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2026 Supreme(Online)(ITAT) 7443
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Yogesh Kumar U.S, Judicial Member, Manish Agarwal, Accountant Member
Yushiro India Company Pvt. Ltd. – Appellant
Versus
DCIT – Respondent
ITA No.3580/Del/2025
Important Points
Subject
Taxation - Transfer Pricing
Act Referred
Income Tax Rules, 1962: R.10B(1)(b)(iv)
Headnote
Facts of the case:
The assessee is engaged in trading metal working oils and fluids imported from its Associated Enterprises (AEs). The TPO adjusted the ALP by including import duty in the operating cost, arguing it is part of the cost of goods sold. The assessee contended that since its imports exceed 99%, the heavy import duty distorts the gross profit margin compared to locally procuring competitors, necessitating an adjustment.
Findings of Court:
The Tribunal recognized the material impact of import duties on the profit margins when comparing an importer with local firms. Relying on Rule 10B(3) of the I.T. Rules, it held that reasonably accurate adjustments must be made to eliminate material effects of such differences. The Tribunal directed the AO/TPO to exclude import duty from operating costs for ALP computation. Regarding working capital adjustments, the Tribunal found the assessee had provided sufficient evidence, contrary to the lower authority's dismissal, and remanded the issue to the TPO for calculation.
Issues: Whether import duty payment should be excluded from operating costs for Transfer Pricing benchmarking; and whether the assessee is entitled to working capital adjustments.
Ratio Decidendi: When testing an international transaction against comparable uncontrolled transactions, if differences (such as material import duty costs) exist that significantly affect the profit margin, adjustments must be performed under Rule 10B(3) of the I.T. Rules, 1962 to ensure a fair Arm's Length Price comparison.
Result: Appeal of the assessee is partly allowed.
| Table of Content |
|---|
| 1. overview of international transaction benchmarking and tpo adjustments. (Para 2 , 3 , 4 , 5) |
| 2. requirement to adjust operating costs for import duty to ensure comparability. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16) |
| 3. allowance of working capital adjustment when sufficient evidence is provided. (Para 17 , 18 , 19) |
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the assessee against the order dated 22.03.2025 by Ld. Commissioner of Income Tax (A), Delhi-44 Delhi [“Ld.CIT(A)”] in Appeal No. CIT(A), Gurgaon-1/10102/2016-17 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 23.03.2016 passed u/s 143(3)/144C of the Act pertaining to Assessment Year 2012-13.
2. Brief facts of the case are that the assessee is a company, engaged in the business of trading of metal working oils and fluids, crude and refined petroleum oils and lubricants. The return of income for the year under appeal was filed on 29.10.2012, declaring loss of INR 1,78,20,758/-. The assessee has imported the above stated items from its Associated Enterprises (AEs) and sold in Indian market. The assessee has entered into following international transactions with its AEs:-
| No. | Type of international transaction | Method selected (MAM) | Method selected (PLI) | Total value of transaction (Rs.) |
|---|---|---|---|---|
| i. | Purchase of traded goods | RPM | GP/Sales | 8,28,37,833 |
| ii. | Reimbursement of TDS on salary on overseas salary (received) | CUP | - | 41,10,480 |
| iii. | Reimbursement of expenses | CUP | - | 1,21,362 |
| iv. | Share capital money received | No separate benchmarking | - | 12,00,00,000 |
3. Since the assessee has entered into international transactions with its AE, a reference was made for determination of Arm Length Price (ALP) of international transactions u/s 92CA of the Act. The assessee in its Transfer Pricing Study Report (“TPSR”) worked out G.P./sales at 11.02% wherein the assessee has excluded the Import duty payment of INR 65,43,447/- being extraordinary item however, AO/TPO has included the same in the total cost and worked out the GP/sales at 3.42%. The assessee selected Resale Price Method (RPM) as Most Appropriate Method (“MAM”) for working of the PLI and after taking Four comparable, has worked out the mean margin at 7.76% which according to assessee is lower than the G.P percentage declared by it therefore, no adjustment was made. The TPO by using current years data has worked out the mean margin of all the four comparable taken by the assessee at 9.21% and by comparing the PLI of 3.42% of the assessee computed after the inclusion of Import duty payment in the total cost, made the ALP adjustment of INR 49,85,462/- of the international transaction of import of traded goods. Thereafter, AO passed the draft assessment order proposing the adjustment made by TPO on account of ALP adjustment on international transaction of INR 49,85,462/-. Since the assessee has not filed any objection before Ld. DRP, therefore, the final assessment order was passed on 23.03.2016 at a total loss of INR 1,28,35,300/- by making addition of INR 49,85,462/-towards adjustment in ALP of international transactions.
4. Against the said order, assessee preferred appeal before Ld. CIT(A) before whom assessee made three claims:-
(i) Using of multiple year data instead of current year data;
(ii) making appropriate comparability adjustment towards import duty payment; and
(iii) Working capital adjustments.
5. Ld.CIT(A) had not accepted any of the claim of the assessee and dismissed the appeal filed by the assessee.
6. Aggrieved by the said order, assessee is in appeal before Tribunal by taking following grounds of appeal:-
“Based on the facts and circumstances of the case and in law, Yushiro India Company Private Limited(hereinafter referred to as "Yushiro India" or the "Company" or the "Appellant"), respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax Appeal, Delhi-44 ['CIT(A)-44' or Ld. CIT(A)] dated
