1424/Bang/2024. Thereby respectfully following the view taken by this Tribunal in aforementioned cases, we hold that the appropriate rate interest shall be LIBOR + 200 Basis point.

35.2 Before parting it also important to note the TPO originally calculated the interest at Rs. 58,83,783/- only. However, the TPO passes a rectification order dated 24th April 2024 where in the TPO found the interest was calculated on all the trade receivables without providing credit period. Hence, the TPO after providing the credit period of 30 days recomputed the interest on delayed receivable at the rate of LIBOR+450 Bps and reduced the interest amount at Rs. 3,68,918/- only. This rectification order passed by the AO was not given effect in the final assessment order.

35.3 Therefore, we in view of the above detailed discussion, direct the AO to compute the interest on delayed receivable as per rectified order of the TPO and taking the interest at LIBOR + 200 basis point. Hence, IT(TP)A No.2346/Bang/2024 Page 22 of 44 the grounds of appeal raised by the assessee are allowed for statistical purposes.

36. The next issue raised by the assessee through Ground Nos. 17 to 20 of the appeal is that the revenue authorities erred in benchmarking the Concur expenses of Rs. 11,57,681/- and Corporate Service charges of Rs. 7,19,34,662/- at NIL.

37.1 On perusal of the records and submissions by the assessee, the TPO observed that the assessee had merely placed reliance on broad invoices and general descriptions without producing any concrete evidence such as nature of services rendered, number of hours utilized, employee-wise or department-wise allocation, or specific benefit derived from the said expenditure. The assessee also did not submit any independent documentation to demonstrate that these services were IT(TP)A No.2346/Bang/2024 Page 23 of 44 required for its business or that a third party in similar circumstances would have paid for such services. In effect, the assessee failed to demonstrate that the payments were made for genuine business purposes and failed to establish a direct nexus between the expenses incurred and the benefits accrued.

37.2 The TPO further noted that, in the absence of such details, it cannot be concluded that the services were in fact rendered by the AE, nor that the costs allocated bear any rational relationship with the value of services, if any, received. The mere existence of an inter-company agreement or cost recharge arrangement, without supporting evidence of service delivery, does not satisfy the arm’s length requirement under the Act. It was further pointed out that, consistent with several judicial pronouncements, including those of the Hon’ble ITAT Bangalore, where taxpayers failed to bring material evidence on record to show that management or support services were actually availed, the ALP of such payments was rightly held to be NIL.

37.3 Therefore, in the present case too, the TPO held that the assessee had not proved the arm’s length nature of Concur subscription expenses of Rs. 11,57,681/- and Corporate Service Charges of Rs. 7,19,34,662/-. Accordingly, TPO adopting the CUP method and in line with judicial precedents, determined the ALP of the aforesaid payments at NIL. Consequently, a total adjustment of Rs. 7,30,92,343/- was proposed under section 92CA of the Act towards these international transactions. Accordingly, the AO incorporated the same in the draft assessment order.

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39.1 The assessee argued that such an approach is not in consonance with the settled principles of transfer pricing law. It was pointed out that the assessee has actually incurred costs for Concur Subscription Services, which are software-based travel and expense management solutions availed on a centralized basis by the group, and which were supported by invoices and related documentation. The assessee emphasized that such expenses are not in the nature of ad hoc allocations but represent specific services availed, and therefore constitute legitimate international transactions which cannot be benchmarked at NIL.

39.2 With respect to corporate service charges, the assessee submitted that it has entered into a long-standing agreement with its AE, Tyco IT(TP)A No.2346/Bang/2024 Page 25 of 44 Electronics Ltd., Switzerland, for the provision of a host of centralized services including finance, treasury, tax, legal, compliance, HR, IT, supply chain, strategy, and operational excellence services. These services are not shareholder or stewardship activities; rather, they are operational in nature, supporting day-to-day functioning and efficiency across business segments of the assessee. It was argued that the assessee has furnished corporate service agreements, debit notes, invoices, withholding tax forms, and other documents as evidence of actual rendition of services, and therefore the blanket rejection by the TPO is unjustified.

