TaxTMI 
TaxTMI 
2026 (9) TMI 40
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....rice ("ALP") of the international transactions of Payment for receipt of technical services and shared service expenses ("IGS"). 2. That the impugned DRP Directions/ Final assessment order are perverse, being contrary to the facts and evidence, on record. 3. That the order of the Ld. TPO is patently erroneous as it contradicts itself regarding the evidence submitted by the Appellant qua rendition/ receipt/ benefits of IGS to the Appellant. Legal Grounds 4. That on facts and circumstances of the present case and in law, the final assessment order passed by the Ld. AO is not in conformity with the directions of the DRP and accordingly, bad in law as per Section 144C(10) of the Income Tax Act, 1961 ("the Act") read with Section 144C(13) of the Act. 5. That the approach of the authorities below in prescribing the need/rendition/ benefit test qua bench marking of IGS is contrary to law and the mandate of section 92CA(3) of the Act. Factual Grounds 6. The Authorities below (i.e., the Hon'ble DRP, Ld. AO and Ld. TPO) have erred in law and on facts of the case by rejecting the approach of the Appellant to aggregate the inte....
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....add, alter, rescind and modify the grounds above or produce further documents, facts and evidence before or at the time of hearing of this appeal." Submissions of Ld. AR : 3. The written submission filed by the Ld. AR are us under : 1. The Appellant has preferred the present appeal against a final assessment order dated 30.09.2024. although, various grounds of appeal have been raised, the present submission is limited to Ground No. 4 raised in the grounds of appeal. This ground raises the jurisdictional issue since the final assessment order dated 30.09.2024 is not in conformity with the directions issued by the Dispute Resolution Panel ("DRP") dated 27.08.2024. Given the mandatory provisions of Section 144C(13) of the Income Tax Act, 1961 ("the Act"), the final assessment order is bad in law and deserves to be quashed. 2. As a background, in terms of a reference made by the Assessing Officer ("AO"), the Transfer Pricing Officer ("TPO") by way of his order dated 28.10.2023, passed under Section 92CA(3) of the Act, proposed a transfer pricing adjustment of INR 113,58,49,495. This adjustment comprised of an adjustment of INR 84,99,60,652, being on account of s....
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....: a) LG Electronics Inc. vs. Additional CIT - ITA No. 646/DEL/2021 (AY 2004-05) decision dated 17.11.2021; b) Global One India Pvt. Ltd. vs. DCIT - [2020] 182 ITD 355 (Delhi Trib.); c) July Systems and Technologies Pvt. Ltd. vs. DCIT - [2018] SCC OnLine ITAT 18763; d) ESPN Star Sports Mauritius vs. Union of India - [2016] 241 Taxman 0038 (Delhi); and e) Software Paradigms Infotech Pvt. Ltd. vs. ACIT - [2018] 89 taxmann.com 339 (Bang). Copy of these judgements is annexed as Annexure - C to G. 7. In view of the settled position of law, it is most respectfully prayed, that without prejudice to the grounds on merits raised by the Appellant, the final assessment order dated 30.09.2024 deserves to be quashed on this ground alone. Ld.AR further submitted that during the course of the hearing conducted on November 6, 2025, the Ld. Departmental Representative ("DR") relied upon a decision of the Hon'ble Delhi Bench of the Tribunal in the case of Honda R&D (India) Private Ltd. Vs. JCIT (ITA No. 376/Del/2015) dated 19.9.2024. The said reliance was placed as a counter to the Ground No. 4 raised in the memo of appeal an....
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....py enclosed as Annexure 5]. 3.1 Written submission of Ld. AR with respect to the merits of the addition is as under : Detailed note on Shared services transactions including the benchmarking analysis undertaken to substantiate it's arm's length nature. (A). Details of services Vitesco Technologies India Private Limited ("Vitesco India" or "the Appellant" or "the Company") has entered into shared service agreements with its associated enterprises ("AEs") for shared services in the nature of commercial services (transport, maintenance, etc.), administrative related support services (such as counseling in legal matters, finance, business development, human resource, logistic etc.) and IT support services (Page no. 52 to 57 of application filed before the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") read with submission dated July 13, 2024 for additional evidence). These shared services are consumed in the overall operations of Vitesco India. i.e., these would relate to one of the three activities that Vitesco India is engaged in, i.e., manufacturing operations, distribution operations and services operations. The shar....
