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Facts
The assessee appealed against a final assessment order for AY 2020-21, which included a Transfer Pricing (TP) adjustment of Rs. 6.12 crores and an addition of Rs. 8.04 crores under Section 69/69A. The appeal also contested the assessment order being time-barred and the levy of interest under Section 234A.
Held
The Tribunal deleted the addition under Section 69/69A, considering it an oversight not present in the draft assessment order. The TP adjustment issue was remanded to the TPO for re-evaluation in light of a subsequently entered Advance Pricing Agreement (APA). The matter of interest under Section 234A was also remanded to the AO for re-calculation, considering the extended due date for filing the return.
Key Issues
Whether the assessment order was time-barred; whether an addition under Section 69A, not part of the draft order, was valid; whether the Transfer Pricing adjustment was correctly determined considering a subsequent APA; and the correct calculation of interest under Section 234A.
Sections Cited
143(3), 144C(13), 144B, 153, 69, 69A, 144C(1), 234A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Appearances by: Assessee represented by : Akkal Dudhewala, AR Department represented by : Praveen Kishore, CIT (DR) Date of concluding the hearing : 16.06.2025 Date of pronouncing the order : 23.06.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER
The present appeal arises from order u/s 143(3), r.w.s. 144C(13), r.w.s. 144B of the Income Tax Act, 1961 (hereafter “the Act”). In this case, the assessee purchased raw material from certain Associated Enterprises (AEs) and also from some third parties. The finished product is seen to have been sold to the assessee’s group concerns. As per the Transfer Pricing (TP) documents furnished for the AY 2020-21, the assessee was seen to have entered into certain international transactions with AEs. The Transfer Pricing Officer made an upward adjustment of Rs. 6,12,63,123/-. In the body of the Ld. AO’s order, it is seen that an addition of Rs. 8,04,08,359/- has also been made u/s 69 of the Act.
“1. For that on the facts and circumstances of the case and in law, the final assessment order passed u/s 143(3) r.w.s 144C(13) of the Act on 26.07.2024 was barred by limitation in as much the time limit for passing of the final assessment order as provided u/s 153 of the Act was 30.09.2023 and in that view of the matter, the assessment order being bad in law ought to be quashed.
2. Corporate Tax Grounds: [Tax Effect-Rs. 5,01,74,816/-] 2.1. For that on the facts and in the circumstances of the case and in law, the NFAC grossly erred in making erroneous addition of Rs.8,04,08,359/- u/s 69A of the Act which neither formed part of the draft assessment order issued u/s 144C(1) dated 14.09.2023 nor the directions issued by the Ld. DRP in as much as no reasons were set out by the NFAC for making the impugned addition in the impugned assessment order as well. 2.2. For that on the facts and in the circumstances of the case and in law, the addition of Rs.8,04,08,359/- made u/s 69A of the Act being ex-facie erroneous and a mistake apparent from record deserves to be deleted in full.
3. Transfer Pricing Grounds [Tax Effect-Rs. 1,59,28,412/-] 3.1. For that on the facts and in the circumstances of the case and in law, the transfer pricing adjustment of Rs.6,12,63,123/- made by the TPO was unjustified on facts & in law and the same deserves to be deleted in full. 3.2. For that on the facts and in the circumstances of the case and in law, the Ld. DRP erred in confirming the TPO's action of rejecting the economic analysis conducted by the appellant and upholding the purported search process, filters and elimination matrix of the TPO which was fraught with infirmities. 3.3. For that on the facts and in the circumstances of the case and in law, the TPO as well the Ld. DRP erred in law and on facts in not accepting the economic and functional analysis conducted by the appellant and the comparables identified by the appellant; and instead including companies which were functionally different, alleging the same to be 'comparable' to the appellant. 3.4. For that on the facts and in the circumstances of the case and in law, the Ld. DRP was unjustified in upholding the erroneous operating margins of the comparables computed by the TPO and also failed to make suitable adjustments to account for differences in the risk profile of the appellant vis-à-vis the comparables. 3.5. For that on the facts and in the circumstances of the case and in law, the Ld. DRP erred in rejecting the PLI adopted by the appellant in the transfer pricing study at entity level and instead accepting the two different PLI indicators adopted by the TPO for the purposes of computation of arm's length price of the international transactions. 3.6. For that on the facts and in the circumstances of the case and in law, the TPO erred in excluding certain items for the purposes of the computation of the PLI of the appellant. 3.7. For that on the facts and in the circumstances of the case and in law, the TPO grossly erred in not making suitable working capital adjustment, as directed by the DIC Fine Chemicals Pvt. Ltd. Ld. DRP and therefore it is urged that the working capital adjustment computed by the appellant ought to be accepted. 3.8. For that on the facts and in the circumstances of the case and in law, the TPO/Ld. DRP have grossly erred in disregarding the aggregation approach followed by the appellant for benchmarking the international transaction without appreciating that the same was in line with Unilateral Advance Pricing Agreement ('UAPA') entered between the appellant and Central Board of Direct Taxes ('CBDT') dated 06 February 2017 and using inappropriate Profit Level Indicator ('PLI') for benchmarking international transaction. 3.9. For that on the facts and in the circumstances of the case and in law, the Ld. DRP exceeded its jurisdiction by directing the AO to conduct a fresh search for comparables in gross violation of powers vested u/s 144C of the Act. 3.10. For that on the facts and in the circumstances of the case and in law, the new comparables identified and introduced by the TPO pursuant to the above direction of the Ld. DRP ought to be excluded/deleted.
