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Facts
The appellant, TDK India Private Limited, appealed against the DRP order for AY 2021-22 regarding multiple adjustments. The key issues involved Transfer Pricing Adjustments for Intra-group Services (IGS) and Marketing Support Services, a disallowance for delayed provident fund deposit, and the disallowance of CSR donations under Section 80G.
Held
The Tribunal deleted the Transfer Pricing Adjustments for IGS and Marketing Support Services, relying on the rule of consistency with previous assessment years where similar issues were decided in the assessee's favor and TNMM was accepted. It directed the AO to pass a rectification order for the minor delay in provident fund deposit. For CSR donations, the Tribunal held that while CSR expenses are disallowed under Section 37, deductions under Section 80G are permissible for eligible institutions, directing the allowance of the deduction.
Key Issues
Whether the Transfer Pricing Adjustments for Intra-group Services and Marketing Support Services were justified, and if the principles of consistency and appropriate benchmarking methods were correctly applied. Whether the disallowance of delayed provident fund deposit and CSR donations under Section 80G were legally tenable.
Sections Cited
143(1), 37(1), 80G, Chapter VI-A, 135
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the Dispute Resolution Panel-2, New Delhi(hereinafter referred to as the “DRP”] dated 23.01.2024 for the AY 2021-22.
The first issue raised by the assessee in ground no. 3 to 16 is in respect of transfer Pricing Adjustment made in relation to Payment of IGS including markup on third party cost of ITSS.
2.1. The facts in brief are that TDK India Private Limited (hereinafter referred to as the 'TDK India' or 'Appellant') is a part of TDK-EPCOS group and primarily engaged in manufacturing and sale of electronic components such as metalized plastic film capacitors and soft ferrite 2.2. The brief facts qua this issue are that during the year, the Appellant has availed various IGS from its AEs for its business activities. TDK Group is a manufacturing giant engaged in the manufacture and sale of electronic components used in the electronics and the communication equipment industry since 1989. Considering the business size of TDK group, there is a necessity for centralisation of IT, management and other services for smooth functioning of the business operations. With years of operations in varied market conditions and different economies, TDK AG and TDK Malaga have gained rich experiences in the field of Marketing, Corporate functions, R&D, Information Technology, Export Market, etc. and are engaged in providing services to TDK group companies in the nature of ITSS and ESS by TDK AG and MSS by TDK Malaga. Thus, TDK AG and TDK Malaga operate as cost centres within the TDK group for above-mentioned services' whereby TDK AG and TDK Malaga procures services from third party service provider as well as deploys its in house dedicated resources.
2.3. At the outset the ld counsel for the assessee submitted that the issue is covered by the decisions of the coordinate bench in Appellant's own case in respect of Intra-group Services (IGS) AY 2014-15 & 2015-16 dated 22 August 2023 & AY 2016-17 & AY 2017- 18 dated 22 January 2025, wherein the coordinate bench deleted the adjustment. The ld counsel for the assessee submitted that the facts of this year are same & arising from same agreements. The Ld. Department Representative has, during the course of hearing, fairly conceded that the issue is covered in its favour. It is also submitted that the Revenue has accepted the decision in the earlier assessment years as no appeal has been filed before the Hon'ble Calcutta High Court till date.
2.4. The ld counsel therefore prayed that based on the rule of consistency and following the earlier orders passed in the appellant's own case, the adjustment of Rs.36,63,69,931/- in respect of IGS may kindly be deleted.
2.5. After hearing the rival contentions and perusing the materials on records , we find that the issue is settled in favour of the assessee by the then decision of the coordinate bench in A.Y. in AY 2016-17 & 2017-18 . The operative part of the decision in the said assessment years is as under:-
.7.1 Therefore, respectfully following the above decision of Co-ordinate Bench in assessee own case (supra), we direct the AO/TPO to delete the addition and accept the charges paid by the assessee to AE for IGS are held to be at arm's length. Our direction is inconsonance with the decision of the Hon'ble Apex Court in the case of Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC) wherein the Hon'ble Apex Court held that even though the principle of res- judicata does not apply to income tax proceedings, but where fundamental aspect permeating through the different assessment years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. Similar view has been laid down by the Hon'ble Calcutta High Court in the case of CIT vs. Britannia Industries Ltd. [2003] 257 ITR 225 (Cal), decision of Hon'ble Apex Court in the case of CIT vs. Excel Industries Ltd. in Civil Appeal Nos. 5195 of 2011 and 125,9100 & 9101 of 2013. Accordingly, ground no. 6 to 11 are allowed." Similarly, for AY 2014-15 & 2015-16 (consolidated order), the Hon'ble ITAT held as follows: "26. In view of our conclusion that the Ld. TPO and Hon'ble DRP were in error in holding that the nature of services rendered by AE were in the nature of stewardship activity or shareholder activity, we hold that the TPO's conclusion that no charges ought to have been paid by the Assessee is without any basis. After considering all the evidences submitted by the Assessee and various judicial precedents relied on the Ld. Counsel, we conclude that the charges paid by the Assessee to AE are held to be at Arm's Length. Consequently, the addition made by the revenue authorities in this regard are directed to be deleted and relevant grounds raised on this issue are allowed." (Emphasis supplied) 2.6. Even on the rule of consistency the ground raised by the assessee needs to be allowed as the deptt has accepted the position and not preferred any appeal before the Hon'ble Calcutta High Court till date in the earlier assessment years.
