TaxTMI 
TaxTMI 
2026 (9) TMI 699
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....143(2) of the Act was issued and served on the assessee. Since the assessee has entered into large value international transactions with its associated enterprises, reference under section 92CA(1) of the Act was made to the Transfer Pricing Officer ("TPO") for determination of arm's length price of the international transactions entered into by the assessee. After considering the submissions filed by the assessee, the TPO, vide order dated 11.01.2025 passed under section 92CA(3) of the Act, made a total transfer pricing adjustment of Rs. 4,59,72,570/-, as follows: - SI. No Description Adjustment u/s. 92CA (In Rs. ) 1 Manufacturing segment 4,55,15,196 2 Interest on delayed receivables 4,57,374 Total adjustment u/s. 92CA 4,59,72,570 3. In conformity, the Assessing Officer ("AO") passed the draft assessment order dated 06.02.2025 under section 144C(1) of the Act, incorporating the transfer pricing adjustment proposed by the TPO. The learned DRP, vide its directions issued under section 144C(5) of the Act, inter alia, rejected the objections filed by the assessee. In conformity with the directions issued by the learned DRP, the AO passed the impugned....
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....e to the Appellant thought it is functionally dissimilar. The DRP has erred in upholding this action. 10 The learned TPO has grievously erred in considering Rockwell Industries Limited, as comparable to the Appellant thought it is functionally dissimilar. The DRP has erred in upholding this action. 11 The learned TPO has grievously erred in considering Western Refrigeration Private Limited, as comparable to the Appellant thought it is functionally dissimilar. The DRP has erred in upholding this action. 12 The learned TPO has grievously erred in considering Sidwal Refrigeration Industries Private Limited, as comparable to the Appellant thought it is functionally dissimilar. The DRP has erred in upholding this action. 13 The Learned TPO has grievously erred in determining an amount of Rs. 4,57,374/- as interest on delayed receivables by considering the receivables as a separate transaction even though the average realisation period for the year was only 7 days and no interest has been charged for delays from its non-AE transactions. The DRP has erred in upholding this action. 14 Without prejudice to Ground 17, the Learned TPO has grievousl....
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....elevant findings of the Hon'ble Bombay High Court in the aforesaid decision are reproduced as follows: - "We find that in terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act." 9. We find that the Hon'ble Bombay High Court also concurred with the view taken by the Hon'ble Delhi High Court in CIT vs. Keihin Panalfa Ltd., reported in (2016) 381 ITR 407 (Delhi). Accordingly, respectfully following the aforesaid decisions, we direct the AO/TPO to restrict the transfer pricing adjustment, if any, to the inte....
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....ff :- The assessee submitted that the bad debts written off were considered as non-operating item. This Panel has been consistently holding that bad debts written off cannot be considered as operating expense. They are not the expenses incurred in earning the current year operating revenue. Besides, the bad debts related to income already admitted as revenue in the earlier year/years and is in no way related to the operating revenue earned during the year, and hence cannot be taken into account in determining the operating profit for the year. The bad debts written is only an accounting treatment, and have no direct nexus to the operating income admitted for the year. Hence, this Panel is of the view bad debts written off are non-operating expense. Therefore, TPO is directed to exclude the same in margin computation for both the assessee and the comparable. Ground allowed." 13. Therefore, we direct the TPO to comply with the directions issued by the learned DRP and re-compute the operating margin of the assessee in terms of the aforenoted directions issued by the learned DRP. As a result, Ground No. 3 raised in assessee's appeal is allowed for statistical purposes. 14. Ground....