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....l (CDF) Division Business Unit Sales - Selling - Communication - Distribution Key Account Management, BD, Marketing Business Development & Marketing BU Sales / Marketing, BD, Communication FG&A Legal, HR, Tax, TCE, Communications, FiCo Finance/Controlling, HR, PLM. Spirit project Gen. Management FiCo, HR Project Management Material Management SCMA, Logistics Purchasing, Quality Purchasing, Logistics Logistics, Purchasing Production CEP, Quality Operations, Quality. Ind. Engineering. IT SAP, EIT, PC n.a. n.a. The price for the services rendered is calculated based on the cost-plus method. Distribution = allocation key + receiver organisation level ("ROL") The usage of each key is linked to the P&L function of the sending cost center (in the respective shared service function). P&L function allocation key reasonableness Sales, - Selling, - Communication, - Distribution external sales Support by the SD&C function is intended to generate business for the service recipient and thereby contributes to the creation of the service recipient's revenue. Ther....
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.... Service Now 750 SD WAN (700 Mbps) 2 Infra Resources 8 Power BI Desktop License 50 Intune License 800 Identity & Privilege Access Management (IPAM) Platform 1 Firewall Cost 4 Others - Cloud Services, MECM, Intranet, Remote Desktop, Solarwinds, etc. Various - including sub-licenses (D). Third-Party Assurance Report regarding service charge out cost In this regard, the Appellant wishes to submit the independent reasonable assurance report, (filed with Hon'ble DRP as Item 20 of Paperbook) maintained by the Group for the shared services rendered to all the group companies. The report pertains to year ended December 31, 2020, which was prepared to carry out reasonable assurance on design of service charges and the implementation of the internal process regarding services charges within the group based the criteria determined by the OECD TP guidelines. As per the independent auditor opinion the design of service charges and the implementation of the internal process regarding services charges were in conformity with the OECD guidelines in all significant areas. In detail, they carried out the following audit pro....
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....out oral agreements. Beyond that, they performed an analytical review of the service charges in 2020 compared to prior-year service charges to identify and analyse significant deviations. They also inquired on data trends and discussion with management and individuals in monitoring functions thereto. On the basis of this they concluded that the internal process was in accordance with the guidelines issued by the Group and the identified central controls were designed and implemented effectively. Accordingly, the price that was agreed between the two Groups for shared services from Continental Group to Vitesco Group (that Vitesco India also received during the year under assessment) was determined as price that would get agreed between unrelated parties in comparable circumstances. The purpose of TP is to prevent the shifting of profits by manipulating prices charged or paid in international transactions between the AEs. In the present case, since there is a spin-off and profit maximization mindset, it is abundantly clear that there are no malafide tax practice being undertaken when the transaction has been undertaken between Continental Automotive GmbH and Vitesco....
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.... 1) Cost allocation and Assurance Report i. Cost allocation of various expenses as undertaken by the Group for cross charge to Vitesco India - filed on Page no. 57 to 61 of DRP application and Item 19 of Paperbook page no. 2293 to 2350 read with Annexure 3 of additional submission dated July 13, 2024 ii. Assurance report (filed on page no. 61 to 65 of DRP application and Item 20 of Paperbook - page no. 2351 to 2436) - As discussed above, an independent external auditor (M/s. KPMG) was engaged by Vitesco Technologies GmbH to carry out an independent analysis to ensure a reasonable assurance on the design and implementation of the internal process regarding the cost allocation system with respect to Automotive Systems (Electronic) and Vitesco within the Continental-Group as it was in place as of December 31, 2020. This independent reasonable assurance report is maintained by the Group for the shared services offered by Vitesco Technologies GmbH to its Group companies for the year ended December 31, 2020. The report was prepared to carry out reasonable assurance on the design and implementation of the internal process regarding the cost allocation system with ....
