TaxTMI 
TaxTMI 
2026 (5) TMI 1827
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....ant has neither entered into any transaction with its Associated Enterprise as defined under Section 92A of the Act nor entered into any transaction falling within the ambit of 'specified domestic transaction' as defined under Section 92BA of the Act. The Ld. DRP/TPO failed to appreciate that the Appellant had filed Report under chapter X of the Act only as an abundant caution. ii. The downward adjustment of sales by Rs. 38,49,450/- has been determined without fulfilling the conditions stipulated under Section 80-IA(10) r.w.s. 10AA(9) of the Act iii. The comparables selected by the Assessee for determining Arm's Length Price (ALP) were appropriate and the rejection of three selected comparable i.e. Inter Gold (India) Put. Ltd., Goldiam Jewellery Ltd. and Shangold India Limited and addition of a new comparable company by the TPO i.e. Neysa Jewellery Limited, is unwarranted and without any cogent justification. 2. The learned Assessing Officer erred in making an addition of Rs. 38,49,450/- to the total income without appreciating that the Learned Dispute Resolution Panel had directed the Assessing Officer to recompute deduction under Section 10A....
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....stment. 3.1. On receipt of the draft assessment order, the assessee raised objections before the Ld. DRP. 4. The DRP upheld the action of the Ld. TPO. 4.1. On receipt of the DRP direction, the Ld.AO passed final assessment order making an addition of Rs.38,49,450/- to the total income of the assessee on account of transfer pricing adjustment to sales. Aggrieved by the final assessment order, the assessee is in appeal before the Tribunal. 5. The Ld.AR primarily submitted that the impugned transfer pricing adjustment was made without properly appreciating the factual and legal position of the case. It was submitted that the provisions of Chapter X are not applicable to the assessee as the assessee has neither entered into any international transaction with Associated Enterprises as defined u/s.92A of the Act nor any transaction falling within the ambit of specified domestic transactions u/s.92BA of the Act. It was contended that the reporting in Form 3CEB was made only as a matter of abundant caution and cannot confer jurisdiction upon the Ld. TPO. 5.1. Without prejudice, the Ld.AR submitted that the benchmarking analysis carried out by the assessee under TNMM using....
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....as made only as a matter of abundant caution. On perusal of the record, it is noted that the assessee has reported certain transactions in Form 3CEB and the Ld.AO made a reference to the Ld. TPO u/s 92CA for determination of arm's length price. This issue raised by the assessee in Ground no. 1(i) are kept open to be contested in an appropriate circumstance. 6.2. Ground No. 1(ii) It was submitted that, the Ld. TPO considered all the parties to be related persons under Section 40A(2)(b) of the Act while considering 'Sales to AE' for the purpose of ALP adjustment. It is submitted that since adjustment was made invoking the provisions of Section 80-IA(10) of the Act, the Ld.AO/TPO ought to have only considered the sales made to those entities who were related party with the assessee. However, Ld.TPO has considered all parties listed under section 40A(2)(b) of the Act as parties having close connection with the assessee. Even though, H. K. Design Inc. USA and Pure Brilliance LLC cannot be considered as entities having close connection with assessee. 6.2.1. It was submitted that, the assessee entered into transaction with following entities: i) Hari Krish....
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....order, added the amount of adjustment of Rs. 497,58,208/- to total Income instead of reducing the profit by Rs. 4,97,58,208/- and computed revised amount of deduction under Section 10AA of the Act. Against the draft assessment order, the assessee filed objections before the DRP. 7. Before the Ld. DRP, the assessee submitted that, the objections raised regarding non-fulfillment of conditions u/s 80IA(10) of the Act that led to the downward adjustment u/s 92CA in respect of deduction under Section 10AA of the Act. The assessee submitted that, the term 'close connection' has not been defined under the Act. Any person having "significant influence" or "control" may be characterized as a person with close connection. The assessee further submitted that, in accounting parlance, "Control" means ownership direct or indirect of more than half of the voting power of an enterprise or control of composition of Board and significant influence means participation in the financial and or operating policy decisions of the enterprise but not control of those policies. 7.1. The DRP, however, based on the report filed by the assessee in Form 3CEB rejected the arguments advanced by th....