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.... from the "Total Revenue", thus computing the operating income of the assessee at Rs. 79,47,21,520/-. The learned AR submitted that the learned DRP, instead of correcting the computational error made by the TPO, affirmed the findings of the TPO on the basis that the "Other Operating Income" represents export incentive, which is in the nature of non-operating income. The learned AR submitted that the export incentives are directly linked to the assessee's export sales and, therefore, are in the nature of operating income. In support of her contention, the learned AR placed reliance upon various judicial pronouncements. On the other hand, the learned DR vehemently relied upon the findings of the learned DRP on this issue. 19. Having considered the submissions of both sides and perused the materials available on record, we find that during the year under consideration the assessee received export incentives of Rs. 19,90,710/-. From the perusal of the record, we further find that during the year under consideration, the assessee declared total export sales of Air Handling Units manufactured by it of Rs. 13,47,09,300/-. Thus, it is evident that the export incentives received by the a....
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....sessee's appeal, pertains to the transfer pricing adjustment in relation to international transaction of "sale of finished goods". 24. The brief facts of this case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee entered into the following international transactions with associated enterprises: - SI. NO. International transaction Method selected Value (in INR) 1 Purchase of goods TNMM 96,08,969 2 Sale of finished goods TNMM 13,40,79,255 3 Purchase of capital goods TNMM 1,53,857 4 Services availed from AE/ Professional Service Fee paid (IGS) CUP 56,79,443 5 Payment of Royalty TNMM 2,99,77,572 6 Corporate Guarantee Fee (Paid) CUP 17,92,721 7 Reimbursement received for expenses TNMM 19,421 8 Reimbursement of Expenses CUP 1,73,040 25. Since the international transactions of purchase of goods - raw materials, purchase of capital goods, services availed from associated enterprise - royalty paid and professional fees paid were closely linked with the international transaction of "sale of finished goods", the assesse....
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....ter alia, incorporating the transfer pricing adjustment on account of international transaction of "sale of finished goods" of Rs. 4,35,02,837/-. 29. During the hearing, the learned AR submitted that if six companies, namely, Frick India Limited, Voltas Limited, Daikin Airconditioning India Private Limited, Rockwell Industries Limited, Western Refrigeration Private Limited and Sidwal Refrigeration Industries Private Limited are directed to be excluded, then this international transaction shall be at arm's length and the entire transfer pricing adjustment made in respect thereof shall be deleted. 30. Accordingly, in view of the submissions made by the learned AR, we have confined our findings only in respect of the aforementioned companies which are sought to be excluded by the assessee. 31. We have considered the oral/written submissions of both sides and perused the materials available on record. 32. Before proceeding further, it is relevant to note the functions performed by the assessee in relation to the international transaction of "sale of finished goods". From the record, it is evident that the assessee is engaged in manufacturing all kinds of Air Handling Units,....
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....nternational transaction of "sale of finished goods". 37. During the hearing, the learned AR submitted that Frick India Limited is not functionally comparable to the assessee as it provides a wide range of products. In support of this contention, the learned AR relied upon the relevant extracts of the Annual Report of Frick India Limited. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities in respect of this company. 38. We have considered the submissions of both sides and perused the material available on record. From the perusal of the Annual Report of Frick India Limited, forming part of Paper Book Vol-4 from pages 189-191, we find that the company claims to be the largest equipment manufacturer and turnkey solution provider for industrial refrigeration in India. Further, it is stated that this company is engaged in manufacturing industrial refrigeration and air-conditioning equipment. The various products manufactured by this company, as provided in its Annual Report, are as follows: - << THIS SPACE IS INTENTIONALLY LEFT BLANK>> PRODUCT WISE PERFORMANCE Ammonia is still the refrigerant of choice for large....
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....ing air-conditioning and refrigeration equipment, which are only intermediate products and not the final products. During the hearing, the learned AR submitted that this company provides a wide range of products, unlike the assessee, which manufactures only Air Handling Units. However, we are of the considered view that the wide range of products manufactured by this company by itself cannot lead to the conclusion that it is not functionally comparable to the assessee, as all these products are industrial refrigeration and air-conditioning equipments, and the assessee is also manufacturing the air-conditioning and refrigeration equipment, such as modular air handling units, duct air handling and conditioning systems, as noted in the TPO's order. Thus, it is evident that both the assessee and Frick India Limited are in the same business segment of manufacturing air-conditioning and refrigeration equipments. Accordingly, we are of the considered view that Frick India Limited is functionally comparable to the assessee and has been correctly considered comparable for benchmarking the international transaction of "sale of finished goods" by the AO/TPO. Accordingly, the order passed by t....