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....dian of 10.14 percent. Thus, the highest mark-up charged by AE for shared services i.e., 7 percent can be concluded to meet the arm's length principle for both the entities of the Group from an Indian TP regulations perspective as well. Thus, if 7 percent is at arm's length, then the services availed at 5 percent and 6 percent are also at arm's length, as all these margins fall within the computed arm's length range. Based on the above, when the nature of services, cost allocation methodology and the markup of 5/6/7 percent charged has been replicated by Vitesco Technologies GmbH in the provision of shared services to Vitesco India, it can reasonably be also concluded to comply with the arm's length principle as per the Indian TP regulations. Also, without prejudice to the above, we wish to humbly submit that as the services availed by the Appellant from its AEs fall under the category of 'low-value added' services as defined in Chapter VII of the OECD TP Guidelines, the Group also placed reliance on the Guidelines wherein a mark-up of 5 percent is acceptable as per the OECD TP Guidelines, which read as below :- D.2.4. Profit mark-up....
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....rofitability of the manufacturing segment after considering shared services charges that pertain to manufacturing segment proportionately using appropriate key, is within the arm's length range vis-à-vis the comparable companies in the India/ market profitability as documented in the TP documentation. Further, when the MRP of the products are determined/ negotiated with third parties, it is after considering the overall cost including such cost of shared services, which are imperative to Vitesco India's business operations. Thus, at an overall profitability level, this cost gets benchmarked under TNMM analysis of the manufacturing operations. • As regards the distribution operations and the services operations are concerned, it would be noteworthy to note that any shared services charges that pertain to these would be recharged out to its' AEs. In the distribution operation, Vitesco India is engaged in sale of finished goods purchased from AEs to third parties in India and whilst in the services operation, Vitesco India is engaged in provision design and engineering services to its AEs. Thus, for the Distribution Segment, being a limited risk distrib....
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.... Submissions of Ld. DR : 4. The Ld. DR vehemently opposed to the legal ground. The Ld. DR relied on the following decisions to rebut the submission of the assessee regarding legal ground. i. Hitachi Astemo Haryana Private Limited Vs. DCIT in ITA No. 1005/Del/2022 for AY 2018-19, dated 23.11.2023. ii. Honda R & D (India) Pvt. Ltd., Haryana Vs. DCIT in ITA No. 3766/Del/2015 for AY 2010-11, order dated 19.09.2024. 4.1 Ld. DR further submitted that the AO and TPO has passed a rectification order. This explains that it was a mere mistake and not fatal to make the assessment order bad in law. The Ld. DR submitted that purpose of section 154 is to rectify the mistake apparent from record. In this case, while giving effect to the order of DRP, AO in para 3.2 refereed to the order of the DRP but by mistake typed an incorrect figure. In para 3.2, the AO specifically mentioned that the DRP granted partial relief to the assessee. In the Final Assessment order, the word used is "revised TP Adjustment". Therefore, Ld. DR pleaded that in the final assessment order effect was given to the direction of DRP but erroneously figure typed was incorrect. This cannot be said to b....
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....sessee had not provided Group Cost Allocation, Allocation Keys, and justification of allocation. The TPO concluded in para 10.9 that payments made for Intra Group Services were not justified. In para 10.7 the TPO held that assessee produced documents just for the sake of submission which are insufficient to justify the claim of real benefits being received by the assessee from Intra Group Services. 5.2 On receipt of TPO's Order u/s. 92CA(3) of the Act, the Assessing officer passed Draft Assessment Order on 22/11/2023 u/s. 143(3) r.w.s. 144C(1) of the Act. 5.3 The Assessee filed Objection against Draft Assessment Order before the Dispute Resolution Panel (DRP). The DRP heard the Assessee and passed an order u/s. 144C(5) of the Act on 27/08/2024. The Dispute Resolution Panel in its order in Para 8.12 gave following directions: "8.12 Directions of the Panel: The Assessing Officer is directed to make disallowance of Rs. 1,01,00,41,778/- claimed as Shared Group Services and Technical Services payment to AEs on account of lacking in establishment of "receipt" of services, absence of business nexus and no case of service rendition. The claim of deduction does n....