39.3 The assessee further argued that the “benefit test” applied by the TPO is contrary to law, since jurisprudence from the Hon’ble Supreme Court (S.A. Builders, 158 Taxman 74) and various High Courts (e.g., CIT v. EKL Appliances Ltd., 345 ITR 241) has held that commercial expediency of incurring an expenditure lies within the domain of the businessman and cannot be questioned by tax authorities. The role of the TPO is confined to determining whether the transaction has been entered into at arm’s length, and not to substitute the business judgment of the assessee. In this regard, the assessee relied on several rulings of jurisdictional ITAT and High Courts, including Adcock Ingram Ltd.(ITTPA No. 1039/Bang/2015), AT&T Global Network Services (ITA No. 7001/Del/2018), and TNS India Pvt. Ltd. (39 CHH 32 Hyd. Trib), wherein it was held that the burden of evidence cannot be placed higher than what is required for third-party transactions and that absence of quantifiable evidence of benefits, the same cannot be a ground to disregard genuine services received from AEs.

IT(TP)A No.2346/Bang/2024 Page 26 of 44 39.4 It was also contended that the approach of the TPO in determining the ALP at NIL without selecting the most appropriate method under Rule 10B is contrary to the mandate of section 92C of the Act. The law requires the adoption of one of the prescribed methods – CUP, RPM, CPM, PSM, TNMM, or any other method notified for benchmarking. Merely resorting to the “NIL” value without identifying a comparable uncontrolled transaction is not permissible under the Act and Rules. In fact, the assessee had undertaken benchmarking under TNMM by aggregating IS, Concur, and corporate service charges with its manufacturing, distribution, and engineering design service segments, which are functionally interlinked. Reliance was placed on OECD Guidelines (para 3.9) and ICAI Guidance Note under section 92E which permit aggregation of transactions that are closely interrelated. The assessee also cited ITAT rulings in Toyota Kirloskar Auto Parts Pvt. Ltd. [ TS-217-ITAT-2014(Bang)] and Sony Ericsson Mobile Communications India Pvt. Ltd. [ Del-HC], where aggregation was upheld as a valid approach for benchmarking such inter-linked transactions.

39.5 The assessee further submitted that benefits derived from services need not always be financial or quantifiable in immediate terms. Benefits may be in the form of improved processes, access to group expertise, risk mitigation, standardization, and operational efficiencies, which may not directly translate into increased revenue or reduced costs but nevertheless, the same are crucial for business sustenance and growth. In line with OECD guidelines, the assessee contended that benefits should be understood broadly, and that lack of immediate financial quantification does not render the services redundant.

IT(TP)A No.2346/Bang/2024 Page 27 of 44 39.6 On the strength of the above submissions, the assessee pleaded that the determination of ALP of Concur subscription expenses and corporate service charges at NIL is arbitrary, inconsistent with statutory provisions, and contrary to judicial precedents. It urged that the supporting evidences filed, the business need, and the interlinked nature of transactions be recognized, and that the adjustment proposed by the TPO be deleted in entirety.

39.7 The assessee, without prejudice to above submitted that the assessee had duly withheld and deposited tax at the prescribed rates on the payments made towards IS, Concur, and corporate support charges, and had also discharged the applicable service tax/GST liability on such payments. Thus, the transactions have already been subjected to taxation in India both through indirect tax levy and withholding tax obligations. To disallow the payments now by characterizing them as yielding no services or benefits would amount to double taxation, which is impermissible in law and contrary to the principles of fairness.

39.8 Further, the assessee drew the Hon’ble Panel’s attention to judicial precedents, including the decision of the Hon’ble Madras High Court in Ananadha Metal Corporation [2006] 152 Taxman 300, wherein it was held that when accounts or returns are accepted by competent authorities under one statute, the income tax authorities cannot take a contradictory view on the same issue without cogent reasons. Similarly, reference was made to Apollo Tyres Ltd. v. CIT [255 ITR 273 (SC)], where it was reiterated that once the accounts are certified by the competent statutory authorities, the income tax authorities are bound by the same unless otherwise varied by law. In the assessee’s case, the IT(TP)A No.2346/Bang/2024 Page 28 of 44 receipt of services and payment of Concur and corporate service charges have already been accepted by revenue authorities in the context of indirect tax compliance, and therefore, the TPO’s disallowance disregards settled judicial principles.

