TaxTMI 
TaxTMI 
2026 (8) TMI 819
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....for the sake of convenience and brevity. 2. The assessee has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the A.Y. 2020-21 are re-produced as under: "1. The order of the Ld. CIT(A) is erroneous on the facts of the case and contrary to the provisions of law. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in upholding the Transfer Pricing adjustment of Rs. 18,55,13,219/- made in respect of the international transaction of commission paid to the Associated Enterprises (AEs) for rendering marketing and support services to the appellant. 3. The Ld. CIT(A) erred in making factually erroneous observations regarding the reasons given by the Transfer Pricing Officer/Assessing Officer for the Transfer Pricing adjustment in respect of commission payment and further erred in adjudicating the issue, inter alia, on the basis of such non-existent reasons. 4. The Ld. CIT(A) erred on facts and in law in upholding the rejection of Priya International Ltd. (Indenting Commission Segment) as a comparable entity in the benchmar....
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....ethod for determining the ALP of the international transaction of interest on delayed realization of trade receivables from AEs instead of directing the adoption of LIBOR without any spread. 11. The Ld. CIT(A) erred in making factually erroneous observations regarding the extent of credit period allowed by the Transfer Pricing Officer/Assessing Officer for computing the delay in realization of trade receivables and further erred in directing that a reasonable credit period should be allowed when the appellant had not disputed the credit period of 90 days allowed by the Transfer Pricing Officer/Assessing Officer. 12. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have held that the assessment order passed under Section 143(3) r.w.s. 153A is vitiated and has become unsustainable in law since the approval under Section 153D has been accorded by the Range Head in a mechanical manner. 13. Any other legal grounds or factual grounds that may be urged at the time of hearing. 3. Thereafter, the assessee has raised following additional ground: "14. On the facts and circumstances of the case and in law, the assessment is v....
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....oceedings, the Ld. TPO accepted the international transaction with regard to the sale of products to AEs to be at Arm's Length Price. However, the Ld. TPO rejected the TP analysis report submitted by the assessee in respect of marketing support services, interest received on loans to subsidiaries, and interest on delayed trade receivables from AEs, and made a TP adjustment of Rs. 18,55,13,219/- in respect of payments made towards marketing support services availed from AEs, interest received/receivable on loans given to AEs of Rs. 2,47,46,677/-, and interest on delayed trade receivables from AEs at Rs. 4,52,55,508/-. 7. In pursuant to the order passed by the Ld. TPO under Section 92CA(3) of the Act, dated 31.03.2023, the A.O. passed a draft assessment order under Section 144C(1) of the Act, on 28.04.2023 and proposed TP adjustment of Rs. 25,55,15,404/-, as suggested by the Ld. TPO. Since the assessee did not file any objections to the draft assessment order, the A.O. passed the final assessment order under Section 144C r.w.s 153A of the Act on 15.06.2023 and determined the total income at Rs. 663,49,23,320/- by making a TP adjustment of Rs. 25,55,15,404/-, as suggested by th....
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....Commission Segment) as a comparable on the ground that the above company was predominantly engaged in trading of chemicals and indenting services constitute only a minor part of its overall operations. Further, even if segmental financial data of the indenting service is available, the margins of such segment cannot be used in isolation from the enterprise-wide capital deployment and overall risk profile of trading-dominated organizations. In contrast, the assessee's AEs are limited risk entities bearing no inventory, market risk and credit exposure. Further, the assessee had not furnished any FAR matrix to demonstrate that Priya International Ltd., even at the segmental level is functionally and risk-wise comparable to its A.E. Therefore, mere availability of segmental data does not cure this fundamental FAR mismatch. Although, TNMM is relatively tolerant to product differences, but is not indifferent to functional and risk differences that materially affect the margins. Therefore, the Ld. CIT(A) rejected the arguments of the assessee and upheld the TP adjustment made towards providing Marketing Support Services by the AEs. 10. Insofar as TP adjustment on interest received on l....
