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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
ORDER \nPER MAKARAND V. MAHADEOKAR, AM:\n12/03/2025\n13/03/2025\nThis appeal by the assessee is directed against the order dated\n13.08.2024 passed by the Commissioner of Income Tax (Appeals) – National\nFaceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)-NFAC"] for\nthe Assessment Year (AY) 2017-18, against the final assessment order, passed\nunder Section 143(3) r.w.s.144C(3) of the Income Tax Act, 1961 [hereinafter\nreferred to as “the Act”] by the Assessing Officer [hereinafter referred to as\n“AO"], incorporating the Transfer Pricing (TP) adjustments determined by\nthe Transfer Pricing Officer [hereinafter referred to as “TPO"] under Section\n92CA of the Act.\nFacts of the Case:\n2. The assessee is engaged in the manufacture and sale of synchronous\ndrain pumps used in washing machines and dishwashers. The assessee filed\nits return of income on 28.11.2017, declaring a business loss of\nRs.21,48,541/-. The case was selected for Complete Scrutiny under CASS,\nand notices were issued under Sections 143(2) and 142(1) of the Act. Since\nthe assessee had international transactions with Associated Enterprises\n(AEs), a reference was made to the TPO under Section 92CA of the Act. The\nTPO proposed a TP adjustment of Rs.6,92,75,149/-, which was incorporated\ninto the final assessment order passed by the AO u/s.143(3) r.w.s.144C(3) of\nthe Act.\n3. The assessee filed an appeal before the CIT(A)-NFAC, challenging the\nTP adjustments and other disallowances. However, the CIT(A)-NFAC,\ninstead of adjudicating the grounds on merits, summarily dismissed the\nappeal without giving any findings on the various issues raised.\n4. Aggrieved by the order of CIT(A)-NFAC, the assessee is in appeal\nbefore us raising following grounds of appeal:\nGENERAL GROUND\n1. The Assessing Officer, National e-Assessment Centre Delhi (hereinafter\nreferred as \"AO\" for brevity) and Deputy Commissioner of Income Tax, Transfer\nPricing, TP-1, Ahmedabad (hereinafter referred as \"TPO\" for brevity) (\" AO\"\nand \"TPO\" collectively referred as \"lower authorities\") have erred in passing the\nOrders:\na. Without considering all the submissions and/or without appreciating\nproperly the facts and circumstances of the case and the law applicable; and\nb. At the fag end of the limitation period.\nGROUNDS RELATING TO TP ANALYSIS\nCombined Transaction Approach\n2. The TPO has erred in adopting separate transaction approach for commission\npaid and fixed assets purchased without appreciating that the all the\ninternational transactions are closely linked, interrelated and integral to the\nbusiness operations of the Appellant and the same needs to be benchmarked using\ncombined transactions approach.\nSales Commission\n3. The TPO has erred in;\ni)\nNot appreciating that the Sales commission is closely linked to the other\ninternational transactions and should not be benchmarked separately;\nii)\nNot appreciating that once the entity level margin is tested on the\ntouchstone of ALP, it pre-supposes that the various components of income\nand expenditure such as sales commission considered in the process of\narriving at the margin is also at ALP;\niii)\nNot substantiating how the sales commission was singled out of the many\ntransactions to be benchmarked separately;\niv)\nNot appreciating that the methodology adopted to compute ALP of\ncommission paid is not as per the methodology prescribed in the Indian\nTP regulations and is not in accordance with section 92C read with Rule\n10B.\nv)\nAdopting companies as comparables even though they are not comparable\nin respect of functions performed, risks assumed, assets utilized, size,\nturnover, despite having unusual business circumstances or high\nmargins, substantial RPT, etc.\nvi)\nBy selecting the companies as comparables and computing their margins\nbased on the data pertaining to calendar year 2018 without appreciating\nthat the international transactions have been entered in FY 2016-17.\nvii)\nComparing the net margins of the comparables with the rate of sales\ncommission paid to AE's for the purpose of benchmarking without\nappreciating that net margins should be compared with net margins;\nviii) Not computing the operating margins of comparables as per Rule 10CA;\nix)\nAfter making adjustment for commission paid, the TPO erred in again\nincluding entire commission as part of operating cost, thereby making\ndouble adjustment for commission paid.\nPurchase and Sale of Goods\n4. The lower authorities have erred in:\na. Adopting following companies as comparables even though they are not\ncomparable in respect of functions performed, risks assumed, assets utilized,\nsize, turnover, despite having unusual business circumstances or high\nmargins, substantial RPT, etc.;\n• B VG India Ltd\n•\nRuttonsha International Rectifier Ltd\n•\nW PIL Ltd\nb. Treating Forex gain/Loss as non-operating in nature while computing the\noperating margin.\nc. Treating Depreciation as part of cost and rejecting Cash PLI without\nappreciating that the Appellant is a new manufacturing company with high\ncapital expenditure and depreciation allowance, when compared to the\ncomparables;\nd. Without prejudice, if CASH PLI is not adopted, depreciation adjustment\nshould be granted for excess depreciation of the Appellant.\ne. Incorrectly computing the margins of the comparables and the Appellant;\n5. The lower authorities have erred in:\na. Not making proper adjustment for enterprise level and transactional level\ndifferences between the Appellant and the comparable companies;\nb. Not recognizing that the Appellant was insulated from risks, as against\ncomparables, which assume these risks and therefore have to be credited with\na risk premium on this account; and\nc. Not providing working capital adjustment while computing the Arm's\nlength. price.