Income Tax Appellate Tribunal - Pune
M/S. Boach Chassis Systems India Pvt. ... vs Dcit Circle 1(1), Pune, Pune on 30 March, 2026
आयकर अपीलीय अधिकरण "सी" न्यायपीठ पु णे में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, PUNE
BEFORE MS. ASTHA CHANDRA, JUDICIAL MEMBER
AND
SHRI DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.1935/PUN/2024
धििाारण वर्ा / Assessment Year : 2020-21
M/s. Bosch Chassis Systems India (P.) Ltd., DCIT, Circle-1(1), Pune
Gate No. 306, Nanekarwadi, Chakan S.O.,
Chakan, Pune-410501 Vs.
PAN : AAACK7312E
अपीलार्थी / Appellant प्रत्यर्थी / Respondent
Assessee by : Shri Darpan Kirpalani
Department by : Shri Prakash L Pathade
Date of hearing : 03-02-2026
Date of 30-03-2026
Pronouncement :
आदे श / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the final assessment order dated 25.07.2024 passed by the Ld. Assessing Officer ("AO") u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (the "Act") in pursuance of the direction of the Dispute Resolution Panel ("DRP"), Mumbai dated 22.06.2024 issued u/s 144C(5) of the Act pertaining to Assessment Year ("AY) 202021.
2. The assessee has raised the following grounds of appeal :
"General Ground
1. On the facts and in the circumstances of the case and in law. final assessment order passed by the Assessment Unit Income-tax Department (the learned Assessing Officer' or the learned AO) under section 143(3) r.w.s. 144C(13) r.w.s. 1448 of the Income tax Act, 1961 (the Act) in pursuance to the order of the Deputy Commissioner of Income-tax, Transfer Pricing. 1(1) (the learned Transfer Pricing Officer or the learned TPO), and the directions of the Hon'ble Dispute Resolution Panel-3. Mumbai (Hon'ble DRP or DRP), to the extent prejudicial to the Appellant is bad in law and is liable to be quashed.
2. That the draft order dated 29 September 2023 issued under section 144C(1) read with section 143(3) read with section 1448 of the Act by the Assessment Unit for AY 2020-21 is barred by Imitation and therefore, all consequent proceedings pursuant thereto, including the directions passed by the Hon'ble DRP and the final assessment order 2 ITA No.1935/PUN/2024, AY 2020-21 are all barred by limitation, void-ab-nitio, bad in law and liable to be quashed.
3. That the Document Identification Number allotted to the directions dated 22 June 2024 issued by The Hon'ble DRP cannot be authenticated on the e-portal of the Income-tax department, and therefore the directions issued are not in line with the Circular No. 19/2019 dated 14 August 2019 issued by the Central Board of Direct Taxes, thus rendering the directions invalid and consequently the final assessment order passed by the learned AO is bad in law.
4. On the facts and in circumstances of the Learned AO erred in issuing an email communication to pay a demand of INR 39.96.67,443 despite the fact that the demand notice issued by himself under section 156 of the Act indicates a Nil demand.
Grounds relating to Transfer Pricing (TP)
5. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred in not accepting the TP Study/economic analysis (including the aggregation approach) undertaken by the Appellant for the determination of the Arm's Length Price (ALP) for the international transactions, and erred in conducting a fresh economic analysis.
6. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in not appreciating the fact that the Appellant had deducted and deposited the applicable withholding taxes in relation to the payments of Trademark fee, Lumpsum license fee and availing of intra-group services. Further, the Associated Enterprises (AEs) have disclosed the payments made by the Appellant viz, trademark fee, license fee and intra group services as income in its Income-tax Return and discharged necessary taxes in India, consequently, any adjustment made to the said payments would lead to double taxation in India.
7. On the facts and circumstances of the case and in law the Hon'ble DRP/Learned AO/Learned TPO have erred in holding/ upholding the TNMM applied by the Appellant to benchmark its international transactions to be 'not reliable without giving any basis or appropriate reasoning for the same.
8. On the facts and circumstances of the case and in law the Hon'ble DRP/Learned AO/Learned TPO have erred in rejecting/ upholding the rejection of the Appellants approach of aggregating its closely interlinked international transactions for the purpose of benchmarking the same.
9. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in not following any particular method prescribed under section 92C of the Act read with Rule 100 of the Income Tax Rules, 1962 (the Rules) to determine the arm's length price of payment of lumpsum license fee and availing of intra-group services, thereby, making an adjustment on an adhoc basis.
10. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in not undertaking any exercise to determine the arm's length price for payment of lumpsum license fee and availing of intra-group services by comparing it with an uncontrolled transaction, thereby, making an adjustment on an adhoc basis.3 ITA No.1935/PUN/2024, AY 2020-21
TP Adjustment in respect payment of Trademark fee
11. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred, in making an adjustment of INR 18,79,69,131 to the transfer price of the Appellant in respect of the international transaction of payment of Trademark fee.
12. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred by disregarding comparable agreements from the automotive sector for benchmarking the trademark agreement entered by the Appellant, and erred by including agreements, which are not comparable from the automotive sector.
13. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred in disregarding the fresh comparable agreements furnished by the Appellant during the course of the Assessment proceedings despite clearly demonstrating their comparability to the trademark agreement entered by the Appellant.
TP Adjustment in respect payment of Lumpsum license fees
14. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in holding that payment of lump sum license fee of INR 9.65,77,774 as a deemed cost contribution arrangement without appreciating that the Appellant.
14.1 Does not undertake functions or responsibilities in developing the said technologies and merely utilises the technology developed by the AEs for the manufacturing activity;
14.2 Does not assume any economically significant risks in relation to technology developed viz strategic risks, market risk, operational risks, financial risks, transactional risks, obsolescence risks, etc;
14.3 Does not have any arrangement of cost contribution between the AEs either in contractual form or in substance;
14.4 Does not have the financial capacity pertaining to the development of the technology on its own and thereby relies on its AE for the same.
15. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in failing to acknowledge that uncontrolled companies does have lumpsum licensee fee payment, which are aligned to what is being followed by the Appellant.
16. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in holding that the payment of lumpsum license fee has no commercial justification, despite demonstrating significant increase in sales over the course of subsequent years.
17. On the facts and in circumstances of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO have erred in holding that there is no possible method for testing of arm's length price of a lumpsum licensee fee despite the fact the effective licensee fee paid by the Appellant was within the arm's length range of royalty rates paid by uncontrolled comparables.4 ITA No.1935/PUN/2024, AY 2020-21
TP Adjustment in respect of international transaction pertaining to availing of intra-group services
18. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred, in making an adjustment INR 70,88,23,430 to the transfer price of the Appellant in respect of international transaction pertaining to availing of certain services viz Production Development cost, Communication charges, Professional charges, Miscellaneous Expenses.
19. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO grossly erred in holding that no documentary evidence was submitted to justify the receipt of Intra- group services, without considering the evidence and submissions made by the Assessee demonstrating substantial and commercial benefits accruing to the Assessee.
20. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred by not appreciating the business model of the Appellant and rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method (TNMM) and arbitrarily applying Other Method to certain intra-group transactions.
21. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred, in determining the arm's length price at NIL arbitrarily, thereby challenging the commercial rationale and expediency for the international transaction of payment to AE's for services received and the commensurate benefit derived therefrom.
22. Without prejudice to above grounds, and on the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred in:
22.1 Disregarding the conditions prescribed under section 92C(3) of the Act for determining the ALP for payment of certain services by the Appellant;
22.2 Transgressing the powers provided under section 92CA of the Act by arbitrarily adjudicating on the justification for the expenses incurred for the business rather than whether the value of the international transactions were in accordance with the arm's length principle.
Grounds relating to distribution activity of the Appellant
23. On the facts and in circumstances of the case and in law, the Hon'ble DRP / learned AO/learned TPO erred in disregarding the allocation keys proposed by the Appellant and adopting a sales /turnover based allocation, without appreciating the nature of operations of the Appellant.
24. On the facts and in circumstances of the case and in law, the Hon'ble DRP/learned AO/learned TPO erred in computing profitability as per the Rule 10TA(j) and Rule 10TA(k) of the Rules even when the Appellant had not opted for Safe Harbour Rules, rendering such reliance unjustified and unwarranted.
Penalty Proceedings
25. That the learned AO erred in initiating penalty proceedings under section 270A of the Act for under-reporting of income.
5 ITA No.1935/PUN/2024, AY 2020-21That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal."
3. Briefly stated, the facts of the case are that the assessee is a 100% subsidiary company of the Bosch group engaged in the business of manufacturing brakes systems primarily for passenger cars and multi passenger sport utility vehicles including low weight range of commercial vehicles and three wheelers. It develops and manufactures innovative braking system components and vehicle safety systems for the automotive industry as per the stringent requirements of the leading original equipment manufactures (OEM‟s). The assessee is engaged into manufacturing as well as trading of drive and control equipment. For AY 2020-21, the assessee e-filed its return of income on 30.01.2021 declaring total income of Rs.207,16,16,990/-. The case of the assessee was selected for scrutiny through CASS. Statutory notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire were accordingly issued and served upon the assessee calling for the details contained therein.
3.1 During the relevant AY 2020-21, the assessee entered into the following international transactions as per Form 3ECB :
S. Nature of Transaction Amount as per Segment
No. 3CEB
1 Import of raw materials 4,81,02,57,492 Manufacturing
and components
2 Debit note against 16,63,05,228 Manufacturing
purchase of raw materials
and components
3 Purchase of traded goods 1,71,24,59,675 Trading
4 Purchase of property, 3,30,98,891 Manufacturing
plant and equipment
5 Export of finished goods 18,03,14,761 Manufacturing
6 Sale of services 6,53,71,688 Manufacturing
7 Payment of Royalty 90,54,04,475 Manufacturing
8 Payment of Production 50,88,78,008 Manufacturing
Development cost
9 Payment of Testing fees 2,56,91,775 Manufacturing
10 Payment of 9,60,26,852 Manufacturing and Trading
Communication charges both on the basis of
allocation-Sales Ratio
11 Payment of Professional 8,03,16,964 Manufacturing and Trading
charges both on the basis of
allocation
12 Miscellaneous expenses 2,36,01,606 Manufacturing and Trading
incurred both on the basis of
allocation
13 Reversal of provision for 11,24,533 Manufacturing and Trading
miscellaneous expenses both on the basis of
6
ITA No.1935/PUN/2024, AY 2020-21
allocation
14 Reimbursement of 1,34,10,940 Manufacturing and Trading
expenses both on the basis of
allocation
4. The assessee selected Transactional Net Margin Method ("TNMM") as the most appropriate method for benchmarking its aforementioned international transactions based on a detailed functional analysis and concluded that for its manufacturing segment, the margin (operating profit/operating revenue) of 11.73% earned by the assessee is at arm‟s length. For the distribution segment, the operating profit margin of 4.76% is taken to be at arm‟s length. For remaining international transactions pertaining to payment of royalty, payment of communication charges, payment of professional charges, miscellaneous expenses and reimbursement of expenses were considered closely linked to the primary activities of manufacturing and trading segment respectively and made to form a part of the cost base for the purpose of determining the arm's length price ("ALP"). A reference u/s 92CA was made to the Ld. Transfer Pricing Officer ("TPO") for determination of the ALP of international transactions entered into by the assessee during the relevant AY 2020-21 under consideration. After calling for the relevant details and considering the submissions made by the assessee in response thereto, the Ld. TPO vide his order dated 31.07.2023 proposed the following adjustment to the income of the assessee :
Sl. No. Particulars TP Adjustment (Rs.)