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....R Rehman, Ld. CIT-DR and Shri K. Prasad, Ld. Sr. AR., for the Revenue, on the other hand, did not opposed the admission of the additional ground filed by the assessee. 15. Having heard both sides and considered the petition filed by the assessee on 15.06.2026 seeking admission of the additional ground, we find that, the additional ground raised by the assessee is a pure legal ground challenging the validity of the assessment order on the ground that it is barred by limitation under Section 153B of the Income-tax Act, 1961. Since the issue goes to the roots of the matter and does not require any further investigation into facts, in the light of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. Commissioner of Income Tax (supra), we admit the additional ground for adjudication. 16. Ground Nos. 1 and 13 of the assessee's appeal are general in nature and do not require any specific adjudication and, thus, the same are dismissed. 17. The next issue that came up for our consideration from Ground No. 9 of the assessee's appeal is the validity of the assessment order passed by the A.O. in light of the approval under Section 15....
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....Kestone Integrated Marketing Services Private Limited, Ketchum Sampark Private Limited, and Priya International Limited (Indenting Commission Segment), on the ground of functional dissimilarity. The Ld. TPO recomputed the arithmetic mean PLI of the remaining two comparable companies at 6.33% for A.Y. 2020-21 and 6.55% for A.Y. 2021-22, and adopted the same as the ALP of the rate of commission, and made TP adjustment of Rs. 18,55,13,219/- for A.Y. 2020-21 and Rs. 15,98,53,588/- for A.Y. 2021-22. 21. The learned counsel for the assessee further submitted that the scope of the marketing support services rendered by the AEs of the assessee in their respective territories includes finding and introducing new customers for the assessee's products, obtaining purchase orders from the customers, promoting the sale of products, providing periodic forecasts of the requirement for the products in their territory, providing periodic market intelligence information on potential new products and prevailing market prices, securing the necessary approvals for the assessee's products from the drug authorities in their territories, coordinating with the customs authorities of the countries....
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....taxmann.com 708 (Delhi High Court). 2. Nokia India Private Limited vs. JCIT, reported in (2024) 167 taxmann.com 401 (Delhi Tribunal). 3. Citrix R&D India Private Limited vs. DCIT, reported in (2019) 111 taxmann.com 78. 4. Inflow Technologies Private Limited vs. ACIT, reported in (2021) 133 taxmann.com 485 (Bangalore Tribunal). 5. Pegasystems Worldwide India Private Limited vs. ACIT, reported in (2015) 64 taxmann.com 470 (Hyderabad Tribunal). 23. The learned counsel further submitted that since the indenting services of Priya International Limited are functionally similar to the assessee company and segmental data is available in the annual report, the assessee has rightly considered Priya International Limited as a comparable. However, the Ld. TPO and the Ld. CIT(A), without assigning any reasons, simply rejected the company for the purpose of benchmarking. Therefore, he submitted that Priya International Limited should be considered as a comparable for the purpose of benchmarking analysis. The learned counsel for the assessee further submitted that the observation of the Ld. CIT(A) that, even if segmental financial data of indenting services ....
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.... a trading company and more than 75% of its revenue is coming from the said segment. Further, the assessee has failed to submit FAR analysis to prove that it is similar to the assessee company. The Ld. CIT(A) has given valid reasons for rejecting Priya International Limited from the list of comparables, because its revenue is predominantly from trading activities, that too in chemical products, which is altogether different from the products dealt with by the assessee's AEs, and the rate of commission varies from different segments and, therefore, considering Priya International Limited for benchmarking analysis is incorrect. They further submitted that TNMM is tolerant to product differences, but it is required to compare FAR analysis so as to select any company for the purpose of benchmarking analysis. In the present case, the reasons given by the Ld. TPO and the Ld. CIT(A) clearly show that Priya International Limited is altogether different from the assessee company and, therefore, the Ld. TPO has rightly excluded Priya International Limited for the purpose of computing ALP of payment for marketing support services. Therefore, he submitted that the order of the Ld. CIT(A) s....
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....55% for A.Y. 2021-22. In other words, the Ld. TPO accepted TNMM as the Most Appropriate Method for benchmarking payment of commission towards marketing support services; however, rejected three comparables selected by the assessee, i.e., Kestone Integrated Marketing Services Private Limited, Ketchum Sampark Private Limited, and Priya International Limited (Indenting Commission Segment). The assessee has not challenged the rejection of the above two comparables, i.e., Kestone Integrated Marketing Services Private Limited and Ketchum Sampark Private Limited. The only comparable remaining, challenged by the assessee, is Priya International Limited (Indenting Commission Segment). 27. The Ld. TPO has rejected Priya International Limited from the list of comparables mainly on two grounds, i.e., the major activity of Priya International Limited is trading in chemicals and the revenue from the indenting services is merely 19.68% and 25.60% of its turnover for both the assessment years. Further, the rate of commission in the pharma products sector cannot be compared with the rates of commission in other sectors, as they vary from sector to sector. The Ld. CIT(A) concurred with the findin....
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....e field of marketing support services and, from the above details, if reliable data can be considered for the purpose of comparison, then there is no bar in considering the company's segmental data, even though it is engaged in different activities, as held by various Tribunals and Courts, including the Hon'ble Delhi High Court in the case of Microsoft India (R&D) (P.) Ltd. vs. DCIT, and so on. Since the Indenting Services Segment of Priya International Limited is similar to the AEs of the assessee in the field of marketing support services, in our considered view, the assessee has rightly included Priya International Limited in the list of comparables for benchmarking analysis for payment of commission towards rendering marketing support services. Therefore, to this extent, we are in agreement with the arguments of the learned counsel for the assessee that the A.O. and the Ld. CIT(A) have rejected the above company without considering the FAR analysis. 28. Coming back to the arguments of the Ld. CIT(A), the Ld. CIT(A) rejected Priya International Limited on multiple grounds, including the reasons on which the Ld. TPO has excluded the above company on the ground of tradi....
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....we are of the considered view that the Ld. TPO and, subsequently, the Ld. CIT(A) erred in rejecting Priya International Limited from the final set of comparables. 29. The assessee has relied upon various judicial precedents in support of his contention and argued that the Indenting Services Segment of Priya International Limited has been accepted as a comparable for benchmarking the transactions of marketing support services or similar services by the Ld. TPO/Ld. DRP. In this regard, the assessee relied upon the following judicial precedents: 1) Dover India (P.) Ltd v. DCIT [2015] 59 taxmann.com 53 (Pune - Trib): In this case, the assessee was engaged in rendering software services. The TPO has considered M/s. Priya International Ltd (Indenting segment) as a comparable company for benchmarking the transaction of Market Support Services and the same was upheld by the DRP. The assessee also did not press the objection against the inclusion of the said comparable before the Hon'ble Tribunal. 2) Haworth India (P.) Ltd v. DCIT [2017] 88 taxmann.com 316 (Pune - Trib): In this case, the assessee was engaged in the business of manufacturing and trading of furniture....
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....ate of commission and TP adjustment, if any, on payment of commission towards marketing and business support services for A.Y. 2020-21 and A.Y. 2021-22. 31. The next issue that came up for our consideration from Ground Nos. 5 to 7 of the assessee's appeal is TP adjustment in respect of international transaction of interest received on foreign currency loans advanced to AEs. 32. The learned counsel for the assessee submitted that during the previous year's relevant to the assessment years under consideration, the assessee has received interest of Rs. 12,03,21,103/- and Rs. 6,59,63,793/- on the foreign currency loans advanced to two AEs, i.e., MSN Pharmaceuticals Inc., USA and MSN Laboratories Europe Limited, UK. The assessee had given two loans to MSN Pharmaceuticals Inc., USA and, as per the loan agreement between the assessee and the AE, the coupon rate of interest on the said loans is LIBOR plus 200 basis points for one loan and LIBOR plus 100 basis points for the second loan. The assessee has also advanced a loan to MSN Laboratories Europe Limited, UK, and the coupon rate of interest, as per the agreement between the parties, is LIBOR plus 100 basis points. The assesse....
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....the relevant LIBOR rate plus the appropriate spread of 200 basis points, having regard to the group relationship and risk profile. 33. The learned counsel for the assessee submitted that the Ld. CIT(A) erred in sustaining the TP adjustment made by the Ld. TPO in respect of receipt of interest on foreign currency loans given to AEs by placing reliance on the decision of the ITAT Hyderabad Bench in the case of Dr. Reddy's Laboratories Limited vs. ACIT (supra), without appreciating the fact that the above judgment was rendered in the year 2017, whereas the transactions of the assessee pertain to the financial years 2019-20 and 2020-21, where further developments have taken place in respect of interest on foreign currency loans. The learned counsel for the assessee further submitted that the Hon'ble Rajasthan High Court, in the case of CIT vs. Vaibhav Gems Limited, reported in (2017) 88 taxmann.com 12 (Rajasthan), held that the assessee will be entitled to the benefit of the average LIBOR rate existing at that time, which was 0.79%, and addition of ad hoc 2% to the LIBOR rate is not proper in respect of the loan extended by the assessee to its AE. He further, referring to th....
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....oans are wholly owned subsidiaries of the assessee company, which were set up for the purpose of expanding the market for the products of the assessee in the foreign territories. The said AEs are exclusively dealing with the products of the assessee company. The loans were advanced to the said AEs with a view to providing the required working capital to facilitate the trading operations, and there is a connection between the loan and business exigencies. Therefore, it cannot be said that it is a case of shifting profits to the foreign tax jurisdiction by charging interest on foreign currency loans at a lower rate than the Arm's Length rate. Therefore, he submitted that on this ground also, the addition made by the Ld. TPO and upheld by the Ld. CIT(A) should be deleted. 36. The Ld. CIT-DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that it is a well-established principle of law by the decisions of various Tribunals that, for benchmarking interest on foreign currency loans, the average LIBOR plus appropriate spread for the risk involved is to be considered. If we go by the reasons given by the Ld. TPO and the purpose of the loan, the Ld. TPO has right....
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....it rating, then adding a mark-up of 100 basis points for benchmarking interest is incorrect. 38. We have given our thoughtful consideration to the facts of the case and arguments of both the sides and in our considered view, LIBOR is the appropriate rate of interest for benchmarking foreign currency loans, whether it is a loan received by the assessee or a loan given to the AEs. To this aspect, there is no dispute between the parties because the assessee has also adopted LIBOR for benchmarking the interest rate on foreign currency loans. The only dispute is with regard to the adoption of mark-up for the possible risk involved in the transactions between the assessee and the AEs. Many Tribunals and Courts have adopted different rates of spread depending upon the terms and conditions between the parties and also the risks involved in the transactions. Primarily, the additional rate of interest by way of mark-up is considered only when the loan transactions between the parties are different from the normal transactions in the territory between the lending banks or financial institutions and the borrower. In case there are differential risk parameters of the lending company and the ....
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.... Ld. TPO, without appreciating the relevant facts, simply made TP adjustment by adopting six months' average LIBOR plus 200 basis points. The Ld. CIT(A), without assigning any reason, sustained the addition made by the Ld. TPO. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O./TPO to delete the TP adjustment in respect of interest received/receivable on foreign currency loans given to the AEs for both the assessment years, i.e., A.Y. 2020-21 and A.Y. 2021-22. 40. The next issue that came up for our consideration from Ground Nos. 8 to 11 of the assessee's appeal is TP adjustment in respect of international transaction of interest on delayed realization of trade receivables from AEs. 41. The learned counsel for the assessee submitted that the assessee had shown outstanding trade receivables from the AEs and had not charged any interest on delayed realization of the receivables. The assessee benchmarked the said international transaction of interest on overdue receivables under the CUP Method in the TP study report, wherein it was concluded that the transaction is at Arm's Length since the period within which the receivables were realized from the AE....
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....ited, reported in (2014) 44 taxmann.com 310 (Bombay). He also relied upon the decision of the ITAT Chennai Bench in the case of Gimpex Private Limited vs. ACIT, reported in (2019) 105 taxmann.com 365 (Chennai Tribunal). The assessee has also relied upon the following judicial precedents: 1. Integra Software Services Private Limited vs. DCIT, reported in (2022) 145 taxmann.com 460 (Chennai Tribunal). 2. Toshiba Technical Services International Corporation vs. ACIT, reported in (2022) 145 taxmann.com 474 (Ahmedabad Tribunal). 3. Milacron India Private Limited vs. DCIT, reported in (2025) 174 taxmann.com 800 (Ahmedabad Tribunal). 4. Fujitsu Consulting India Private Limited vs. ACIT, reported in (2022) 145 taxmann.com 380 (Delhi Tribunal). 5. LT Foods Limited vs. DCIT, reported in (2022) 140 taxmann.com 199 (Delhi Tribunal). 6. Bausch & Lomb Eyecare (India) Private Limited vs. ACIT, reported in (2015) 60 taxmann.com 141. 7. KGK Creations Private Limited vs. Jurisdictional A.O., reported in (2025) 173 taxmann.com 57 (Mumbai Tribunal). 8. S. Vinodkumar Diamonds Private Limited vs. DCIT, reported in (2023) 147 taxmann....