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....d Service expenses for year under consideration. In view of above, the said TP adjustment of Rs.1,11,00,41,778/- is hereby proposed in respect of international transaction relating to Payment of Technical Services and Shared Service expenses for year under consideration. As a consequence of this adjustment the income of the assessee shall be increased by Rs.1,11,00,41,778/ -. (ADDITION: Rs. 1,11,00,41,778/-) 4. Table of variations :- SI. No. Description Amount(In INR) 1. Income as per return of Income filed 1,02,67,21,080/- 5.5 Thus, in the final assessment order, the AO has failed to consider the relief granted by the DRP. To understand the failure of the AO in not granting of the relief which was granted by the DRP, we have studied the order passed by the TPO on 23.09.2024 to give effect to the order of the DRP. In para 7 the TPO in his order dated 23.09.2024 which was passed to give effect to the direction of the DRP has mentioned as under : Quote, "7. Thus, in light of above facts and as per directions of Ld. DRP, adjustment of Rs.1,11,00,41,778/- made to international transactions of assessee pertaining to Payment of for Techn....
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....ied in sub section (2) of Section 144C of the Income Tax Act. In the present case, the assessee filed objections before the DRP after passing the draft assessment order. The DRP issued certain directions to the Transfer Pricing Officer. The Assessing Officer was very well aware that the DRP has given certain directions to the Transfer Pricing Officer and it is binding on the Assessing Officer to follow every direction issued by the Dispute Resolution Panel as per as per Section 144C(10) of the Act. Sub-Section (10) of Section 144C is not procedural but a mandatory requirement. If the Transfer Pricing Officer has not passed any order, the Assessing Officer should have taken into account the DRP's direction and would have taken cognizance in the final assessment order, but the Assessing Officer choose not to follow the DRP's direction. Subsequently, when the Transfer Pricing Officer passed the order giving effect to DRP's directions vide order dated 21.02.2014, the Assessing Officer on suo moto basis has rectified the assessment order u/s. 154 thereby giving effect to directions of the DRP. As per Section 143(3), the Assessing Officer has to pass the assessment order with....
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....ement Limited (supra) where it was held that an order of assessment which is contrary to the mandatory provisions of Section 144C of the Act was declared as "one without jurisdiction, null and void and enforceable." It is therefore, for this reason, in the said case, the High Court of Andhra Pradesh set aside the impugned order while allowing the writ petition notwithstanding that the Petitioner had a statutory remedy available to it. ................................... 45. For the above reasons, the draft assessment order dated 28th March 2014 and the final assessment order dated 28th January 2015 passed by the AO are held to be void ab initio and quashed on that basis. The orders consequential thereto also do not survive. However, it is clarified that the Court has not expressed any opinion regarding the validity of the proceedings against the Petitioners under Section 147/148 of the Act. The rights and contentions of the parties in those proceedings are left open to be urged and decided by the appropriate authority in accordance with law. 46. The writ petitions are allowed and the pending applications are disposed of in the above terms but, in the fact....
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....ence, no exception can betaken to the impugned order passed by the ITAT. Hence, we proceed to pass the following: ORDER (1) Appeal is dismissed. " Unquote. 5.6.6 In the case of Flextronics technologies India P. Ltd. (supra), the Assessing Officer had not passed the Final Assessment Order in conformity with the Directions of DRP, the ITAT held that the Final Assessment Order was bad in law, theHon'ble KarnatakaHigh Court upheld the Order of the ITAT, dismissing the Revenue's Appeal. 5.7 The ITAT Chennai in the case of HSI Automotives (P.) Ltd. vs. DCIT,[2026] 186 taxmann.com 721 (Chennai - Trib.)[28-04-2026],following decision of Hon'ble Delhi High Court in the case of ESPN Star Sports Mauritius S.N.C. ET Compagnie vs. UOI [2016] 68 taxmann.com 377, and distinguishing the decision of ITAT Delhi in the case of Hitachi Astemo Haryana P Ltd vs. DCIT (supra) has held as under : Quote,"21. In the light of the discussion (supra), it is found that the AO in defiance to the binding directions of the DRP has passed the final assessment order dated 19.12.2025, which is in gross violation of Section 144C(13)of the Act, making it arbitrary, which action....