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....manufacturing air-conditioners, refrigeration products and systems, etc. The learned DRP, vide its directions, rejected the objections filed by the assessee and affirmed the findings of the TPO in considering this company as comparable to the assessee. Being aggrieved, the assessee has sought exclusion of this company for benchmarking the international transaction of "sale of finished goods". 44. During the hearing, the learned AR submitted that is Daikin Airconditioning India Private Limited is engaged in the business of manufacturing and trading of air-conditioners. While the assessee is only manufacturing an intermediate product. Thus, it was submitted that an air conditioner manufacturer cannot be considered as comparable to the assessee. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities in respect of this company. 45. We have considered the submissions of both sides and perused the material available on record. From the perusal of the Annual Report of is Daikin Airconditioning India Private Limited, forming part of the Paper Book Vol-5 from pages 212-216, we find that this company is a manufacturer of air conditioners. Thu....
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.... sought to be excluded by the assessee is Western Refrigeration Private Limited. This company was considered as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that it is functionally comparable to the assessee as it is engaged in manufacturing air-conditioners, refrigeration products and systems, etc. The learned DRP, vide its directions, rejected the objections filed by the assessee and affirmed the findings of the TPO in considering this company as comparable to the assessee. Being aggrieved, the assessee has sought exclusion of this company for benchmarking the international transaction of "sale of finished goods". 50. During the hearing, the learned AR submitted that Western Refrigeration Private Limited is a manufacturer and trader of refrigerators for commercial use. Thus, this company cannot be considered as comparable to the assessee. On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities in respect of this company. 51. We have considered the submissions of both sides and perused the material available on record. From the perusal of the Annual Report of Western Refrigeration Private L....
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....manufacturing an intermediate product and not the final product. Accordingly, we direct the AO/TPO to exclude Sidwal Refrigeration Industries Private Limited for benchmarking the international transaction of "sale of finished goods". 55. To sum up, we direct Voltas Limited, Daikin Airconditioning India Private Limited, Rockwell Industries Limited, Western Refrigeration Private Limited and Sidwal Refrigeration Industries Private Limited to be excluded while benchmarking the international transaction of "sale of finished goods". While the directions of the AO/TPO to consider Frick India Ltd as comparable for benchmarking the international transaction of "sale of finished goods" are upheld. 56. Accordingly, Ground No. 7 raised in assessee's appeal is dismissed. While Grounds No.8 - 12, raised in assessee's appeal, are allowed. 57. Grounds No. 13 and 14, raised in assessee's appeal, pertain to the transfer pricing adjustment on account of outstanding trade receivables from the associated enterprises. 58. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the transfer pricing adjustment proceedings, it was observed that certain in....
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....agraphs, only in respect of the international transaction of "sale of finished goods", the assessee raised the invoices on its associated enterprises. Therefore, we are of the considered view that the outstanding trade receivables from the associated enterprises pertain only to the international transaction of "sale of finished goods". Thus, the international transaction of outstanding receivables is closely linked to the main international transaction of "sale of finished goods", and both transactions need to be benchmarked using a combined-transaction approach. 60. In the present case, it is evident from the record that the TPO did not grant any working capital adjustment. At this stage, it is pertinent to note that as per Rule 10B(3)(ii) of the Income Tax Rules, 1962 ("the Rules"), an uncontrolled transaction shall be comparable to an international transaction if reasonably accurate adjustments can be made to eliminate the material effects of such differences. Further, TNMM benchmarking, as per Rule 10B(1)(e) of the Rules, also supports adjustments to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions.....