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.... has challenged both the rejection and inclusion of comparables. It is observed that the assessee adopted TNMM as the most appropriate method and demonstrated its margin at 6.31% as against the comparable mean of 3.05%. The Ld. TPO rejected Laxmi Dia Jewels Pvt. Ltd., selected by the assessee, by applying export revenue filter of more than 50%. Further, Inter Gold(India) Pvt. Ltd., and Goldiam Jewellary Ltd., selected by the assessee were rejected by observing that they failed RPT filter of less than 25%The Ld. TPO introduced Neysa Jewellery Ltd. as a comparable, thereby recomputing the margin at 2.94%. The Ld. TPO thus proposed downward adjustment by making reduction in sale value at Rs.4,97,58,208/-. 9.3. It was submitted that all the comparables selected by the assessee are engaged in the business of manufacture of jewellery and are operating from SEZ units, thereby exhibiting a comparable functional and economic profile. 9.4. In respect of Neysa Jewellery Ltd., the Ld. AR submitted that though the said company is engaged in the business of jewellery, it cannot be considered as a valid comparable in view of its abnormal financial position. Referring to the annual report....
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....ns are not influenced by related party transactions, no fixed threshold is prescribed under the Act or OECD guidelines, and the tolerance range may vary depending on availability of comparables. It was submitted that in the present case, out of a universe of 239 companies, only 18 companies are operating in SEZs, thereby significantly restricting the pool of comparables. In such circumstances, strict application of RPT filter would unduly eliminate otherwise functionally comparable entities. The Ld.AR thus submitted that Inter Gold (India) Pvt. Ltd. ought not to have been rejected. 9.8. The Ld.AR further submitted that during the transfer pricing proceedings, the assessee had proposed Shangold India Ltd. as an additional comparable. It was contended that the said company is engaged in the business of manufacture and sale of jewellery, with approximately 77% of its sales attributable to exports. The turnover of the company for F.Y. 2020-21 is Rs.51.94 crore, and it operates from an SEZ. Accordingly, it was submitted that Shangold India Ltd. is functionally comparable to the assessee and ought to be considered as a valid comparable. It was submitted that the Ld.AO/TPO included Sha....
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....in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in clause (ii) of section 92F." 10.1. From the above, it is noted before proposing any adjustment under Section 80-IA(10) of the Act, the Ld. TPO is required to establish the foundational requirements prescribed therein. Section 80-IA(10) can be applied only where it is demonstrated that, owing to a close connection between the assessee carrying on the eligible business and any other person, or for any other reason, the course of business between them is so arranged that the business transacted produces to the assessee more than the ordinary profits which might ordinarily arise in such eligible business. In the present case, the adjustment has been proposed in respect of the transactions entered into by the assessee with H.K. Design Inc. and Pure Brilliance LLC, USA. 10.2. Thus, following essential conditions are required to be cumulatively established before any adjustment can be proposed under Section 80-IA(10) is that; (i) there must exist a close ....
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.... under consideration has not arisen in a consistent or recurring manner across the years. In A.Y. 2017-18, the transactions were accepted by the Ld.TPO to be at arm's length, and in A.Y. 2020-21, though an adjustment was initially proposed, the same did not survive in the final assessment order pursuant to the directions of the Ld. DRP. This indicates that the assessee's pricing has broadly been found to be at arm's length in comparable circumstances. 10.6. The Bench had called for the statement of gross profit and net profit earned by the eligible undertaking from A.Y. 2014-15 up to A.Y. 2025-26. The Ld. AR has submitted the same. Further, the fact that the deduction under section 10AA was available only for a limited period up to A.Y. 2023-24, and that the profit margins of the undertaking have remained stable even after the expiry of the tax holiday period, materially weakens any allegation of profit shifting or artificial inflation of profits during the eligible period. In absence of any contrary material brought on record by the Revenue, these surrounding circumstances lend further support to the assessee's contention that the transactions are at arm's l....
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....ed and deserves to be included in the set of comparables. 11.3. In respect of Inter Gold (India) Pvt. Ltd. It is an undisputed position that the said company is engaged in the business of manufacture of jewellery, operates from an SEZ, and derives substantial export revenue, thereby exhibiting functional similarity with the assessee. However, it is equally well-settled that the application of the related party transaction (RPT) filter is a critical safeguard in transfer pricing analysis to ensure that the margins of a comparable are not influenced by controlled transactions. While it is true that no specific threshold is prescribed under the Act, the consistent judicial approach has been to apply a reasonable threshold so as to maintain the integrity and reliability of comparables. 11.4. In the present case, the Ld. TPO has excluded Inter Gold (India) Pvt. Ltd. on the ground that it fails the RPT filter of less than 25%. The assessee has contended that in view of limited availability of SEZ comparables, a relaxed threshold ought to be adopted. While we find merit in the argument that availability of comparables is a relevant consideration, the same cannot be stretched to dilu....