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....Objections before DRP after a lapse of 30 days. iii. In the case of Fiberhome India (P.) Ltd. vs. ACIT Delhi)/[2022] 444 ITR 237 (Delhi)[15-12-2021] the Assessee had failed to inform the AO about filling Objections before DRP, hence AO passed order before DRP Order. iv. In the case of Ford India P Ltd vs National E-Assessment Centre, [2022] 284 Taxman 396 (Madras)[15-09-2021],the Assessee had not informed the AO that Assessee had filed Objections before DRP which is mandatory as per Section 144C. Therefore, facts of the case are different than present assessee. Thus, ITAT in the case of Hitachi Astemo Haryana Pvt Ltd vs. DCIT (supra) has relied on the factually distinguishable decisions of Hon'ble Delhi High Court which we have discussed above. Hence, the decision of ITAT in the case of Hitachi Astemo Haryana Pvt. Ltd vs DCIT is distinguishable and not applicable on the facts in the case of present assessee. 5.12 We have carefully studied the Decisions relied by the Ld.DR and Ld. AR. We have already referred to the decisions of Hon'ble Delhi High Court, Hon'ble High Court of Karnataka (supra) where in the Hon'ble High Court's have held that Final Assessment ....
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.... assessee also filed third party assurance report explaining the cost allocation. 7.1 Regarding Material Management Services the assessee had submitted that all e-components are sourced by the Central Purchasing Team which gives advantage of bulk purchases reducing the cost by 5% to 10%. During the year assessee had only 10 personnel looking after procurements, which could do the procurements only because support from the AEs in the form of central purchasing team. Assessee also filed Shared Services Agreement which is at page Nos. 2082 to 2187 of the paper book. 7.2 Assessee had submitted, that all production lines are connected to central server, which is accessible to global production team. The online trouble shooting can be done with the help of line review tool. Similarly, assessee had been allowed access to advanced sophisticated manufacturing system. Global team is responsible for all kinds of productions issues like warranty, defect analysis etc. The global team personnel visit and monitors production. 7.3 IT Support Services, Finance and General Administration: Assessee filed documentary evidences at page Nos. 2368 to 2497 of the paper book. Assessee submitted th....
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....l communications demonstrating the need and benefits derived by the assessee from such services. The Ld.TPO, however, in disregard to the submissions of the assessee held that the assessee failed to demonstrate the benefits derived from the receipt of such services by the assessee and therefore determined the ALP of intra-group service fees at Nil applying „Other Method' under Rule 10AB of the Rules. The Ld. DR demonstrated the receipt of services by the assessee before us too. It is further observed that while applying Rule 10AB, no comparable was brought on record in respect of the intra-group services and therefore, in our view, adoption of Other Method is not in accordance with the Rule 10AB and hence not sustainable in law. The assessee considered TNMM as the most appropriate method for benchmarking its international transaction including the service charges mentioned in para 12 above and applied the aggregation approach to establish that payments made towards intra group services charges are also allocated at cost in the trading segment and accordingly benchmarked while applying TNMM under the trading segment. It is the submission of the Ld. Counsel for the assessee....
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....sessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific, and limited i.e. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained." 16. Now, coming to the adoption of „Other Met....
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....nd hence, unsustainable in the law. The Ld. TPO has not complied with the provisions of the Act read with the relevant Rule to determine the ALP of the international transaction by applying one of the methods prescribed under section 92C of the Act. 12. From perusal of the various judicial precedents (supra) cited by the Ld. AR, we find that this issue is no more res-integra. It is now a settled position in law that the determination of the ALP of the international transaction on an ad-hoc basis de hors section 92C of the Act by merely asserting that the 'Other Method' is applied cannot be sustained as held by various Courts and Tribunals. In the case of CIT v. M/s. Johnson & Johnson Ltd. (supra), the Hon'ble Jurisdictional Bombay High Court held as under : "4(d). We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 108 of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical ....