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

The brief facts are that the assessee TE Connectivity India Private Limited (“the assessee” / “TECIL”), is a wholly owned subsidiary of Tyco Electronics Singapore Pte. Ltd., which is part of the global TE Connectivity group. The assessee is licensed manufacturer of electrical equipment such as connectors, relays, sensors, switches, terminals and cable interconnects. The products are sold to third parties’ customers in India as well as exported to associated enterprises outside India. In addition, the assessee also imports/buy connectors from its AEs for purpose of distribution of the same to third party customers in India. Furthermore, the assessee provides engineering design services being computer added, and non-computer added to its AEs. Accordingly, the assessee has divided its activities into following segments: 1. Manufacturing segment 2. Distribution Segment 3. Engineering Design services segment. 5. During the year under dispute, the assessee has entered into following international transaction under the manufacturing segment with its AEs: - Purchase of raw materials - Purchase return of raw materials

However, the TPO recomputed the assessee PLI (OP/OR) at 5.44% and OP/OC at 5.76%. The learned TPO also rejected the assessee’s TP study on the ground that the assessee has not adopted appropriate filters. Thereafter, the TPO conducted own study by applying filters such as: - Current year data - Positive net worth - Persistent loss making excluded - Operating revenue includes income from manufacturing and trading less than 75% excluded - Revenue from export less than 75% excluded - Turnover having less than 1 crore excluded - RPT more than 25% excluded - FAR analysis 7.1 Based on these filters, the TPO selected 14 companies as comparables. The assessee during the proceedings raised various objections against the rejection of assessee's comparable and against

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.

Aggrieved assessee preferred to file objection before the learned DRP.

The assessee before the learned DRP submitted that among the comparables following 3 companies are functionally different and do not fall under the parameter of comparable companies: I. HGS India Ltd II. BIT Mapper Integration Technology Pvt Ltd. III. FCI Open Connectors Ltd 9.1 The Assessee submitted that a review of HGS India Ltd website and annual report shows that HGS is primarily engaged in seismic/geophysical equipment, viz. geophones, testers, geophone cases and accessories, geophone strings/cables, panel-mount devices, and battery chargers. These are electrical devices and instruments meant for the oil & gas/mineral exploration niche. In contrast, the Assessee’s business is the manufacturing of electronic components/interconnects such as connectors, relays, sensors, switches, and cable interconnects

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

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

On the contrary the assessee before the learned DRP contended certain companies which was part of the learned TPO search should be included in the set of comparable companies, which are discussed as under: I. Vossloh Cogifer Turnouts India Pvt. Ltd. (“Vossloh”): 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. 12. The Assessee submitted that the Sulakshana is a pure manufacturing company engaged in the production of printed circuit boards (PCBs); its annual report identifies the principal product category

However, the learned DRP after considering the submission of the assessee and learned TPO findings, rejected the assessee’s plea by observing as under: A. On the plea of exclusion of comparable I. H G S (India) Ltd (“HGS”) • Functionally Dissimilar • Erroneous mark-up computation Panel: Having considered the submission of the taxpayer, we note the objection and verified from the annual report of the company and it is seen that the company is engaged in the business of manufacturing of Geophone strings, cables and connectors etc. which is similar to the taxpayer in functionality. It is also seen that the company has reported approx. 99% of revenue from this segment only. The relevant snapshot of the annual report is as under; Thus, in view of the above, we do not find any infirmity in the approach of the TPO in deciding the functionality of the company. Hence, we upheld the inclusion of the same. Ground filed by the taxpayer is hereby rejected. II. B I T Mapper Integration Technologies Pvt. Ltd. (‘B I T Mappers’) • Functionally Dissimilar Panel: Having considered the submission of the taxpayer, we note the objection and verified from the annual report of the company and it is seen that the company is engaged in the business of manufacturing of carrier boards and USB Hub which is similar to the taxpayer in functionality. And under TNMM approach of the comparability, the functional similarity is more relevant than the product similarity, Thus, in view of the above, we do not find any infirmity in the approach of the TPO in deciding the functionality of the company. Hence, we upheld the inclusion of the same. Ground filed by the taxpayer is hereby rejected. III. F C I Oem Connectors Ltd. (‘FCI Connectors’) • Functionally Dissimilar • Erroneous mark-up computation Panel: Having considered the submission of the taxpayer, we note the objection and verified the contention from the annual report of the company and it is observed that the company is engaged in the business of manufacturing of insulated (including enamelled or anodised) wire, cable (including co-axial cable) and other insulated electric conductor which is similar to the taxpayer in functionality. The relevant portion of the annual report is as under; And under TNMM approach of the comparability, the functional similarity is more relevant than the product similarity, Thus, in view of the above, we do not find any infirmity in the approach of the TPO in deciding the functionality of the company. Hence, we upheld the inclusion of the same. Ground filed by the taxpayer is hereby rejected.

Being aggrieved by the direction of the learned DRP and order of the AO/TPO the assessee is in appeal before us.

The learned AR before us filed paper book running from pages 1 to 2508, written submission, a chart and compilation of case law. The learned AR before us reiterated the assessee submission made during the panel proceedings. Besides the learned AR submitted that in own case of the assessee for A.Y. 2013-14, the TPO has selected M/s Roop Telsconic Ultrasonic as one of comparable companies which is engaged in similar line of business of BIT Mapper Integration Technologies Pvt Ltd. The dispute for A.Y.2013-14 reached before the Tribunal in ITA No. 2680/Bang/2017 where the bench vide order dated 18-07-2022 excluded the said company from the comparable companies list by holding the same as functionally dissimilar to the assessee company.

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.

Regarding the exclusion of HGS India Limited we note that the learned AR not pressed this contention before us.

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

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.

On the contrary the learned DR reiterated the findings of the ld. DRP/AO/TPO by relying on their order.

We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the issue on hand are not in dispute and have already been elaborately discussed in preceding paragraph. Hence, we are not inclined to repeat the same. The primary issue before us whether the certain companies selected by the TPO for comparables should be excluded or not and the certain companies suggested by the assessee may be included or not in the list of comparables.

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

On facts, BIT Mapper is a design-led, system-level electronics company with a substantial portfolio in electro-optic/defence products (rugged/smart/underwater/ helmet/body cameras, surveillance gimbals, specialised defence items) and significant embedded/algorithm/FPGA/AI- ML design services. This profile evidences ownership/creation of product IP and programme/qualification risks that are not borne by a routine component manufacturer. No reliable segmental accounts isolate a like- to-like component manufacturing activity. The TPO’s reliance on two catalogue items (SOMs/carrier boards; Smart USB hubs) cherry-picks

In view of the above detailed discussion, we hereby set aside the direction of the learned DRP and direct the AO/TPO to recompute the arm’s-length margin for the manufacturing segment after (i) excluding BIT Mapper and FCI OEN, and (ii) including Vossloh, Sulakshana Circuits, and Srinar Electronics, with consequential relief to the assessee. If any arithmetic recalibration of individual margins is required in view of these directions, the AO/TPO shall carry out the same after granting due opportunity to the assessee. Hence, the ground of appeal raised by the assessee is hereby partly allowed for statistical purposes.

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.

For the year under consideration, the TPO noted that the assessee had extended credit to its AEs beyond the agreed periods. Therefore, the TPO after invoking the provisions of sections 92CA(2A)/(2B) of the Act, examined the issue with respect to the ALP of interest to be received even though receivables were not reported as a separate international transaction. Relying on section 92B(1) read with Expln. (c) to section 92F and Rule 10B(2)(c), and applying the doctrine of “substance over form”, the TPO treated the delay in realisation of AEs invoices as a financing arrangement requiring separate benchmarking under TP provision. The assessee’s plea that entity-level TNMM margins subsume the impact of receivables was rejected on the footing that ALP must be determined on a transaction/segment basis and cannot be IT(TP)A No.2346/Bang/2024

In the meantime, the TPO passed rectification order under section 154 of the Act wherein he recomputed the amount of notional interest on delayed receivable at Rs. 3,68,918/- only. Hence, the TPO in IT(TP)A No.2346/Bang/2024

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.

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.

Being aggrieved by the action of the revenue authorities the assessee is in appeal before us.

The learned AR before us reiterated the contentions raised during the authorities below.

On the other hand, the learned DR vehemently supported the order of lower authorities.

We have heard the rival contentions of both the parties and perused the materials available on record. The first question before us arises as to whether or not the outstanding receivables from AEs are an international transaction. This issue is no longer res integra. As per the amendment to section 92B of the Act by way of Finance Act, 2012 with retrospective effect from 01/04/2002 that, the interest on outstanding receivables is an international transaction, and it certainly requires separate benchmarking. Accordingly, the extended credit period or credit allowed over and above the agreed period shall be considered as separate international transaction required to be benchmarked. In holding so, we find support and guidance from the decision of Hon’ble Bombay High Court in the case of CIT v. Patni Computer Systems [2013] 33 taxmann.com 3/215 Taxman 108 (Bombay), wherein the bench took a view that on the amendment to section 92B of the Act by way of Finance Act, 2012 with retrospective effect from 01/04/2002 that, the interest on outstanding receivables is an international transaction, and it certainly requires separate benchmarking.

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

2 The above finding of the Tribunal was challenged by the revenue before the Hon’ble Juri ictional 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.

Now, coming to the issue in respect of the rate of interest. The TPO has taken SBIL PLR at 12.27% for invoice raised in INR and LIBOR + 450 Bps for invoice raised in foreign currency. The assessee on the strength of case law argued that the rate of interest should be LIBOR + 200 basis point. In this regard we find pertinent to refer the order of this IT(TP)A No.2346/Bang/2024 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."

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.

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.

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,

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.

The TPO observed that the assessee company has made payment of Concur subscription expenses amounting to Rs. 11,57,681/- and Corporate Service Charges amounting to Rs. 7,19,34,662/- to it AEs as part of “information service charges/IGS. The assessee was specifically called upon to furnish complete details with respect to the actual rendition of services, the quantification of such services under the cost allocation mechanism, and the commensurate benefits derived by the assessee. It was also emphasized that, as per the inter-company agreement itself, the taxpayer is required to pay only for such services as are actually rendered by the AE, and therefore, adequate evidence in support of the claim is a necessary condition for determining the Arm’s Length Price (ALP).

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

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.

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.

The aggrieved assessee preferred to file objection before the before the learned DRP.

The assessee, in the course of proceedings before the learned DRP, submitted detailed and elaborate arguments challenging the adjustment proposed by the Ld. TPO in respect of Concur Subscription Expenses and Corporate Service Charges. It was submitted that the Ld. TPO, while acknowledging the nature of IS charges and the methodology of allocation as per the inter-company agreement, has already granted relief with respect to subscription-based services and certain consumption-based services. However, without proper justification, the Ld. TPO proceeded to determine the ALP of Concur Expenses and Corporate Service Charges at NIL, solely on the basis of an alleged absence of commensurate benefits.

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.

2 With respect to corporate service charges, the assessee submitted that it has entered into a long-standing agreement with its AE, Tyco

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 juri ictional 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.

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. [ ITA No. 16/2014, Del-HC], where aggregation was upheld as a valid approach for benchmarking such inter-linked transactions.

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.

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.

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.

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

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.

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.

However, the learned DRP has carefully examined the draft order of the TPO, the submissions filed by the assessee, and the additional materials placed on record. After considering all aspects, the Panel finds no merit in the arguments raised by the assessee. The assessee benchmarked the impugned transactions under an aggregated approach using TNMM. However, the Panel is of the view that the arm’s length

The Panel observes that the assessee has not conclusively proved that Concur expenses and corporate service charges were supported by actual services rendered. Mere filing of agreements, invoices, and internal emails cannot establish the fact of services. The evidence only shows routine communications and does not demonstrate that specialized services were provided to meet the assessee’s specific business needs. In the absence of concrete proof, these expenses appear to be shareholder activities or incidental benefits which cannot justify a separate charge.

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.

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

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.

Being aggrieved by the order of the AO/TP and the direction of the ld. DRP, the assessee is in appeal before us.

The learned AR before us submitted that the lower authorities erred in determining the ALP of Concur expenses and Corporate Support Service (CSS) charges at NIL. It was argued that the TPO and DRP wrongly applied the CUP method or "Other Method" without bringing on record any single comparable transaction. Under Rule 10B(1)(a) and Rule 10AB of the Income Tax Rules, it is mandatory to benchmark international transactions against comparable uncontrolled transactions. Without comparable data, determination of ALP at NIL is arbitrary and unsustainable in law.

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,

2 The learned AR further argued that the TPO has exceeded his juri iction by questioning the commercial wi om 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.

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

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.

On the contrary, the learned DR argued that the assessee failed to prove that any real services were received in respect of Concur expenses and corporate service charges. The learned DR pointed out that the assessee only produced agreements, invoices, and emails, but these documents did not establish the actual rendering of services or the benefits obtained. The evidences were general in nature and could not show that the payments were commensurate with the volume and quality of services. The ld. DR stressed that under Rule 10D of Income Tax Rules, the burden lies on the assessee to prove rendition of services with proper documentation, which has not been discharged in this case. The ld. DR further submitted that the TPO and ld. DRP have rightly relied on OECD guidelines and judicial precedents which hold that incidental or shareholder activities cannot be charged to subsidiaries. The services claimed by the assessee were either duplicative, routine in nature, or in the category of shareholder functions, for which no IT(TP)A No.2346/Bang/2024

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.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us is whether the TPO and the learned DRP were justified in determining the ALP of Concur expenses and Corporate Support Service (CSS) charges at NIL.

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

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 juri iction.

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.

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

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.

In view of the above, we find that the determination of ALP at NIL by the lower authorities is not in accordance with the Act and Rules. The assessee has demonstrated the receipt of services, placed supporting evidence, and benchmarked the same under TNMM which has already been accepted for other transactions. The adjustment made by the TPO and confirmed by the ld. DRP is therefore not justified.

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.

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

The AO during the proceeding found that the assessee had made large purchases during AY 2021–22 of about ₹4,83,50,72,335/- only. These purchases were from suppliers who had either not filed their ITR, or had filed non-business ITRs, or had shown very low turnover in ITR as compared to GSTR-1. This created doubt about the genuineness of the purchases and correctness of expenses.

The assessee was asked many times to give ITR copies of the suppliers from whom purchases were made during the year to prove their genuineness. Despite enough time, the assessee did not provide them. Towards the end of the assessment, the assessee said that the AO could use powers under section 133(6) of the Act to collect the information from suppliers. But since the time limit was ending on 31.12.2023, this was not possible.

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.

Looking at all these facts, the AO held that the assessee had failed to prove that the purchases were genuine. The details were incomplete and the burden was wrongly shifted on the Department. Therefore, the purchases could not be fully accepted as genuine. However, to be fair, the AO did not disallow the entire purchases. Instead, 5% of the remaining unverifiable purchases of ₹3,47,24,53,344/- was disallowed. This resulted in an addition of ₹17,36,22,717/- to the total income of the assessee.

The aggrieved assessee preferred to file objection before the learned DRP.

The assessee before the learned DRP submitted that the books of account of the assessee have been duly audited under section 44AB of the Act. No specific defect has been pointed out in the books. In such a situation, ad-hoc disallowance is not permissible in law. Courts and Tribunals have consistently held that once books are audited and accepted, disallowance of expenses cannot be made on estimation or based on suspicion. In support, the assessee placed reliance on decisions such as Ingersoll-Rand (India) Ltd. v. CIT (122 taxmammn.com 85 Karnataka HC), PCIT v. R.G. Buildwell Engineers Ltd. (99 taxmann.com 283 Delhi ITAT), and other rulings which have held that ad-hoc additions without defects in accounts are unjustified.

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

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.

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)

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.

Being aggrieved by the order/ direction of the AO/ Ld. DRP, the assessee is in appeal before the us.

The learned AR before us argued that the lower authorities were wrong in making an ad-hoc disallowance of 5% of purchases without any proper reasons or statutory basis. The assessee had purchased goods amounting to ₹3,47.24 crores. The AO disallowed 5% of these purchases only on the ground that the assessee did not provide ITRs of certain vendors. It was submitted that such a disallowance has no legal support. The books of accounts were audited under section 44AB of the Act, and no defect was found in them. When accounts are not rejected, no ad-hoc disallowance can be made.

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.

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.

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

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.

On the contrary the learned DR before us submitted as under: The Assessing Officer (AO) has given a finding that the assessee has failed to co-operate in giving the details of the parties from whom purchases have been made by it and rather than co-operating has tried to put the onus on the Assessing Officer to collect the same from the parties vide powers given u/s 133(6). The AO has also given a finding on perusal of the Audit Report of the assessee for AY 2021-22, it is noticed that M/s Deutsch India Power Connector and M/s Raychem RPG Pvt Ltd are related parties in the case of the assessee. The assessee, despite having close business connection with these related parties has failed to provide copy of ITRs of even these related parties. The AO has concluded that despite easy access to financials of these related parties, the assessee did not even attempt to justify the claim of genuineness of purchases made. Based on these facts it is submitted that the order of the AO may be upheld. In the alternative the issue may be set aside to the AO for verification.

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

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.

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

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.

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. 57. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in court on 9th day of October, 2025 (KESHAV DUBEY) Accountant Member Bangalore Dated, 9th October, 2025

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file