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2026 Supreme(Online)(ITAT) 5175
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Yogesh Kumar, Judicial Member, Manish Agarwal, Accountant Member
JNS Instruments Ltd. – Appellant
Versus
ACIT – Respondent
ITA No.897/Del/2019 [Assessment Year : 2011-12] | ITA No.728/Del/2019 [Assessment Year : 2011-12]
For the Appellants/Petitioners: Salil Aggarwal, Shailesh Gupta, Uma Shankar
For the Respondents: S.K. Jadhav
TNMM requires broad functional comparability for TP benchmarking; CUP rejected without robust data; working capital adjustment allowable.
Headnote:(A) Income Tax Act, 1961 - Sections 92CA, 250, 263, 153A, 143(3) - Transfer Pricing - TNMM as most appropriate method for benchmarking international transactions with AEs involving purchase of raw materials, sale of finished goods, purchase of machinery, royalty, technical know-how, and technical services - Under TNMM, broad functional comparability required, not product similarity - TPO erred in excluding functionally similar comparable (Bright Brothers Ltd.) and including companies failing filters (PMP Auto Components Pvt. Ltd.); REIL Electricals India Ltd. rightly included - Working capital adjustment allowable if supported by data - CUP method rejected for royalty payments due to lack of robust comparables and failure to establish no benefit to assessee - Consistency in accepting similar payments in prior/subsequent years upheld - CIT(A) deletion of TP adjustment on royalty/technical payments affirmed; partial relief on manufacturing transactions adjustment. (Paras 8-27)
Facts of the case:
Assessee filed NIL return post search; initial assessment accepted NIL income but revised u/s 263 for non-consideration of TPO order proposing INR 23.23 cr. TP adjustment on international transactions with AEs; CIT(A) confirmed INR 12.93 cr. on manufacturing but deleted INR 10.3 cr. on royalty etc.; cross-appeals to Tribunal.
Findings of Court:
Assessee's appeal partly allowed: Include Bright Brothers Ltd., exclude PMP Auto Components, allow working capital adjustment; Revenue's appeal dismissed upholding deletion of royalty adjustment.
Issues: Validity of TP adjustments on manufacturing transactions and comparables selection; appropriateness of TNMM vs CUP for royalty/technical payments; working capital adjustment claim.
Ratio Decidendi: TNMM requires broad functional comparability; exclusion of valid comparables and inclusion of invalid ones erroneous; CUP inapplicable without comparables; benefit test views recipient's perspective; consistency principle applies to unchanged facts.
Result: Assessee's appeal partly allowed; Revenue's appeal dismissed.
| Table of Content |
|---|
| 1. background of search, assessments, and tp adjustments. (Para 2 , 3) |
| 2. grounds of cross-appeals outlined. (Para 4 , 5 , 6 , 7) |
| 3. bright brothers ltd. functionally comparable under tnmm. (Para 8 , 9 , 10 , 11 , 12 , 13) |
| 4. exclude invalid comparables; retain turnover-appropriate ones. (Para 14 , 15 , 16 , 17 , 18) |
| 5. allow working capital adjustment with data. (Para 19 , 20 , 21) |
| 6. uphold tnmm for royalty; reject cup lacking comparables. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28) |
ORDER
PER MANISH AGARWAL, AM :
The captioned cross-appeals are filed by the assessee and the Revenue against the order dated 15.11.2018 by Ld. Commissioner of Income Tax (A)-XXVI, New Delhi [“ld. CIT(A)”] in Appeal No. 10303/17-18 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 30.11.2017 passed u/s 263/153A/143(3) of the Act pertaining to Assessment Year 2011-12.
2. Brief facts of the case are that the assessee had filed its return of income, declaring total income of NIL. As a result of search carried out in the case of J.P. Minda Group on 20.09.2013, the assessee company being part of the group was also covered. Thereafter proceedings were initiated in the case of assessee by issue of notice u/s 153A of the Act on 08.06.2015. In response, assessee filed return of income on 28.06.2015, declaring NIL income. The AO after considering the submissions made, passed the assessment order dated 30.06.2016 at NIL income i.e. income declared by the assessee was accepted. Thereafter, ld. Principal Commissioner of Income Tax (PCIT) initiated the revision proceedings and passed the order u/s 263 of the Act wherein it is held that the assessee has entered into international transactions with its Associated Enterprises (“AEs”) however, the AO has passed the assessment order without waiting for the order of Transfer Pricing Officer (TPO) and therefore, accordingly set aside the assessment order being erroneous and pre- judicial to the interest of the Revenue and direct the AO to pass a fresh order after considering the order of TPO. In compliance, the AO proceeded with the directions given by Ld. PCIT and considered the order of TPO passed u/s 92CA dated 28.10.2016 wherein adjustments of INR 23.23 crores were made on account of Arm’s Length Price (ALP) of international transactions carried out by assessee with its Associate enterprises (AEs). The, AO than passed the order u/s 263 r.w.s. 153A r.w.s. 143(3) dated 30.11.2017 wherein addition of INR 23,23,00,000/- was made towards ALP adjustment of manufacturing functions of involving international transactions of purchase of raw material and sale of finished goods and purchase of machinery of INR 12.93 Lakhs, payment of Royalty and technical knowhow and charges for technical services of INR 10.30 crores.
3. Against the said order, assessee preferred an appeal before ld. CIT(A), who vide impugned order dated 15.11.2018 partly allowed the appeal of the assessee wherein addition for adjustments on account of purchase of raw material, sale of finished goods and purchase of machines were confirmed and addition towards adjustment of INR 10.3 crores on account of payment of Royalty, technical knowhow and technical services was deleted.
4. Aggrieved by the order of Ld. CIT(A), both the parties preferred appeal before the Tribunal by raising following Grounds of appeal:-
ITA No.897/Del/2019 [Assessment Year 2011-12]
[Assessee’s appeal]
1. “The order of the learned Commissioner of Income Tax (A) is arbitrary, against law and facts on record.
2. On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (A) failed to appreciate that the issuance of notices u/s 263/153A/143(3)) of the Income Tax Act, 1961 and the proceedings conducted there under are against the provisions contained in the Income Tax Act, 1961 and is bad in law and hence liable to be quashed.
3. On the facts and circumstances of the case and in law the learned Commissioner of Income
