TaxTMI 
TaxTMI 
2026 (8) TMI 821
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....43(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (for short 'the Act') inconsonance with the order passed by the Dispute Resolution Panel (DRP)-1, New Delhi dated 10.09.2025 u/s. 144C(5) and order of the ld TPO u/s. 92CA(3) dated 29.01.2025. 2. Though the Assessee has raised several grounds of appeal, the effective issues arising for our adjudication are two-fold, namely: (i) the transfer pricing adjustment of Rs. 4,68,84,744 made to the Arm's Length Price ('ALP') of the international transaction of purchase of specialty fertilizers from the Associated Enterprises ('AEs'), consequent to the exclusion of two comparable companies, viz., (a) Nikhil Adhesives Limited and (b) Solvo-chem (India) Private Limited; and (ii) the adjus....
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....n of the assessee at 4.5% after including the comparable companies Nikhil Adhesives Ltd and Solvo-Chem India Pvt. Ltd on the ground that the said comparables failed to pass "trading income to total income more than 75% filter". 4. The assessee filed objections before the ld DRP against the draft assessment order. The ld DRP directed the ld TPO to include Nikhil Adhesive as a good comparable if segmental data for the trading segment is available. With regard to Solvo-Chem India Pvt. Ltd, the ld DRP held that the comparable is engaged in the manufacturing and trading operations and that it had failed to pass the "trading income to total more than 75% filter" applied by the ld TPO. The ld TPO while passing the order giving effect to the ld ....
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.... by the ld DRP. The DRP ultimately upheld the action of the ld TPO qua this issue. 6. In the final Assessment Order, while determining the ALP of the said transaction, the aforesaid two comparables selected by the Assessee were excluded and an arithmetic mean margin of 4.57% was arrived at resulting in an adjustment of Rs. 4,68,84,744. A further addition of Rs. 64,957 was made towards notional interest on delayed receivables from the AEs, treating the same as a separate international transaction. Aggrieved, the Assessee is in appeal before us. 7. The learned AR submits before us that the learned DRP, in its directions under section 144C(5) of the Act dated 10-9-2025 had directed the learned TPO and the learned AO to re-verify the fact....
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....DRP is binding on the learned AO, and by necessary implication on the learned TPO while giving effect thereto. The learned DRP had, in terms, directed that where the trading segment of a comparable is identified and its segmental margin is used, the trading income filter need not be applied at the entity level. The learned TPO, in excluding the company on the ground that trading constitutes only 20.6% of its entity-level revenue, has done precisely what the learned DRP directed him not to do. Secondly, and on merits, since audited segmental data of the trading segment of the company is admittedly available, the composition of the company's revenue at the entity level is of no consequence; it is the segmental margin of the trading segment, w....
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....ng income filter, we hereby direct the learned AO/TPO to include Solvo-chem India Private Limited as a comparable. 11. The learned AO/TPO shall recompute the ALP of the international transaction of purchase of specialty fertilizers after including both the aforesaid companies in the final set of comparables, and shall delete the adjustment if the Assessee's margin falls within the permissible range as per the second proviso to section 92C(2) of the Act. Accordingly, the Ground Nos. 3 to 3.4 are allowed. 12. As regards the addition made by the learned TPO and the learned AO towards notional interest on delayed receivables from the AEs, the learned AR submits that the working capital adjustment carried out in the benchmarking appropriat....