\n6. The TPO has erred in not restricting the TP adjustment to the AE transactions\nand has erred in making TP adjustment at the entity level.\nPurchase of Fixed Assets\n7. The lower authorities have erred in:\na. Not appreciating that TP Provisions are not applicable to the transaction of\npurchase of fixed asset as it is a Capital item;\nb. Not appreciating that once the operating margins are at arm's length then it\npresupposes that purchase of capital asset from AE's is also at arm's length\nas depreciation on such assets is considered while computing the operating\nprofit margins;\nc. Not appreciating that separate benchmarking of Capital Assets from AE's\nhas lead to double taxation as depreciation on such assets has already been\nconsidered for the purpose of computing operating margins;\nd. Considering the ALP of the Fixed Assets as Nil without appreciating that the\nAppellant has actually purchased the assets and no third party would provide\nthe assets for free;\ne.\nNot appreciating that the methodology adopted to compute ALP of fixed\nassets purchased is not as per the methodology prescribed in the Indian TP\nregulations and is not in accordance with section 92C read with Rule 10B.\nGROUND RELATING TO CORPORATE TAX\n8. The learned AO has erred in computing the total income without granting set off\nof brought forward business losses and unabsorbed depreciation.\n9. The learned AO has erred in computing the tax liability without providing setoff\nof MAT credit available as per provisions of section 115JAA of the Act.\n10. The learned AO has erred in levying interest under section 234B of the Act of\nRs.1,10,58,900/-. On the facts and in the circumstances of the case, interest\nunder section 234B is not leviable, being consequential in nature. The Appellant\ndenies its liability to pay interest under section 234B. Even otherwise the interest\ncomputed is excessive.\nThe Appellant submits that each of the above grounds/ sub-grounds are independent and\nwithout prejudice to one another.\nThe Appellant craves leave to add, alter, vary, omit, substitute or amend the above\ngrounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to\nenable the Commissioner of Income Tax (Appeals) to decide the appeal according to law.\nThe Appellant prays accordingly.\n5. The appeal was filed with a delay of 11 days beyond the statutory time\nlimit. The assessee has submitted an affidavit dated 25.11.2024, explaining the\nreasons for the delay. The affidavit states that\n- The order of the CIT(A)-NFAC dated 13.08.2024 was not served\nphysically to the assessee.\n- The assessee became aware of the order only upon logging into the\nIncome Tax website, after the expiry of the statutory time limit for filing\nthe appeal before the Tribunal.\n- Immediately upon learning of the order, the assessee engaged a new\ntax consultant and filed the present appeal without any further delay.\n5.
A petition for condonation of delay was filed before us, citing genuine\nreasons beyond the assessee's control. During the hearing, the Departmental\nRepresentative (DR) did not raise any objections to the condonation of the\ndelay. Considering the reasons cited in the affidavit and the fact that the delay\nwas minor and caused due to reasonable circumstances beyond the assessee's\ncontrol, we find merit in the request for condonation. In the interest of justice,\nthe delay of 11 days in filing the appeal is hereby condoned, and the appeal\nis admitted for adjudication on merits.\n6. During the course of hearing before us, the Authorized Representative\n(AR) for the assessee submitted that the CIT(A)-NFAC has not adjudicated\nupon any of the grounds of appeal and has merely dismissed the appeal\nwithout deciding the issues on merits.\n7. The Departmental Representative (DR), on the other hand, fairly\nconceded that the appeal should have been heard by CIT(A)-TP, given that\nthe primary issue involved is Transfer Pricing adjustments. The DR\nsubmitted that the matter may be restored to CIT(A)-TP for proper\nadjudication.\n8. We have heard the rival submissions and perused the material\navailable on record. It is evident that the CIT(A)-NFAC has dismissed the\nappeal without rendering any findings on the merits of the case, which is\nagainst the principles of natural justice.\n8.
1. Since the core issue in the appeal pertains to Transfer Pricing\nadjustments, the appeal ought to have been adjudicated by CIT(A)-TP as\nsubmitted by the DR. The failure of CIT(A)-NFAC to decide the issues on\nmerits has resulted in an improper disposal of the appeal, necessitating a\nremand.\n8.
In view of the above, and considering the fair concession made by the\nDR, we are of the opinion that the matter should be restored to the file of the\nCIT(A)-TP or CIT(A) of any other appropriate charge for fresh adjudication.\nThe concerned CIT(A) is directed to examine all the grounds of appeal raised\nby the assessee and adjudicate the issues on merits after granting a reasonable\nopportunity of being heard to the assessee.\n8.
3. Therefore, the order of CIT(A)-NFAC is set aside, and the matter is\nrestored to the file of CIT(A)-TP for fresh adjudication on merits.\n9. In the result, the appeal of the assessee is allowed for statistical\npurposes.\nOrder pronounced in the Open Court on\n13th March, 2025 at Ahmedabad.\nSd/-\n(SIDDHARTHA NAUTIYAL)\nJUDICIAL MEMBER\nSd/-\n(MAKARAND V. MAHADEOKAR)\nACCOUNTANT MEMBER\nअहमदाबाद/Ahmedabad, दिनांक/Dated\n13/03/2025\nटी.सी. नायर, व.नि.स./T.C. NAIR, Sr. PS\nआदेश की प्रतिलिपि अग्रेषित/