2.7. Considering these facts and the decisions of the coordinate bench in earlier assessment years we set aside the order of DRP and direct the AO/TPO to delete the addition. The ground no. 3 to 16 are allowed.
The second issue raised in ground no. 17 to 23 is in respect of transfer Pricing adjustment made in relation to the Marketing Support Services.
3.1. The facts relating the issue are that during the year under consideration, TDK India provided marketing support services to its AEs for sell of TDK Group products in India. The business is conducted as a direct business, i.e. customers import directly from AEs. TDK India does not enter into any contract or negotiate the prices on behalf of its AEs. TDK India is remunerated for its marketing efforts on cost plus basis. The Appellant has applied the Transactional Net Margin Method ('TNMM') as the most appropriate method to benchmark the international transaction in provision of marketing support services, selecting TDK India as the tested party and using the Net Cost Plus as the Profit Level Indicator. The TPO rejected the TNMM applied by the appellant simply on the ground that it is an indirect method without finding any flaw in the same.
Furthermore, although he stated that data for application of CUP was available, he took only one non comparable agreement for his benchmarking analysis. Before the Hon'ble DRP, it was submitted that the Department has consistently accepted the TNMM applied by the appellant for benchmarking of marketing support services, which is as under: - Sr. No. Assessment Status Method year accepted by ld. Transfer Pricing Officer/ Hon'ble DRP 1. 2011-12 Approach accepted by TPO - No adjustment done TNMM 2. 2012-13 Approach accepted by TPO - No adjustment done TNMM 3. 2013-14 Approach accepted by TPO - No adjustment done TNMM 4. 2014-15 Approach accepted by TPO - No adjustment done TNMM 5. 2015-16 Adjustment deleted by TPO post DRP Direction TNMM 6. 2016-17 Approach accepted by TPO - No adjustment done TNMM 7. 2017-18 Adjustment deleted by TPO post DRP Direction TNMM 8. 2018-19 Adjustment deleted by TPO post DRP Direction TNMM 3.2. The Ld. DRP dismissed the appellant's plea of following the rule of consistency as the facts were similar, by stating that rule of consistency is applicable only in respect of "accounting principles." However, they directed the TPO to broaden his search to more comparables agreements. In accordance with the direction of Hon'ble DRP, the Ld. TPO added one more non comparable agreement and determined the arm's length price of the international transaction under consideration.
3.3. The ld AR submitted that Rule of Consistency should be followed where the DRP/ TPO have accepted the Appellant's approach of benchmarking using TNMM as a most appropriate method in previous assessment years. Further, the Hon'ble DRP/Ld.TPO has erred in selecting CUP as a most appropriate method for determining the arm's length price for the transactions under consideration, which 3.4. The DR could not controvert the above differences but relied on the order of the DRP. Without prejudice to the above on merit, it was submitted that TNMM has been consistently accepted as the method for benchmarking marketing support services, the same should be followed, especially since the TPO/DRP have not given any cogent reason to (1) reject TNMM for benchmarking & (2) not following the rule of consistency to be applied on identical facts.The Appellant places the reliance on the following judicial precedents wherein similar view has been upheld:
“A. Principal Commissioner of Income-tax-4, Pune v. Vishay Components India (P.) Ltd. (Bombay High Court) - IT APPEAL NO. 1643 OF 2016 B. Omni Active Health Technologies Ltd. v. Addl. /Joint/Dy/Asstt. Commissioner of Income-tax, National E-Assessment Centre (ITAT Mumbai) - IT APPEAL NO. 1224 (MUM.) OF 2021-ITAT Mumbai.” 3.5. Based on the above, the Appellant humbly submitted that Hon'ble DRP/Ld. TPO erred in characterizing transaction under consideration and not following the earlier years order where facts of the case is identical. Accordingly, the Appellant submits that the adjustment with respect to the provision of marketing support services of INR 6,98,32,146 for AY 2021-22 may kindly be deleted.
3.6. We have heard the rival contentions and perused the materials on records. We observe that the DRP/ TPO have accepted the Appellant's approach of benchmarking using TNMM as a most appropriate method in previous assessment years and therefore Rule of Consistency should be followed. Further, the Hon'ble DRP/Ld.TPO has erred in selecting CUP as a most appropriate method for determining the arm's length price for the transactions under consideration, which required stringent product, market, function comparability, which is not met in the instant case for the reasons cited by the learned AR before us. The case of the assessee is squarely covered by the decisions as cited above by the learned AR. Consequently, we set aside the order of DRP and direct the AO /TPO to delete the addition. The grounds no. 17 to 23 are allowed.
The issue raised in ground no. 26 is against disallowance of delayed deposit of employees Contribution to provident fund.
