TaxTMI 
TaxTMI 
2026 (6) TMI 487
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....evenue is from the manufacturing of filters. The assessee filed its Return of Income declaring total income of Rs. 11,62,32,997/- as per the provisions of the Income Tax Act. The case of the assessee was taken up for scrutiny and a reference u/s 92CA of the Act was made to the Transfer Pricing Officer for determination of Arms Length Price in respect of international transactions and also for the Specified Domestic Transactions (SDT)as were identified in the Transfer Pricing Report submitted by the assessee along with the Income Tax Return. It is noted that certain transfer pricing adjustments were made both on account of international transactions. Similarly on account of the specified domestic transactions, the profits of the eligible units were re-determined by the TPO thereby resulting in reducing the claim made by the assessee u/s 80-IC of the Act from Rs. 1,43,21,253/- by an amount of Rs. 67,05,732/- and allowing only Rs. 76,15,521/- in the final order. All such transfer pricing adjustments as were made in the draft assessment order based on an order of TPO u/s 92CA(3) was agitated before the learned DRP. Ld.DRP upheld most of these adjustments except to the extent that some ....
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....m's Length Price u/s 92CA and Sec 80- IC of the Act. 4. Transfer Pricing Adjustment - International transactions of Sale of Goods (Rs. 2,84,55,867) Rejection of CUP Method That the Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law and on facts by ignoring the CUP details furnished by the assessee on the basis of homogeneous goods sold to the independent domestic customers in India during the assessment proceedings, without giving any cogent reasons which is bad in law. 5. External TNMM & Entity level aggregation That the Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law and on facts by determining the Arm Length Price of the International transaction of sale of goods by disregarding the AE Segment for the TNMM analysis, without giving any reasons which is bad in law. 6. That the Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law and on facts in aggregating the AE and Non-AE segments of the assessee to benchmark the transactions of sale of finished goods to AE on an entity level basis, which is bad in law. 7. Selection of Comparab....
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....FAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law in confirming a TP adjustment in excess of profit earned by the Elofic, USA LLC (AE) which is bad in law and prayed not to be upheld. 12. Erroneous calculation of proportionate adjustment That the Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law and on facts and circumstances of the appellant's case in wrongly including the transaction of rendering of invoicing services as an international transaction while computing the proportionate adjustment u/s 92CA, when the TP adjustment was confirmed only for the international transaction of Sale of Goods. 13. TP Adjustment - International Transaction of Interest on overdue trade receivables (Rs.23,33,892) That the Ld. AO (NFAC) has grossly erred in not following the directions of the DRP which are binding on him as per section 144C(10) of the Act, which have the effect of reducing the TP adjustment to Rs. 11,00,055/- as per the Ld. TPO's effect order, on overdue interest on outstanding receivables from Rs. 23,33,892/- computed in the Draft AO's order. 14. That Ld. AO (NFAC)/Ld. TPO and consequ....
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....e the documents furnished for price based benchmarking for controlled as well as uncontrolled transactions. 21. That Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have grossly erred in law in not following the accepted TP assessment history of the assessee in which the CUP/Other method applied by the assessee on same basis as A.Y. 2017-18 was accepted. 22. TNMM applied by the Ld. TPO That Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have erred in law in applying TNMM method in benchmarking the specified domestic transactions of the eligible unit of the assessee as the Most Appropriate Method u/r 10C, which is bad in law and on the facts of the assessee. 23. Selection of Comparables That Ld. AO (NFAC)/Ld. TPO and consequently the Hon'ble DRP have erred in law in applying TNMM method by cherry picking only those comparables which have a low PLI to benchmark the SDTs whereas for the international transactions of Sale of Goods on the same nature of product the Ld. TPO has used 11 comparables which have a much higher PLI. Thus, this approach of the Ld TPO in selecting comparables under the same method, for the same nature o....
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.... 5. Apart from these grounds, the assessee had also raised an additional Ground of Appeal on the DIN issue. The same has been withdrawn by the assessee vide a separate application along with necessary affidavit. The ground on DIN is allowed to be withdrawn and other grounds raised by the assessee are being adjudicated. Grounds of TP Adjustments pertaining to AE Transactions - Ground No. 2, 10 & 11 6. These grounds have been raised by the assessee vide which agitates transfer pricing adjustment on account of international transactions amounting to Rs. 2,84,55,867/-. At the time of hearing, ld. AR of the assessee submitted that the said AE transactions had taken place with Elofic, USA, LLC which entity has been treated by the assessee as AE as a matter of abundant caution although it is merely a depot of the assessee which as per the USA law is only a pass through entry. The profits earned of such entity are duly accounted for and offered to tax in India. It has been submitted that no transfer pricing adjustment in respect of the transactions undertaken with the said entity should be made because such LLC is merely an extension of assessee's own affairs in the USA and all the....
