The court held that consistent historical methodology must be followed for transfer pricing benchmarking. Additionally, provisions disallowed in previous years under tax statutes are entitled to a deduction in the financial year in which the actual expenditure is incurred or the provision is reversed.

O R D E R

PER R.K. PANDA, VP:

This appeal filed by the Revenue is directed against the order dated 27.08.2024 of the Ld. CIT(A)-13, Pune relating to assessment year 2018-19.

Facts of the case, in brief, are that the assessee is a Private Limited Company primarily engaged in the business of production of key components and systems used in heat transfer, separation and fluid handling viz. Plate and spiral exchangers, separators, decanter centrifuges, filters and strainers, flow equipment etc. It filed its return of income on 27.11.2018 declaring taxable income of Rs.246,57,12,000/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 16.10.2019 determining the total income of the assessee at Rs.247,08,48,210/- after making adjustments as per section 36(1)(va) of the Act. Subsequently, the case was selected for scrutiny under CASS for the following reasons:

“1. Deemed International Transactions

2. Large value of international transactions

3. Transactions with Company whose Registration has been Cancelled by MCA

4. Duty Drawback

5. Lower amount disallowed u/s 40(a)(ia) in ITR (Part A-OI) in comparison to audit report

6. Large “any other amount allowable as deduction” claimed in Schedule BP of return

7. Expenses incurred for Earning Exempt Income

8. Difference in ICDS adjustments reported in Form 3CD and ITR.”

Accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee filed the requisite details. Since the assessee has entered into certain international transactions, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the international transactions. The TPO vide order dated 28.07.2021 passed u/s 92CA(3) of the Act proposed an upward adjustment of Rs.1,78,97,091/- to the international transactions relating to the export of traded spares to the Associated Enterprises (AEs). Subsequently the Assessing Officer completed the assessment u/s 143(3) r.w.s. 144C(3) r.w.s. 144B of the Act on 18.11.2021 determining the total income of the assessee at Rs.2,71,18,45,575/- after making the following adjustments:

In appeal, the Ld. CIT(A) deleted the above additions.

Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:

1.1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the domestic market segment and the export market segment were distinct and not comparable and thereby, the application of the cost plus method adopted by the TPO was incorrect.

1.2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting CPM as most appropriate method for benchmarking the transaction of 'export of traded spares', without taking cognizance of the categorical finding given by TPO in para 41 of his order that the assessee is engaged in re-sale of traded spares imported mainly from AEs & Deemed AEs and therefore benchmarking has to be based on gross profits.

1.3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting CPM as most appropriate method for benchmarking the transaction of 'export of traded spares’, without taking cognizance of the categorical finding given by TPO in para 40 of his order that there is internal comparable available, in the shape of assessee's sales of traded spares in the domestic market. Given