4.1. We note that there is delay in deposit of Employee contribution to provident Fund. We find that assessee had duly deposited employees' contribution to Provident Fund ('PF') on or before the prescribed due dates for all months, except for the month of September 2020, wherein there was a minor delay of 1 day in deposit of such sum owing to a technical difficulty where the mobile connectivity did not work. The said fact is duly evident from clause 20(b) ofthe Tax Audit Report of the Company (Refer Page no 1252 of the factual paper book). The said amount was added to the total income of the Company in the intimation issued under section 143(1) of the Act.The Ld. DRP directed the Ld. AO to address the same either before passing the Final Assessment order or through Rectification order however the AO has not passed rectification order till date. We accordingly direct the AO to pass necessary rectification order in compliance to the direction of the DRP, after giving opportunity of hearing to the appellant. The ground no. 26 is allowed for statistical purposes.
The issue raised in ground no. 29 is against the disallowance of Donation made as a part of CSR Activity.
5.1. During the previous year under consideration, the appellant made following donations eligible for deduction under section 80G of the Act:
Name of Amount of donation Eligible amount u/s Reference of Organization (INR) 80G @ 50% (INR) paperbook Ekakanya 2,50,000 1,25,000 Page 1445 – 1446 Nashik Hindi Sabha 30,00,000 15,00,000 Page 1447 – 1448 Niradhar 15,00,000 7,50,000 Page 1449 Swavlamban Samiti Shree Sai Sanjeevani 2,50,000 1,25,000 Page 1450 Sanstha Utkarsh Global 3,50,000 1,75,000 Page 1451 Foundation Tota 53,50,000 26,75,000 5.2. The aforesaid details are duly evident from Schedule 80G of the Return of Income filed by the Company for the assessment year under consideration (Refer Page 1430 1431 of paper book for relevant extract of the Return of Income).The aforesaid amount of donation (eligible for deduction under section 80G of the Act) formed part of CSR expenses debited to the Profit and Loss account of the Company amounting to INR 80,25,360. In the Computation of total income, the appellant had duly disallowed the entire amount of CSR expenses of INR 80,25,360 in accordance with Explanation 2 to section 37(1) of the Act (Refer Page 1452 of paper book for copy of computation of total income of the Company).
5.3. The ld. AR submitted that an expenditure of INR 80,25,360 incurred in compliance with Section 135 of the Companies Act, 2013 has been duly disallowed in computing business income, in accordance with Explanation 2 to Section 37(1) of the Income-tax Act. Out of INR 80,25,360 INR 53,50,000 represented donations made to charitable institutions registered under Section 80G. While CSR expenses are disallowed under Section 37, such disallowance does not extend to deductions permissible under Chapter VI-A, including Section 80G. The restriction under Section 80G applies only to donations made to Swachh Bharat Kosh and Clean Ganga Fund if made as part of CSR. There is no bar on claiming deduction under Section 80G for donations to other eligible institutions, even if made in pursuance of CSR obligations. In this regard, the Appellant wishes to place the reliance on the following judicial precedents: -
A. “Philips India Ltd. Vs. DCIT ITA 1960 (KOL) OF 2024 (ITAT Kolkata) -IT APPEAL NO. 2034 (KOL) OF 2024 & OTHERS B. Deputy Commissioner of Income-tax vs. Phillips Carbon Black Ltd. (ITAT Kolkata) - IT APPEAL NO. 2034 (KOL) OF 2024 & OTHERS C. L & T Finance Ltd. vs. Deputy Commissioner of Income-tax (ITAT Kolkata) -IT APPEAL NOS. 1059 AND 1060 (KOL.) OF 2023 D. ACG Pam Pharma Technologies (P.) Ltd. v. Principal Commissioner of Income- tax (ITAT Mumbai) - IT Appeal No. 2734 (MUM.) of 2025 E. Dalal and Broacha Stock Broking (P.) Ltd. v. Principal Commissioner of Income- tax (ITAT Mumbai) - IT Appeal No. 2718 (MUM) of 2025 F. Gujarat State Financial Services Ltd. v. Deputy Commissioner of Income-tax (ITAT Ahmedabad) - IT Appeal No. 1226 (Ahd.) of 2024” 5.4. In view of the above facts and judgements, the Appellant submits that it is evident that donation made as part of CSR is allowable as deduction under 80G. Hence, it is humbly submitted that the disallowance made by the Ld. AO amounting to INR 26,75,000 may kindly be deleted.
5.5. After perusing the facts on records and hearing the rival parties , we find that an expenditure of Rs. 80,25,360 was incurred in compliance with Section 135 of the Companies Act, 2013 has been duly disallowed in computing business income, in accordance with Explanation 2 to Section 37(1) of the Income-tax Act. We note that out of Rs. 80,25,360. Rs. 53,50,000 represented donations made to charitable institutions registered under Section 80G. In our opinion CSR expenses are to be disallowed under Section 37 but the same does not extend to deductions permissible under Chapter VI-A, including Section 80G. The restriction under Section 80G applies only
The other grounds raised in the memorandum of appeals are not pressed at the time of hearing and accordingly, not adjudicate.
In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 05.12.2025.