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....om the above, it is very clear that the net margin of the assessee is much higher than the ALP as per the benchmarking analysis made in the TP study reports, both prior to and after the working capital adjustment. Therefore, even if you reduce the opportunity cost of interest on the longer credit period given to the AEs, still the net profit margin (OP/TC) of the assessee is almost double the amount of margin earned by the comparables selected by the Ld. TPO. Therefore, making further additions towards interest on trade receivables from the AEs is incorrect. In this regard, he relied upon the decision of the Hon'ble Delhi High Court in the case of Principal CIT vs. Kusum Healthcare Private Limited, reported in (2018) 99 taxmann.com 431 (Delhi). The learned counsel for the assessee further relied upon the following judicial precedents: 1. Principal CIT vs. Qualcomm India Private Limited, reported in (2023) 156 taxmann.com 288 (Delhi High Court). 2. DE Shaw India Private Limited vs. DCIT, in ITA No. 1154/Hyd/2024 (Hyderabad Tribunal). 3. TEEJ India Private Limited vs. ACIT, reported in (2023) 149 taxmann.com 196 (Visakhapatnam Tribunal). 4. ....
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....ed to be benchmarked separately and further directed the Ld. TPO to adopt LIBOR plus 200 basis points as the most appropriate rate of interest and also directed the Ld. TPO to consider the invoice-by-invoice credit period without going into the average credit period and value of receivables. Therefore, he submitted that there is no error in the order of the Ld. CIT(A) and the same should be upheld. 46. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee agitated the TP adjustment made in respect of trade receivables from the AEs on multiple grounds, including on the issue of parity between the credit period allowed to the AEs and non-AEs, higher margin earned on transactions with the AEs when compared to the comparables, and further on removing the differential levels of working capital so as to arrive at a fair margin earned by the tested party and the comparables. Insofar as the first argument of the assessee, i.e., there is parity between the credit period allowed to the AEs and non-AEs and, thus, there is no question of making TP adjustment on interest receivable on trade receivables from....
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....ost, if any, incurred on account of working capital levels or the possible income that may be earned by the assessee from the amount of receivables held up is subsumed in the margins. Therefore, even if we exclude the amount of adjustment made by the A.O. towards interest on trade receivables from the AEs for both the assessment years, still the assessee's net profit margin is higher than the margin of the comparables and thus, the Ld. TPO and the Ld. CIT(A) erred in making separate adjustment towards interest receivable on trade receivables from the AEs. 48. Computation of PLI is very important step in transfer pricing analysis. The PLI of companies differs from various factors including higher cost of working capital and its financing. Therefore, it is necessary to remove factors which account for different levels of PLI in comparable. Further, working capital adjustment accounts for the time value of money, neutralization of the effects of different trade terms, trade transactions, credit period, and inventory levels between the tested party and the comparables. The purpose of providing working capital adjustment is to ensure that the pricing and Profit Level Indicators (....
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....20-21 with a PLI of 14.49% and 32 comparables for A.Y. 2021-22 with a PLI of 23.99%, without working capital adjustment. From the above, it is very clear that the net profit margin of the assessee is much higher than the margins of comparables as per the benchmarking analysis carried out in the TP study report, both prior to and after the working capital adjustment. Though the Ld. TPO did not work out the PLI after working capital adjustment, but the net profit margin of the assessee is much higher than the ALP worked out by the Ld. TPO without such adjustment. Therefore, in view of the difference in the net profit margins of the assessee and the comparables without working capital adjustment, it would be certainly lower than the net profit margin of the assessee if such adjustment towards working capital is provided. Therefore, in such a situation, a further addition towards interest on trade receivable from the AEs for the possible opportunity cost of interest that may be incurred by the assessee for providing a longer credit period to the AEs or the loss of potential investment returns on that cash is incorrect. This principle is supported by the decision of Hon'ble Delhi High C....