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Facts
The revenue appealed against the relief granted by the CIT(A) on transfer pricing issues for AY 2009-10. The assessee company, engaged in manufacturing automotive safety products, had international transactions with its Associated Enterprises. The TPO rejected the assessee's benchmarking and adopted TNMM, proposing an adjustment. The CIT(A) granted partial relief by accepting CUP for documented transactions and TNMM for others, and allowing capacity utilization adjustment.
Held
The Tribunal held that the CIT(A) did not blindly accept the CUP method, applying it only where documentation was adequate and using TNMM with the TPO's comparables for the rest. The capacity utilization adjustment was considered valid as it reflected actual differences and was supported by judicial precedents. The Tribunal found no violation of Rule 46A.
Key Issues
Whether the CIT(A) erred in accepting the CUP method for some transactions and TNMM for others, and in allowing capacity utilization adjustment, while the revenue alleged violation of Rule 46A.
Sections Cited
Rule 10B(1)(e)(iii), Rule 46A
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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
Captioned appeal by the revenue and Cross objection by the assessee arise out of the order dated 24.05.2024 passed by the learned Commissioner of Income Tax (Appeals) [“CIT(A)”], Chennai, for Assessment Year 2009-10. The Revenue is in appeal against the relief CO No.1/Chny/2025 M/s. M.S. Joyson Anand Abhishek- Safety Systems Pvt. Ltd. granted by the ld.CIT(A) on transfer pricing issues, while the assessee has filed cross objections supporting the order of the ld.CIT(A).
Brief facts of the case are that the assessee company was incorporated on 20.06.2007 and is engaged in the manufacture and supply of automotive safety products such as seat belts, airbags and steering wheel systems to OEMs in India. It is a joint venture between Takata Corporation, Japan and the Anand Group, India.
During the year under consideration, the assessee entered into international transactions with its Associated Enterprises (AEs), inter alia, relating to import of raw materials and capital goods.
The Transfer Pricing Officer (TPO) rejected the assessee’s benchmarking to a large extent and adopted TNMM as the most appropriate method (MAM). The operating margin of the assessee was determined at (-)46.25%, while the average margin of comparables was computed at 11%, resulting in a proposed adjustment.The TPO also granted capacity utilisation adjustment by relying upon percentage of personnel and other operating expenses to total cost of the assessee based on subsequent years.
On further appeal to CIT(A), the ld.CIT(A), after considering the submissions of the assessee, passed a speaking order granting partial relief as under:
CUP Method was accepted for benchmarking import of raw materials only to the extent of transactions supported by adequate documentation, amounting to approximately Rs.3.75 crores out of total imports of Rs.15.5 crores.
For the balance transactions (including imports of capital goods), TNMM was upheld as the MAM and adjustment was restricted accordingly.
Capacity utilisation adjustment was allowed based on the capacity utilisation of comparables, accepting the assessee’s computation which reflected actual differences between assessee (6.92%) and comparables (52.5%).
Comparable margin computation submitted by the assessee was accepted, restricting the adjustment under TNMM.
Certain adjustments claimed by the assessee such as price penetration, customs duty adjustment and part of raw material imports were not allowed, against which the assessee initially filed appeal but subsequently opted for Vivad Se Vishwas.
Aggrieved by the relief granted, the Revenue is in appeal before the Tribunal. The assessee has filed cross objections supporting the order of the CIT(A).
The Revenue has primarily challenged the acceptance of CUP method by the CIT(A) without adequate substantiation. Revenue further alleged violation of Rule 46A for accepting fresh submissions without calling for a remand report.Allowance and manner of computation of capacity utilisation adjustment.Acceptance of assessee’s methodology in preference to that adopted by the TPO.
The ld. counsel for the assessee submitted thatCUP was accepted only to the extent of transactions supported by documentation, and TNMM was applied for the remaining transactions using comparables already accepted by the TPO. He further, submitted that no fresh evidence was furnished before the ld.CIT(A). All data relating to capacity utilisation was :: 4 ::
CO No.1/Chny/2025 M/s. M.S. Joyson Anand Abhishek- Safety Systems Pvt. Ltd. either part of assessment records or available in public domain.The capacity utilisation adjustment granted by the CIT(A) is in consonance with Rule 10B(1)(e)(iii) of the Income-tax Rules, 1962.The methodology adopted by the TPO was flawed as it failed to account for abnormal under- utilisation of capacity during the start-up phase. He furthermore pleaded that the ld.CIT(A) passed a detailed and reasoned order after considering all materials on record. He placed reliance on various judicial precedents, includingDCIT vs. Rungta Mines Ltd. [ITA Nos.30 to 33/Kol/2015], DCIT vs. Triumph International (India) Pvt. Ltd. [ITA No.1657/Chny/2024] and DCIT vs. Kyocera CTC Precision Tools Pvt.Ltd.[ITA No.233/Kol/2022].
We have carefully considered the rival submissions and perused the material available on record.We note that the ld.CIT(A) has not blindly accepted the CUP method. CUP has been accepted only for those transactions where adequate documentation was available, and for the balance transactions, TNMM has been applied using the very same comparables selected by the TPO. Therefore, the grievance of the Revenue on this count is misplaced.From the records, it is evident that the data relating to capacity utilisation of the assessee was already furnished during assessment proceedings, and the data relating to comparables was sourced from publicly available information. Merely adopting a different computational approach does not amount to admission of fresh evidence. Hence, we find no violation of Rule 46A.
CO No.1/Chny/2025 M/s. M.S. Joyson Anand Abhishek- Safety Systems Pvt. Ltd. Further, Rule 10B(1)(e)(iii) mandates adjustment for differences materially affecting profitability. The assessee was operating at significantly low capacity during the impugned year, which is not disputed. The method adopted by the TPO, relying on subsequent year data of the assessee, fails to capture the real economic differences. The ld.CIT(A) has rightly accepted the assessee’s methodology which compares actual capacity utilisation of the assessee with that of comparables. This approach is more realistic and supported by judicial precedents as referred in para 4.4.3. of the impugned order. We therefore, find no infirmity in the order of the ld.CIT(A) on this issue. The ld.CIT(A) has passed a detailed and reasoned order after duly appreciating the facts, evidences and legal position. The Revenue has not been able to point out any perversity or error in the findings of the ld.CIT(A).
In the result, the appeal filed by the Revenue is dismissed. The Cross Objection [CO No.1/Chny/2025] filed by the assessee is allowed in support of the order of the Ld.CIT(A).
Order pronounced in the open court on 16th day of January, 2026 at Chennai.
Sd/- Sd/- (एस. आर. रघुनाथा) (मनुकुमारिग�र) (S.R.RAGHUNATHA) (MANU KUMAR GIRI) लेखासद�य/ACCOUNTANT MEMBER �याियकसद�य/JUDICIAL MEMBER