1 Trading segment 21,55,40,258
2 Payment of Royalty 9,65,77,774
3 Trademark fee 18,79,69,131
4 Intra group services 70,88,23,430
Total Adjustment (Rs.) 120,89,10,593/-
4.1 Consequent to the above order of the Ld. TPO, the Ld. AO passed the draft assessment order u/s 143(3) of the Act on 29.09.2023 determining the assessed income of the assessee at Rs. 328,13,87,493/- incorporating therein the above adjustments proposed by the Ld. TPO to the returned income of the assessee as stated below :
Particulars Amount (Rs.) Total Income of the Appellant as per the return of 20,76,16,990/- income 7 ITA No.1935/PUN/2024, AY 2020-21 Income as computed u/s 143(1)(a) 207,24,76,900/- TP adjustment under section 92CA of the Act 120,89,10,593/- Total Assessed Income under section 143(3) of the Act 32,81,37,493/-
4.2 The assessee filed its objections before the Ld. DRP on 30.10.2023 against the draft assessment order passed by the Ld. AO. The Ld. DRP vide its directions/order dated 22.06.2024 partially allowed certain grounds raised by the assessee. Pursuant to the directions of the Ld. DRP, the Ld. TPO passed the order giving effect thereto on 22.07.2024 by making the following adjustments :
Sl. No. Particulars TP Adjustment (Rs.)
1 Trading segment NIL (as per directions
of DRP)
2 Payment of Royalty 9,65,77,774
3 Trademark fee 18,79,69,131
4 Intra group services 70,88,23,430
Total Adjustment (Rs.) 99,33,70,335/-
4.3 Thereafter, the final assessment order was passed by the Ld. AO on 25.07.2024 upholding the adjustment made by the Ld. TPO in order giving effect. The Ld. AO incorporated the adjustments proposed by the Ld. TPO in order giving effect, to the returned income of the assessee and determined the assessed income of the assessee for AY 2020-21 at Rs.306,58,47,240/- as follows :
Particulars Amount (Rs.) Total Income of the Appellant as per the return of 207,16,16,990/- income Income as computed u/s 143(1)(a) 207,24,76,900/- TP adjustment under section 92CA of the Act 99,33,70,335/- Total Assessed Income under section 143(3) of the Act 306,58,47,240/-
5. Aggrieved by the TP adjustments made in the final assessment order, the assessee is in appeal before the Tribunal and all the grounds of appeal relates thereto.
8 ITA No.1935/PUN/2024, AY 2020-21General Grounds
6. The Ld. AR, at the outset submitted that ground Nos. 1 to 4 are general in nature and therefore not pressed. These grounds are thus not adjudicated.
Grounds relating to Distribution/Trading Activity
7. The Ld. AR proceeded to put forth his arguments on ground Nos. 23 and 24 relating to Distribution (trading) activity of the assessee. He submitted that the assessee by way of these two grounds has challenged the rejection of allocation keys proposed by the assessee and adoption of a sales/ turnover based allocation by the Ld. TPO/DRP which is in complete disregard to the nature of operations of the assessee.
7.1 The Ld. AR submitted that the assessee is operating into two segments : Distribution (trading) segment and Manufacturing segment. For both the segments, the assessee applied TNMM as the most appropriate method for benchmarking its international transactions. The Ld. AR submitted that no adjustment has been made in the Manufacturing segment. Around 90% of the assessee‟s revenue is generated from Manufacturing segment and therefore most of the costs/expenses are allocated to the Manufacturing segment. The allocation keys have never been disturbed in any of the previous year or subsequent years and no adjustment has been made on this count in any of the years.
7.2 The Ld. AR further submitted that the assessee has not opted for Safe Harbour Rules during the FY 2019-20 relevant to the AY 2020-21 and hence the application of Rule 10TA(j) and Rule 10TA(k) of the Income Tax Rules, 1962 (the "Rules") in computing profitability by the Ld. TPO/AO is unjustified and unwarranted.
7.3 He submitted that during the proceedings before the Ld. TPO, the assessee had filed detailed segmental accounts depicting the profitability earned from the trading segment. The assessee had followed a robust mechanism to prepare said segmental accounts wherein it had allocated the cost of materials and associated freight based on actual consumption and depreciation based on actuals. The common costs such as employee costs, travel costs, communication costs, selling and administration, etc. 9 ITA No.1935/PUN/2024, AY 2020-21 that are not directly allocable to specific segment are allocated on a reasonable basis such as, sales, material cost, production ratios, etc. The assessee had thus submitted the complete cost allocation keys before the Ld. TPO. Despite this, the Ld. TPO reworked the assessee‟s segmental information on the ground that the assessee failed to furnish the cost allocation keys and segmental accounts by applying the provisions of Rule 10TA(j) and 10TA(k) of the Rules and reallocated the cost based on the sales ratio.
7.4 The Ld. AR submitted that although Rule 10TA(j) and 10TA(k) are not at all applicable to the assessee as the assessee has not opted for the Safe Harbour during the AY 2020-21 under consideration but at the same time the said Rules do not even lay down the mechanism for cost allocation and merely gives definitions of operating revenue and operating expense and hence cannot be a basis of recasting the segmental profitability of the assessee.
7.5 He then brought to our notice that this objection of the assessee has also been accepted by the Ld. DRP.
7.6 In support of his above contention(s), the Ld. AR relied on the decision of the Co-ordinate Bench of the Tribunal in the case of Volkswagen Gr. Tech. Sols. India Pvt. Ltd. Vs. National Faceless Assessment Center in ITA No.1950/PUN/2024 and urged that the segmentation approach adopted by the Ld. TPO should be rejected and that of the assessee as furnished in the TP study report should be accepted.
8. The DR supported the order of the Ld. TPO/AO/DRP.
9. We have given our careful thought to the above submissions of the Ld. AR, perused the order of the Ld. TPO/AO/DRP and the judicial precedents cited before us by the Ld. AR. The segmental information furnished in the TP study report by the assessee is as under (pages 539 to 541 of the appeal set refers) :
10 ITA No.1935/PUN/2024, AY 2020-21 11 ITA No.1935/PUN/2024, AY 2020-21 12 ITA No.1935/PUN/2024, AY 2020-2110. The facts on record reveals that before the Ld. TPO the assessee had submitted the detailed segmental accounts depicting the profitability earned from the trading segment and the mechanism followed by the assessee to prepare the said segmental accounts giving the base of cost allocation to each specific segment. However, we observe that the Ld. TPO has rejected the same and reworked the segmental information on the ground that the assessee failed to furnish the cost allocation keys. He, therefore, proceeded to re-compute the segmental profitability of the assessee by reallocating the cost based on sales ratio by applying Rule 10TA(j) and 10TA(k) of the Rules. In our considered view, this approach of the Ld. TPO of allocation of cost based on sales ratio is not sustainable in law.
10.1 We find some force in the argument of the Ld. AR that the Rules and definition in relation to Safe Harbour as specified in Rules 10TA(j) and 10TA(k) of the Rules are not applicable to the assessee as the assessee never opted for Safe Harbour during the FY 2019-20 relevant to the AY 2020-21 under consideration. Even otherwise also presuming that Rule 10TA(j) and 10TA(k) of the Rules applies to the assessee, we notice that the Ld. TPO has not provided any rationale for such a measure nor given any explanation for rejecting a methodology/mechanism adopted by the assessee which is based on actuals and in those cases where it is not 13 ITA No.1935/PUN/2024, AY 2020-21 identifiable/allocable to each specific segment, the allocation has been done on a reasonable basis such as, sales, material cost, production ratios, etc. Admittedly, the assessee did not opt for Safe Harbour during FY 2019- 20 and also submitted the complete cost allocation keys/methodology before the Ld. TPO which is reproduced by the Ld. TPO himself in his TP order (pages 553 to 560 of the appeal set refers). This clearly demonstrates that all the relevant details were filed by the assessee before the Ld. TPO and were available with him at the time of passing his order. Further from para 9.4 of the DRP order/direction, we find that the Ld. DRP has also held that the mention of Rules 10TA(j) and 10TA(k) in the PLI computation is to read down (pages 83 and 84 of the appeal set refers).
10.2 We find that in the case of Volkswagen Group Technology Solutions India Pvt. Ltd. (supra), the Tribunal observed that the Ld. TPO suo-moto is precluded from invoking Rule 10TA if the assessee has not opted for Safe Harbour. The relevant observation and findings of the Tribunal is reproduced below :
"5. It is observed that while reworking "Profit Level Indicator", the TPO has invoked Income Tax Rule, 10TA. The Rule-10TA is called Safe Harbour Rules. The Rule-10TA is applicable only to "Eligible Assessee‟s" who voluntarily exercise option of Safe Harbour Rules, in accordance with Rule-10TB and Rule-10TE. In this case, Assessee has not exercised any such option. Therefore, TPO suo-moto is precluded from invoking Rule-10TA. It is also observed that TPO has not discussed why the Foreign Exchange Gain is not Operating Income! Assessee has provided I.T.Services to its AEs. Assessee receives revenue from operations entered with AEs in Foreign Exchange. Therefore, Gain due to Foreign Exchange Fluctuation is directly linked to the Revenue Receipt. Therefore, there is no reason to exclude Foreign Exchange Gain as non-operating. It is also noted that the TPO has considered Foreign Exchange Loss incurred by Assessee on derivative transactions as operating and accordingly reduced it. Therefore, TPO is not consistent in his approach. DRP has also upheld it, without discussing the reasons."
11. Based on the facts and the legal position set out above, in our view, the Ld. TPO/AO is not justified in re-computing the profitability as per Rules 10TA(j) and 10TA(k) of the Rules when the assessee has not exercised the option of Safe Harbour during the relevant AY 2020-21. We, therefore, direct the Ld. AO/TPO to adopt the cost allocation keys as per the assessee and accept the assessee‟s segmental information furnished in TP study report after examining/verifying the same. Accordingly, ground Nos. 23 and 24 raised by the assessee are allowed.
14 ITA No.1935/PUN/2024, AY 2020-21Grounds relating to Infra-group services
12. Ground Nos. 18 to 22 raised by the assessee relate to the Intra- group services of the assessee. The Ld. AR submitted that during AY 2020-21, the assessee received certain services from Bosch Group to support Indian operations and made payments towards the Intra-group services as under :
i. Payment of production development cost Rs.508,878,008 ii. Payment of communication charges Rs.96,026,852 iii. Payment of professional charges Rs.80,316,964 iv. Miscellaneous expenses incurred Rs.23,601,606 12.1 Referring to pages 598 to 603 and 299 to 317 of the appeal set, the Ld. AR submitted that before the Ld. TPO and DRP the assessee had submitted the relevant documentary evidences demonstrating substantial and commercial benefits accruing to the assessee by availing services from Bosch Group. The assessee had provided the details on the nature and benefits of the services and submitted sample invoices, intra company agreement, email communication including the need and benefits derived from such services. He further submitted that the assessee adopted TNMM for benchmarking the infra-group service charges and relied on the aggregation approach for establishing that payment of intra group charges are at ALP. However, the Ld. AO determined the ALP of intra group services at „Nil‟ using „Other Method‟ under Rule 10AB without bringing on record any comparable which is in violation of Rule 10AB.
12.2 Referring to pages 318 to 321 and pages 604 to 608 of the appeal set, the Ld. AR submitted that the impugned intra group service charges are also allocated as cost in the trading segment and accordingly benchmarked applying TNMM under the trading segment. The adjustment made separately for intra group service charges by the Ld. TPO tantamount to a double adjustment by testing the transaction both under "Other Method" on a standalone basis as well as TNMM by aggregating it with the trading segment. The Ld. AR brought to attention of the Bench that the Ld. DRP had in fact accepted the contention of the assessee that the product development cost is to be treated as a manufacturing expense not as trading expense which is evident from the following observations of the Ld. DRP itself on page 80 of the paper book- "However, the items of "Consumables, Machinery spares consumed, Product development costs, 15 ITA No.1935/PUN/2024, AY 2020-21 Repairs and maintenance, Plant & Machinery which are clearly linked to manufacturing and productions, are directed to be allocated as per Applicant's method." However, the Ld. DRP upheld the action of the Ld. TPO on the ground that the assessee has not been able to establish that it has received service from its AEs (page 223 of the appeal set refers).
12.3 Relying on the decision of the Co-ordinate Bench of the Tribunal in the case of Lear Automotive India Pvt. Ltd. Vs. Asst. Commissioner of Income Tax in ITA No. 554/PUN/2024, order dated 10.10.2025, the Ld. AR contended that an adhoc approach adopted by the Ld. TPO to benchmark the international transaction of intra-group services cannot be sustained in the guise of Other Method and therefore adoption of „Other Method‟ would not be correct. He, further relied on the decision of the Mumbai Bench of the Tribunal in the case of M/s Sulzer Tech India Pvt. Ltd. Vs. Addl./Jt./Dy./Asstt. Commissioner of Income Tax in ITA No. 633/Mum/2021, order dated 25.07.2022 and the decision of the Hon‟ble Jurisdictional High Court in the case of CIT Vs. Lever India Exports Ltd.
(2017) 246 Taxmann 133 (Bom.).
13. The Ld. DR, on the other hand, supported the order of the Ld. TPO/AO/DRP.
14. After hearing both the sides and perused the submissions of the Ld. AR as well as judicial precedents relied upon the Ld. AR, we find some force in the arguments advanced by the Ld. AR. The facts on record that reveals that the assessee submitted the details regarding the intra group services supported by the relevant documentary evidences such as sample copies of invoices, intra company agreement, various email 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 16 ITA No.1935/PUN/2024, AY 2020-21 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 that the adjustment made separately for intra-group service charges would tantamount to a double adjustment by testing the transaction both under other method on standalone basis as well as aggregating it with the trading segment. In our view, rejection of assessee‟s aggregation approach and adoption of the aforementioned approach by the Ld. TPO is not correct and would result in double adjustment as contended by the Ld. AR. We also find that the Ld. DRP has itself at one place categorically observed that the cost which are clearly linked to manufacturing in production should be allocated as per method adopted by the assessee, but still upheld the action of the Ld. TPO/AO.
15. The Hon‟ble Bombay High Court in the case of Lever India Exports Ltd. (supra) held that the ad-hoc determination of ALP by the Ld. TPO dehors section 92C of the Act cannot be sustained. The Tribunal observed that the role of the Ld. TPO is specific and limited to determine the ALP of international transaction and not to dwell into the allowability/ genuineness of the expenditure incurred by the assessee. If at all, this exercise can be done by the Ld. AO. However, we find that in the present case of the assessee, the Ld. AO has only given effect to the TPO‟s determination of the ALP for intra-group service charges. The relevant observation and findings of the Hon‟ble Bombay High Court is reproduced below :
"We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strates to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above viere, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of Section 37 of the Act and/or genuineness of the expenditure.-This exercise has to be done, if at all, by the Assessing 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 17 ITA No.1935/PUN/2024, AY 2020-21 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 le. 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 Method‟ by the Ld. TPO/AO, we find that the lower authorities have applied the „Other Method‟ without searching for similar and uncontrolled transaction between non-associated enterprises and straightway treating the value of the international transaction to be at „Nil‟ which is in violation of the condition laid down under Rule 10AB of the Rules.
17. The Co-ordinate Bench of the Tribunal in the case of Lear Automotive India Private Limited (supra) under the similar set of facts as that of the present assessee has held as under :
"10. In light of the above background, we have carefully considered the arguments advanced by the Ld. AR in respect of the impugned issue in hand. One of the contentions of the Ld. AR is that an ad-hoc approach adopted by the Ld. TPO to benchmark the international transaction of allocation of RHQ charges cannot be sustained in the guise of „Other Method‟. We find some force in the contention of the Ld. AR that the adoption of the „Other Method' as per Rule 10AB of the Rules require the Ld. TPO to bring on record a suitable CUP to justify the applicability of the method employed.
11. The relevant extract of the Rule 10AB of the Rules reads as under:
"10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
On analyzing the instant case in line with the above Rule, we find that the Ld. TPO has failed to bring on record a suitable comparable uncontrolled transaction and the price charged therein, while adopting the 'Other Method‟ as the most appropriate method for benchmarking the impugned transaction. Further, without bringing any such comparable on record, the Ld. TPO arbitrarily made an ad hoc adjustment of the 50% of the RHQ charges paid by the assessee to its AE, Lear Shanghai. Thus, in our considered view, the aforesaid benchmarking exercise conducted by the Ld. TPO is not in accordance with Rule 10AB of the Rules and hence, unsustainable in the law. The Ld. TPO has not compiled 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.
18 ITA No.1935/PUN/2024, AY 2020-2112. 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 know how has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know-how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% instead of 2%, as claimed by the respondent assessee. This determination of ALP of technical know-how royalty by the TPO was ad hoc and arbitrary as held by the CIT(A) and the Tribunal.
(e) In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. "...
13. In the case of DCIT vs. IAC International Automotive India Private Limited (supra), the Pune Tribunal held as under :
"7.1 In our considered view, the Ld. CIT(A) has rightly held that mere assertion of adoption of the "Other method" under the rule 10AB of the Rules, is not sufficient for a valid transfer pricing adjustment. The Ld. CIT(A) has correctly concluded that, in accordance with Rule 10AB, the assessee or the transfer pricing officer is required to bring on record a comparable uncontrolled transaction to justify the applicability or reliability of the method applied."...
7.3 In view of the above statutory provisions, we find the Ld. TPO has not complied with the requirements enshrined in Rule 10AB while adopting "other method and rejecting the ALP of the international transaction of managements fee in accordance with the TP analysis conducted by the assessee. The Ld. TPO has applied "other method"
without any reference to the actual uncontrolled comparable transaction and the price charged therein. It is a settled position of law that ad-hoc determination of ALP by the TPO dehors section 92C of the Act read with the applicable Rule thereunder, cannot be sustained."...
14. In the case of Rehau Polymers Private Limited v. ACIT (supra), the Pune Tribunal held as under :
"25. However, in the instant case, although the TPO has made a reference of CUP method in para 32, page 23 of his order which was selected in the earlier year, however, the TPO has not carried out any such exercise for the price charged or paid for the property transferred or the services provided in a comparable uncontrolled transaction. As per Rule 10B of the Income Tax Rules, CUP method is a method, wherein the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction is identified. Thereafter, the said price is adjusted to account for differences, if any and the said price is taken to be the Arm's Length Price. Thus, as per the said rule, for applying CUP method, the price charged for property transferred or services provided is required to be identified. However, in the present case, the TPO has not carried out any such exercise. Therefore, simply referring to CUP method without any reference to 19 ITA No.1935/PUN/2024, AY 2020-21 the actual uncontrolled transaction and the price charged therein clearly indicates that no CUP method is adopted by him. Under these circumstances, we agree with the contention of the Ld. Counsel for the assessee that no method has been adopted by the TPO for determining the ALP. The observations of the DRP that the TPO has adopted the Other method as the most appropriate method in our opinion is incorrect since there is no reference to any such method as the TPO has not specifically mentioned the Other method as the most appropriate method. Thus, the question that is to be answered is as to whether any adjustment of ALP is in accordance with law if no method has been adopted by the TPO for determination of the ALP. ...........
31. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that in absence of any of the prescribed methods for the determination of the ALP, such TP adjustment is not sustainable in law. Since the TPO in the instant case has not adopted any of the prescribed methods for determination of the ALP, therefore, respectfully following the decisions cited (supra), we hold that the addition made by the Assessing Officer/TPO/DRP is not in accordance with law for which the same has to be deleted. We accordingly set aside the order of the Assessing Officer and direct him to delete the adjustment of Rs.6,71,58,603/-. The grounds raised by the assessee are accordingly allowed."