39.9 It was also argued that once the provision of services by the AE to the assessee has been accepted and taxed by the revenue authorities, there cannot be two different views taken by different wings of the same department. Such inconsistency undermines certainty and fairness in tax administration. The assessee therefore strongly contended that the ALP adjustment proposed by the TPO is unsustainable.

39.10 Lastly, the assessee reiterated that adequate documentation, including inter-company agreements, invoices, debit notes, withholding tax forms, and proof of actual payment of indirect taxes, had been submitted. These clearly establish that the services were indeed rendered and accepted by competent authorities. Accordingly, the determination of ALP at NIL, without relying on any prescribed method or comparables, is both contrary to the provisions of section 92C read with Rule 10B and unsupported by judicial precedents. The assessee urged that the adjustment made by the TPO be deleted in entirety.

41.1 The Panel notes that OECD guidelines make it clear that incidental or passive association benefits do not amount to intra-group services for which independent enterprises would be willing to pay. The assessee has failed to show how the alleged services were necessary for its business operations or how they provided measurable commercial benefits. The burden to prove the actual receipt of services and their arm’s length nature lies on the assessee, and this burden has not been discharged.

41.2 The Panel further observes that the assessee has not provided details of how costs were allocated by the AE among different group entities. No supporting data such as audited accounts or turnover-based allocation working has been placed. Without such details, the allocation keys remain unverified and unreliable. The Panel is also of the view that the aggregation approach adopted by the assessee under TNMM is not IT(TP)A No.2346/Bang/2024 Page 30 of 44 appropriate. The law requires that distinct transactions must be benchmarked separately using the most appropriate method.

41.3 In view of the above, the Panel finds that the assessee has failed to provide adequate documentation and explanation regarding the impugned payments. The approach of the TPO is found to be consistent with Indian TP Regulations and OECD guidelines. Therefore, the Panel upholds the order of the TPO in determining the ALP of Concur expenses and corporate service charges at NIL. The grounds raised by the assessee are rejected.

43.1 The learned AR emphasized that the assessee had provided complete details about the nature of services, sample invoices, agreements, and the benefits derived from Concur and CSS services. The assessee also submitted benchmarking analysis under the TNMM, IT(TP)A No.2346/Bang/2024 Page 31 of 44 treating these costs as part of operating expenses in its overall international transactions. The margins of the assessee under TNMM were accepted to be at arm’s length. Once TNMM is accepted as the most appropriate method, the same expenses cannot again be tested separately under CUP. Doing so will result in double adjustment, which is specifically prohibited by law. Reliance was placed on judicial precedents including Samsung India Electronics Pvt. Ltd. (ITA No. 9482/Del/2019 and Sulzer Tech India Pvt. Ltd. (ITA No. 633/Mum/2021), where it was held that cherry-picking of one expense from aggregated transactions and testing it separately is not permissible.

43.2 The learned AR further argued that the TPO has exceeded his jurisdiction by questioning the commercial wisdom of the assessee and applying the “benefit test.” Courts, including the Hon’ble Delhi High Court in CIT v. EKL Appliances Ltd. [345 ITR 241], have held that the Revenue cannot sit in the armchair of a businessman to decide whether a service should be taken or not. The only requirement is to see whether the service has been availed and whether the payment is made under genuine business necessity. The assessee has placed on record agreements, debit notes, invoices, withholding tax certificates, and proof of indirect tax payments, which establish actual rendition of services. Therefore, the rejection of these evidences and determining ALP at NIL is against the law and judicial precedent.

43.3 It was also pointed out that the ld. DRP has not carried out any proper benchmarking analysis. Instead, it has simply assumed that the services were incidental or duplicative and thus held that no independent enterprise would pay for them. Such an approach is contrary to section IT(TP)A No.2346/Bang/2024 Page 32 of 44 92C of the Act, which mandates determination of ALP through one of the prescribed methods. The application of a hypothetical CUP without comparable data cannot replace proper benchmarking under TNMM, which was already accepted for other international transactions of the assessee.

43.4 In conclusion, the learned AR submitted that the adjustment made by the TPO and upheld by the DRP is unsustainable both on facts and in law. The assessee has proved that Concur expenses and corporate service charges were actually incurred, supported by evidence, and benchmarked under TNMM at arm’s length. Therefore, the addition made by determining ALP at NIL deserves to be deleted.

44.1 It was also contended that the assessee’s reliance on aggregation under TNMM is misplaced. Each transaction must be tested on a standalone basis, and where no evidence of benefit or service is shown, ALP cannot be presumed. The ld. DR placed reliance on decisions such as Bombardier, Gemplus, Knorr Bremse, and Filtrex Technologies to support the view that when the assessee fails to demonstrate actual services, the ALP of such payments is to be held at NIL. Accordingly, the ld. DR urged that the order of the TPO and ld. DRP be upheld and the grounds raised by the assessee be dismissed.

45.1 At the outset, section 92C of the Act, read with Rule 10B of the Income-tax Rules, prescribes that the ALP of an international transaction must be determined using one of the prescribed methods i.e. CUP, RPM, CPM, PSM, TNMM, or any other method notified. The statute does not permit the Revenue to determine ALP on an ad hoc basis. In the present case, the assessee had benchmarked the impugned transactions under TNMM by aggregating them with other international transactions, and its margins were claimed to be at arm’s length. The lower authorities, however, disregarded this approach and applied CUP/Other Method IT(TP)A No.2346/Bang/2024 Page 34 of 44 without bringing on record any comparable uncontrolled transaction. Such an approach is contrary to Rule 10B(1)(a), which mandates the use of reliable comparable data.

45.2 It is also a settled law, as held by the Hon’ble Delhi High Court in CIT v. EKL Appliances Ltd. (345 ITR 241), that the TPO cannot question the commercial expediency of expenditure incurred by the assessee. The only requirement is to examine whether the transaction is genuine and whether the payment is supported by evidence. As such, by determining the ALP at NIL on the ground that no tangible benefit accrued, the TPO and DRP have travelled beyond their jurisdiction.

45.3 The assessee had furnished agreements, invoices, debit notes, and withholding tax details to substantiate that the services were actually rendered. Further, indirect tax in the form of GST/service tax has also been discharged on these payments, which establishes that the transactions were accepted as genuine by other wings of the Revenue. Denying the ALP in income-tax proceedings without disproving these evidences amounts to inconsistency and double taxation.

45.4 Judicial precedents also support the assessee’s case. The ITAT in Samsung India Electronics Pvt. Ltd. (ITA No. 9482/Del/2010) and Sulzer Tech India Pvt. Ltd. (ITA No. 633/Mum/2021) has held that once TNMM is accepted as the most appropriate method for benchmarking international transactions, it is not permissible for the TPO to cherry-pick certain expenses and benchmark them separately under CUP. Such action results in impermissible double adjustment. Likewise, in Bostik India Pvt. Ltd. (IT(TP)A No. 2472/Bang/2024), the Tribunal has held that IT(TP)A No.2346/Bang/2024 Page 35 of 44 application of a hypothetical CUP without comparable data is unsustainable and that TNMM should prevail when the transactions are interlinked.

45.5 It is also important to note that in the assessee’s own case for earlier assessment years, the TPO had sought to benchmark IS charges at NIL. However, in A.Y. 2009–10, the DRP categorically observed that the ALP of such charges cannot be NIL and directed the TPO to benchmark the transactions in accordance with the law. Despite this clear direction in earlier years, the TPO has repeated the same approach in the present year without bringing any fresh material. Consistency demands that where facts remain unchanged, a contrary view cannot be taken.

46.1 Accordingly, we hold that the addition made towards Concur expenses and Corporate Support Service charges by adopting ALP at NIL is directed to be deleted. The grounds of appeal raised by the assessee are allowed.

47. The next issue raised by the assessee through Ground Nos. 21 to 24 of the appeal is that the AO and the ld. DRP erred in holding the IT(TP)A No.2346/Bang/2024 Page 36 of 44 purchases of the assessee as bogus and thereby making ad-hoc disallowance of 5% of the purchases for Rs. 17.26 crores.