4. For that on the facts and in the circumstances of the case and in law, the interest of Rs.29,97,987/-levied u/s 234A of the Act was unjustified and deserves to be deleted.
For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.”
Before us, the Ld. AR filed a paper book to assist the Bench in appreciating the facts surrounding the case under consideration. Regarding the ground pertaining to an addition u/s 69 of the Act (as seen on page 30 of the Ld. AO’s order), the Ld. AR vehemently argued that the Ld.AO in the Draft Assessment Order passed u/s 144C(1) of the Act, dated 14.09.2023, had only proposed an adjustment on account of transfer pricing issue. It was argued that there was no addition proposed u/s 69 of the Act. Also, since no addition was proposed u/s 69 in the order u/s 144C(1) of the Act, hence, the assessee did raise any objections before the DRP. It was argued further that this appears to be a mistake due to an oversight. Regarding the issue of transfer pricing adjustment on international transactions entered into with the AE, the Ld. AR has placed on record a copy of an Advance Pricing Agreement (APA) entered into by the assessee with the CBDT (dated 24.03.2025). In terms of this APA, the Arm’s Length Price (ALP) has been agreed at 4.25% on entity level for AYs 2019- 20 to 2023-24. It was pointed out that the assessee has reported the entity level PLI of 5.41%, against which the TPO has computed the same at 5.51%.
DIC Fine Chemicals Pvt. Ltd. It was pointed out that the assessee’s entity level PLI for the present year is better than what is contained in the agreement with CBDT. The last issue argued by the Ld. AR is pertaining to charge of interest u/s 234A of the Act. On this issue, the Ld. AR mentioned that the assessee had filed the return of income for AY 2020-21 on 13.02.2021, which was well within the extended due date of 15.02.2021 (as notified by the press release from CBDT dated 30.12.2020).
2.1 The Ld. DR relied on the orders of authorities below.
We have carefully considered the arguments of Ld. AR/DR and have also gone through the impugned order. We have also carefully perused the agreement dated 24.03.2025 entered into by the assessee and CBDT.
3.1 Regarding the issue of addition u/s 69 of the Act amounting to Rs. 8,04,08,359/-. It is seen that there is no discussion whatsoever regarding this amount in the Ld. AO’s order and hence we are inclined to be persuaded by the Ld. DR’s argument that this addition has been made due to an oversight. We accordingly direct that this addition should be deleted altogether.
3.2 Regarding the issue of transfer pricing adjustment, we find that the aspect of estimated profitability would stand concluded at the level decided between the assessee and the CBDT. However, we are conscious of the fact that this agreement itself is dated 24.03.2025, whereas the impugned order predates this agreement. Accordingly, we remand this issue back to the file of Ld. TPO for carefully going through the terms of the agreement and working out the Arm’s Length PLI in line with the terms of the said agreement. Needless to say, the Ld. AO would thereafter give effect to the Ld. TPO’s working in this regard.
3.2 Regarding the interest u/s 234A of the Act, we find that there is no discussion in this regard and charging of interest appears to have been done in the computation part of the Ld. AO’s order. We direct that the DIC Fine Chemicals Pvt. Ltd. interest may be worked out after considering the submissions of the assessee in regard to the extension of date for filing of return by the CBDT. To this extent, this issue is remanded back to the file of Ld. AO.
With these remarks, appeal of the assessee is partly allowed.
Order pronounced on 23.06.2025