18. In the case of M/s. Sulzer Tech India Pvt. Ltd. (supra), the Mumbai Tribunal held as under :
"14. From the above, it is evident that assessee‟s services are confined to Tendering, Engineering and IT services, which can be broadly characterised as consultancy in nature. On the other hand, in case of Desein Pvt. Ltd., we find from the perusal of financials, for the year ending 31/03/2016, that the company has earned income from consultancy fees as well as from Operation and Maintenance. We further find that Desein Pvt. Ltd. has recognised the revenue from aforesaid two streams differently. From the perusal of information available on the website of Desein Pvt. Ltd., we find that Desein Pvt. Ltd. and its Group companies have claimed itself to be among India‟s leading operation and maintenance service provider for power stations. Further, Desein Pvt. Ltd. has also claimed to have successfully handled operation and maintenance contracts for all the major State Electricity Boards in India as well as for clients abroad. As per the information available on the website of Desein Pvt. Ltd., the company appears to be engaged in following scope of work under the head Operation and Management:
o Study of plant specifications and review of contractor's commissioning test schedules and working out a detailed and comprehensive commissioning test schedule for the entire plant.
o The development of routine test procedures of plant and equipments o To develop maintenance schedules o To maintain the plant for high availability, and operate the plant with high efficiency o To train the client's O & M personnel so that they take over O & M of the plant on completion of the contract period."
19. Based on the factual matrix and the legal position set out above, in our view, the adjustment made by the Ld. TPO and affirmed by the Ld. DRP in respect of intra-group service charges is not sustainable in law and therefore the impugned adjustment is hereby deleted and the TNMM 20 ITA No.1935/PUN/2024, AY 2020-21 applied by the assessee is upheld. The ground Nos. 18 to 22 raised by the assessee are accordingly allowed.
Grounds relating payment of royalty/lumpsum license fee
20. The next issue i.e. ground Nos. 14 to 17 pertains to lumpsum license fees paid by the assessee to its AEs. The Ld. AR submitted that as per the terms of the agreement between the assessee and its AEs, the assessee does not undertake any functions or responsibilities in developing the technologies but merely utilises the same for its manufacturing activity. The assessee also does not assume any economically significant risks in relation to technology which is developed by the assessee. There is no arrangement of cost contribution between the AEs either in contractual from or in substance. The assessee does not have the financial capacity pertaining to the development of the technology on its own and thereby relies on its AE for the same. He contended that there is significant increase in sales over the costs of subsequent years and hence the payment of lumpsum license fees by the assessee is commercially justifiable.
20.1 The Ld. AR submitted that the technology access fee paid by the assessee to its AEs viz. running royalty and the lumpsum royalty has been tested together for the purposes for determining ALP of the transaction. The running royalty of Rs.45,71,35,372/- has been accepted to be at arm's length, however, for the lumpsum royalty emanating from the same agreement of Rs.9,65,77,774/-, the ALP has been held to be at Rs. „NIL‟. He submitted that the assessee had aggregated the said payments and used the TNMM approach to benchmark this transaction (pages 285 to 288 and page 536 of the appeal set refers). The Ld. AR submitted that adopting a similar approach as in the cost of payment of intra-group service charges, the Ld. TPO allocated the royalty between both the segments (Trading & Manufacturing), thereby accepting the royalty as a part of the cost base of the assessee.
20.2 Further, he submitted that the Ld. TPO has applied the „Other Method‟ for benchmarking the international transaction of the lump-sum licence fee without bringing any comparable transaction on record (page 593 of the appeal set refers). Reiterating the cases referred above, the Ld. AR submitted that the Ld. TPO has incorrectly applied Rule 10AB as no 21 ITA No.1935/PUN/2024, AY 2020-21 comparable has been brought on record in respect of lumpsum royalty and hence the adjustment made by the Ld. TPO is not sustainable and deserves to be deleted.
21. The Ld. DR supported the order of the Ld. TPO/AO/DRP.
22. We find that undisputedly, it is the matter of fact that the Ld. TPO has arbitrarily rejected the TNMM applied by the assessee instead adopted „Other Method‟. However, as mandated under Rule 10AB, he failed to bring any comparable transaction on record which is essential for the application of the said Rule. Hence, for the same reasons set out above and in light of the judicial precedents referred above, we direct the Ld. TPO/AO to delete the impugned TP adjustment in respect of lumpsum license fees/royalty paid by the assessee. The ground Nos. 14 to 17 are accordingly allowed.
Grounds relating to payment of Trademark fee
23. Lastly, another grievance of the assessee pertains to adjustment of Rs.18,79,69,131/- to the transfer price of the assessee in respect of the international transaction of payment of Trademark fee which is raised by way of ground Nos. 11, 12 and 13. Giving the factual background of the issue involved, the Ld. AR submitted that the Trademark fee is paid for the licensed use of the "Bosch" trademark and logo which are owned by Robert Bosch GmbH. Under a trademark license administered by Bosch Technology Licensing Administration GmbH, the assessee has been granted a non-exclusive, non-transferable right to use the Bosch trademark on its products, packaging and related marketing activities within the specified territory.
23.1 The Ld. AR submitted that the trademark fee forms part of the royalty payment made and benchmarked under the TNMM, however, the Ld. TPO has considered the same separately.