49.1 However, the assessee gave details on a sample basis in its reply dated 27.11.2023. Even in this, no PAN details were provided. In reply dated 13.12.2023, the assessee stated that it was not in possession of the ITRs of the suppliers. Thus, the AO held that the information given was incomplete and not useful to prove the genuineness of purchases. It was also noticed from the audit report that some purchases were from related parties like M/s Deutsch India Power Connector and M/s Raychem RPG Pvt. Ltd. Even for these parties, the assessee did not provide ITRs or financials, though they were easily available. This clearly shows that the assessee did not even try to justify such purchases.

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52.1 The assessee also submits that the burden of proof has been properly discharged. Details of purchases, PAN of the parties, ledger copies, and invoices were furnished before the AO. The assessee does not have statutory authority to demand ITRs of suppliers, as ITR is a IT(TP)A No.2346/Bang/2024 Page 38 of 44 personal document of the seller. The assessee had requested the AO to use the powers under section 133(6) of the Act to call for ITRs directly from the parties. Once complete purchase records were provided, the onus stood discharged. The AO’s conclusion that non-furnishing of ITRs makes the purchases non-genuine is not supported by law. The Hon’ble Supreme Court in Orissa Corporation Pvt. Ltd. reported in 159 ITR 78 and other cases has held that when assessee gives complete details of creditors, the AO must verify the same using his statutory powers instead of drawing adverse inference.

52.2 Further, the assessee submitted that assessment cannot be based on suspicion or conjecture. The AO has disallowed purchases only because of doubts and assumptions. The Hon’ble Supreme Court in Umacharan Shaw Bros. v. CIT reported in 37 ITR 271 has held that suspicion, however strong, cannot take the place of legal proof. Similarly, in State of Kerala v. M.M. Mathew reported in 42 STC 348 (SC), it was held that additions cannot be sustained on mere suspicion or surmises. In the present case, all primary evidences of purchases were submitted. Hence, the disallowance is only based on suspicion which is against settled principles of law.

52.3 The assessee also submits that the AO wrongly assumed that even purchases from related parties were not genuine. The assessee had easy access to these parties, and complete purchase records were available. The AO cannot reject such purchases only for want of ITRs. The law requires the assessee to maintain invoices, bills, and ledgers, which were already submitted. Case law such as M/s Adcock Ingram Ltd. [IT(TP)A No. 1039/Bang/2015 and AT&T Global Network Services (India)

IT(TP)A No.2346/Bang/2024

Page 39 of 44 Pvt. Ltd. [ITA No. 7001/Del/2018 clearly hold that the taxpayer is only obliged to produce evidence normally maintained in the course of business and cannot be asked to produce documents which are in control of third parties.

52.4 In view of the above, the assessee submitted that the ad-hoc disallowance of 5% of purchases is unjust, arbitrary, and against the settled law. All purchases are supported by bills, PAN, and ledger accounts. The AO has not rejected the books of account. The assessee has fully discharged its burden of proof. Therefore, the addition deserves to be deleted in full. However, the learned DRP rejected the assessee’s objection and argument by observing as under: We note that the assessee has submitted the details of the purchases made and the ledger extracts and the PAN of some of the parties. However, the AO wanted the assessee to submit the ITRs of these 9 parties to prove the genuineness of the purchases. In the absence of the same, the AO disallowed 5% of the purchases amounting to Rs.17,36,22,717/-. The assessee has contended that the onus is on the AO to issue notice U/s 133(6) to these parties and obtain the information and the alleged bogus purchases only could have been disallowed that at best the profit earned on the alleged bogus purchases. Only could have been disallowed by the AO and not the entire purchases. The Panel had called for certain details from the JAQ directing him to produce the details of the purchases if available in the insight portal vide e-mail dated 30/08/2024. However, till the date of issuance of directions by the Panel there has been no information forthcoming from the JAQ or the FAO. In absence of the any further information THE Panel is constrained to uphold the findings of the AO. Thus, the ground of the taxpayer is hereby rejected. And with regard to the plea of the restriction of the adjustment to the profit earned is not acceptable as the addition has been made on the question of ailing the genuineness of the purchases made by the taxpayer, we reject the plea of the taxpayer in this regard.

IT(TP)A No.2346/Bang/2024 Page 40 of 44

54.1 The learned AR further submitted that there was no finding by the AO that the purchases were bogus or non-genuine. The purchases were supported by bills, invoices, PAN details, and ledger accounts. The Income-tax Act does not require an assessee to obtain or maintain ITR copies of suppliers. Hence, the addition made only for non-submission of ITRs is unjustified.

54.2 It was also submitted that the information sought was beyond the assessee’s control. The assessee cannot force third-party vendors to share their ITRs. The law recognizes the principle of “impossibility of performance.” Once the assessee has submitted all available records such as invoices and ledgers, the burden shifts to the Department to verify from the vendors directly.

54.3 The learned AR pointed out that the assessee had requested the AO to exercise powers under section 133(6) of the Act to collect the ITRs from the vendors. This was the proper legal course, but the AO did IT(TP)A No.2346/Bang/2024

Page 41 of 44 not act on this request. Instead, he wrongly shifted the burden on the assessee. Such an approach is against settled legal principles.

54.4 Therefore, the learned AR argued that the disallowance made is arbitrary, based on suspicion, and without any legal foundation. Since all purchases were properly recorded and supported by evidence, the addition of 5% disallowance deserves to be deleted in full.

55.1 We have heard the rival contentions of both the parties and perused the materials available on record. The dispute relates to the ad- hoc disallowance of 5% of purchases made by the assessee during AY 2021–22. The AO disallowed a sum of ₹17.36 crores on the ground that the assessee failed to furnish ITRs of certain suppliers. The AO observed purchases amounting to ₹4,83,50,72,335/- made from suppliers who had either not filed their ITR, or had filed non-business ITRs, or had shown very low turnover in their ITR as compared to GSTR-1. Based on this, the AO formed an opinion that the genuineness of entire purchases IT(TP)A No.2346/Bang/2024 Page 42 of 44 was held not fully proved and disallowed 5% of the unverifiable purchases. The ld. DRP endorsed this view and upheld the disallowance. The assessee has contended that its books were duly audited under section 44AB of the Act. No defects have been pointed out in the books of accounts. The assessee furnished purchase bills, invoices, PAN and ledger details of the parties. It was argued that the law does not require an assessee to collect or furnish ITRs of its suppliers as such information is confidential. The assessee had also requested the AO to exercise powers under section 133(6) to verify from the vendors directly. This request was not acted upon, and instead, the AO shifted the burden on the assessee. The assessee has relied upon decisions of the Hon’ble Supreme Court in Orissa Corporation Pvt. Ltd. (159 ITR 78), Umacharan Shaw Bros. (37 ITR 271), and other judicial precedents to contend that additions cannot be made on suspicion or on non-availability of documents which are not within the control of the assessee.

55.2 On the other hand, the Department has supported the order of the AO and argued that despite repeated opportunities, the assessee failed to produce ITRs even of related parties, where the assessee had easy access. This, according to the Department, showed lack of co- operation and justified the disallowance.

55.3 After considering these submissions, we find merit in the argument of the assessee. The AO has not rejected the books of account nor pointed out any defect in them. The purchases are supported by invoices, PAN and ledger extracts. The non-production of ITRs of suppliers, by itself, does not render the purchases non-genuine. The initial doubts raised by the AO were confined only to purchases of IT(TP)A No.2346/Bang/2024 Page 43 of 44 ₹4,83,50,72,335/-, and even in respect of these purchases, the assessee had submitted all primary records such as invoices and ledgers. The assessee cannot be compelled to furnish documents which are not in its possession and which the law does not oblige it to maintain. The proper course available to the AO was to use powers under section 133(6) of the Act to verify the correctness from the suppliers. Once the assessee had furnished complete primary evidence, the burden shifted to the Department. The law is clear that suspicion, however strong, cannot take the place of proof.

55.4 We further note that in respect of related party transactions, the AO has not demonstrated any specific defects suggesting that the purchases were bogus or fictitious. In absence of such finding, a flat disallowance of 5% on ad-hoc basis cannot be sustained. Accordingly, we hold that the disallowance made by the AO and sustained by the ld. DRP is unjustified. The addition of ₹17.36 crores is directed to be deleted. Thus, this ground of appeal of the assessee is allowed.

56. The other grounds being Ground Nos. 1 to 8, 10, 11 and 25 are either general or do not require any separate adjudication or premature at this stage, therefore, the same are dismissed as infructuous.