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....as per the settled legal principles no one can trade with itself or earn from one own self. Reference has been made and Ld. AR relied on the judgement of Hon'ble Supreme Court for this legal proposition in the case of CIT vs. Hind Construction Ltd. (1972) 83 ITR 211. The learned AR further relied upon a judgement of Hon'ble Delhi IAT, Delhi Benches in the case of Aithent Technologies Pvt. Ltd. vs. DCIT ITA No. 6446/Del/2012 for Assessment Year 2008-09 in which determination of ALP in respect of transactions of that assessee with its branch office (Canada) discussed. Following observations/ findings in the said judgement have been relied upon: "5. It is simple and plain that no person can transact with self in common parlance. As such, one can neither earn any profit nor suffer loss from self. The same is true in the context of business as well. Neither any person can earn income nor suffer loss from dealings with self. It is called the principle of mutuality. When expanded commercially, the proposition which follows is that there can be no profit from trade with self. This has been fairly settled through a catena of judgments from the Hon'ble Apex Court including Sir Kikab....
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....ll circumstances will remain same at Rs. 25 in the above example." 8. The AR of the assessee also submitted that the transfer pricing provisions of determination of arms length price is applicable when there is diversion of profits out of India or where there is erosion of tax revenue in intra group transactions. It has been submitted that on the given facts no case can be made out for any diversion of profit out of India because in any case, apart from the normal profits which have been earned on these transactions and duly accounted for in the sales revenue of the assessee, the profits amounting to Rs. 1,09,98,287/- earned by the foreign LLC has been duly reported and accounted for in India and even the tax paid overseas on such income earned in USA has been claimed in the ITR filed by the assessee u/s 90/91 as can be verified from the Page-31of the Paper Book which contains the Computation of Income of the assessee for the year under consideration. It has been submitted that the learned TPO/AO were not justified in advising any ALP adjustments on account of the said transactions undertaken by the assessee with LLC whose only beneficial shareholder is the assessee itself. 9....
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....on the transaction between the assessee and Elofic LLC USA - Ground No. 13 to 16 13. An addition of an amount of Rs. 23,83,892/- has been made on account of interest on delay in making recoveries from the said LLC. It has been submitted that the assessee has itself made adjustment on this account by taking the credit period of 90 days for making recoveries against the goods transferred to USA entity. However, TPO restricted the credit period to 30 days but however the learned DRP granted the credit period to be allowed till 60 days. It has been submitted that although based on such directions of the learned DRP the addition should have been restricted to Rs. 11,00,055/- as has been worked out by TPO in the order passed pursuant to the DRP direction. However, the learned AO still made the addition of Rs. 23,33,892/- as was advised by TPO in draft assessment order. It has been submitted that 90 days credit is very normal in the international transactions. Lot of judgements have been relied upon wherein the courts have held that 180 days credit can be allowed in the export related recoverables. 14. It has also been submitted that this transaction also has the same colour and nat....
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....f examining the SDT transactions by applying the TNMM method is faulty. The comparables which the TPO had himself picked up by applying the same method for AE transactions should also be accepted as comparables while determining the SDT transactions. 18. The ld. AR during the course of arguments highlighted that the learned TPO was not justified in changing the filters while selecting the comparables for AE transactions and for SDT transactions. At this stage the learned AR was required to file a detailed separate note on this issue by the end of the day which has been filed and which for the sake of ready reference is reproduced hereunder : "Through these grounds, the assessee has challenged the order of the Learned AO/DRP in reducing the claim made by the assessee u/s 80IC of the Income Tax Act from Rs. 1,43,21,253/- to Rs. 76,15,521/-. It is submitted that the assessee has an eligible unit for the purpose of section 80IC situated at Nalagarh, Himachal Pradesh from where the goods are transferred/acquired to/from non-eligible units. The assessee had applied other method for determining the ALP of such transactions (Refer 70-76 & 170-176 of PB). However, the T....
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.... comparables for the international transaction, the TPO has selected those companies where the ratio of manufacturing income to total income is at least 50% of manufacturing. However, while applying this filter to the SDT transaction, this filter has been taken as those companies where the income from the manufacturing income to total income is at least 95%. It is further submitted that the learned TPO has applied another filter while determining the comparables of the SDT transaction i.e. select companies where advertisement spending less than 2% of sales. Accordingly, it is resubmitted that there is no rationale for changing the filters while applying TNMM, whether for international transactions or specified domestic transactions. Similarly, it is submitted that there is no rationale to apply 2% advertisement cost filter especially when admittedly the transactions are taking place between an eligible unit to non-eligible unit of the assessee. It is submitted that if the same comparables, as applied for international transactions, are retained for the SDT transaction, the margin of the eligible unit of the assessee works out to be 10.88% (Rs. 4,63,14,296....