23.2 Referring to page 594 of the appeal set, the Ld. AR submitted that during the proceedings before him, the Ld. TPO directed the assessee to furnish comparables for benchmarking the payment of trademark fee. Accordingly, the assessee submitted a royalty benchmarking prepared and maintained by the Group. The Ld. TPO, however, rejected all the 22 ITA No.1935/PUN/2024, AY 2020-21 comparables identified by the assessee. In particular, one comparable "KTM Sportmotorcycle USA, Inc (KTM)" was rejected on the premise that royalty paid also depends on the High risk and low risk geographical location. Hence, it cannot be considered as comparable due to different geographical locations/markets in which the brands are manufacturing and selling their products" and therefore, entities operating in different geographical markets cannot be considered comparable.
23.3 The Ld. AR submitted that the Ld. TPO conducted independent search of comparables for benchmarking the impugned transaction and identified two comparable companies, one of which is the company based in France. But adoption of this comparable is not justifiable as the same is inconsistent with the rationale earlier adopted by the Ld. TPO for rejecting the comparable selected by the assessee on account of geographical differences (page 595 of the appeal set refers). Another company selected by the Ld. TPO is based on a license agreement with Whitnash Plc., however, the Ld. AR highlighted that the said company viz. Whitnash Plc., the licensor, was liquidated and dissolved with effect from 20.01.2017 and is presently non-existent, rendering the said comparable devoid of any evidentiary or commercial value (pages 297 and 198 of the appeals set refers). The Ld. DRP has upheld the benchmarking done by the Ld. TPO holding that the comparables adopted by the assessee cannot be sustained for the reasons that the comparables are not from the same geography as the assessee and the industries under consideration for trademark are different from the assessee and also the brand value of the GE or KTM linked agreements cannot be compared to that of the assessee.
23.4 The Ld. AR further submitted that the trademark fee has already been considered as part of the cost base while benchmarking the international transactions under the TNMM. Any separate adjustment in respect of the trademark would, therefore, result in a double adjustment, as the same cost has already been factored into the cost base.
23.5 Drawing support from the decision of the Co-ordinate Bench of the Delhi Tribunal in the case of Samsung India Electronics Pvt. Ltd. Vs. Dept. Commissioner of Income Tax (ITA No. 9482/DEL/2019), order dated 09.07.2024, the Ld. AR submitted that in the present case of the assessee, segregating the same transaction, wherein the trademark forms an integral 23 ITA No.1935/PUN/2024, AY 2020-21 part of the royalty and subjecting it to benchmarking again under the CUP method or any other method would amount to a double adjustment, which is impermissible under law.
24. The Ld. DR supported the order of the Ld. TPO/DRP.
25. We find some force in the arguments advanced by the Ld. AR that once the transaction has been benchmarked under TNMM, it cannot be separately benchmarked under CUP. We find that the Delhi Tribunal in the case of Samsung India Electronics Pvt. Ltd. (supra) held as under :
"........In the instant case, we have held that the data chosen by the TPO for CUP is wholly inappropriate. Secondly, the TPO has already accepted TNMM for the Manufacturing segment as a whole. There are numerous international transactions in this segment all these transactions like royalty, purchase of raw materials etc. have been aggregated under TNMM and benchmarked against independent third party comparables. In these circumstances, cherry-picking of one particular transaction like royalty and subjecting the same to a separate benchmarking and adjustment under CUP results in an impermissible double adjustment once under TNMM and another CUP. This is contrary to the provisions which mandate adoption of only one method as the most appropriate method. A licensing arrangement where technical know-how is used for manufacturing is an inextricable part of the entire segment and we do not find any infirmity in bundling the same with the other transactions of this segment. At the end of the day, if the segment is generating arm's length level of operating profits which is equivalent or more than profit margin of the comparables, there can be no cause for the Revenue to carry out an exercise of the present kind. Grounds 29-32 are disposed of in terms of the aforesaid observations."
26. In light of the above discussion and decision of the Delhi Tribunal (supra), we direct the Ld. TPO/AO to accept the TNMM applied by the assessee for benchmarking the impugned transaction of payment of trademark fee instead of CUP method after due verification thereof. Ground Nos. 11 to 13 raised by the assessee are accordingly allowed.
Grounds relating to Transfer Pricing
27. In ground Nos. 5 to 10, the assessee has challenged the TP adjustment made by the Ld. TPO/AO/DRP in respect of the impugned international transactions entered into by the assessee during the relevant AY 2020-21 thereby rejecting the TNMM method applied by the assessee to benchmark the said transactions. We have already dealt with these issues separately in the preceding paragraphs. Ground Nos. 5 to 10 accordingly needs no separate adjudication.
24 ITA No.1935/PUN/2024, AY 2020-21Ground relating to penalty
28. Ground No. 25 relates to initiation of penalty proceedings u/s 270A of the Act for under-reporting of income which is hereby dismissed being pre-mature.
29. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 30th March, 2026.
Sd/- Sd/-
(Dr. Dipak P. Ripote) (Astha Chandra)
ACCOUNTANT MEMBER JUDICIAL MEMBER
पुणे / Pune; दिन ां क / Dated : 30th March, 2026.
रदि
आदे श की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to :
1. अपील र्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The Pr. CIT concerned.
4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, "सी" बेंच, पुणे / DR, ITAT, "C" Bench, Pune.
5. ग र्ड फ़ इल / Guard File.
//सत्य दपि प्रदि// True Copy// आिे श नुस र / BY ORDER, सहायक पं जीकार/ Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune