Income Tax Appellate Tribunal - Bangalore
Bostik India Pvt Ltd ,Bangalore vs Deputy Commissioner Of Income- Tax ... on 22 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH: BANGALORE
BEFORE SHRI PRASHANT MAHARISHI, VICE - PRESIDENT
AND
SHRI KESHAV DUBEY, JUDICIAL MEMBER
ITA No. 273/Bang/2022
Assessment Year : 2017-18
M/s. Bostik India Private Limited,
The Deputy
124/1 and 124/2A,
Commissioner of
Kachanayakanahalli,
Income tax
Behind Bommasandra Indl. Area, Vs.
Circle - 1(1)(2),
Anekal Taluk, Bengaluru - 560 099.
Bangalore
PAN: AABCB4627N
APPELLANT RESPONDENT
Shri Sumit Khurana CA &
Assessee by :
Ms. Divya Motwani CA
Revenue by : Dr. Divya K. J - CIT
Date of Hearing : 04-02-2026
Date of Pronouncement : 22-04-2026
ORDER
PER PRASHANT MAHARISHI, VICE - PRESIDENT
1. ITA No.273/Bang/2022 is filed by M/s. Bostik India Private Limited (the Assessee/Appellant) against the Assessment Order passed by the Deputy Commissioner of Income Tax, Circle - 1(1)(2), Bangalore (the Ld. Assessing Officer) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 in pursuance of the direction of the Dispute Resolution Panel - 1, Bangalore (the Ld. DRP) dated 31.01.2022 wherein the transfer pricing adjustment of Rs. 17,82,92,068/- was made.
2. The Assessee is aggrieved and has preferred following grounds of appeal: -
Ground No. 1 General ITA No. 273/Bang/2022 Page 2 of 13 On the facts and in the circumstances of the case and in law, the order passed by Learned Assessing Officer (Ld. AO) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 ('Act') in conformity with the directions of Hon'ble Dispute Resolution Panel ('Hon'ble DRP'), to the extent prejudicial to the Appellant, is bad in law and is liable to be quashed.
The Appellant prays that the transfer pricing addition of INR 17,82,923,068 made by the Ld. AO be deleted Transfer Pricing related:
Ground No. 2: Determination of Arm's Length Price CALP) for payment of management fees as 'Nil' On the facts and in the circumstances of the case and in law, the Hon'ble DRP and Ld. AO/Transfer Pricing Officer ('Ld. TPO') erred in determining the ALP of the international transaction pertaining to payment of management charges by the Appellant to its associated enterprises ('AEs') as 'Nil' as against INR 3,44,02,611 and in doing so, grossly erred in:
a. ignoring the transfer pricing documentation and agreements submitted by the Appellant to substantiate the needs of the intra-group services, receipt of services and benefits arising therefrom;
b. holding that no services have been rendered by the AEs to the Appellant without any basis;
c. questioning the commercial expediency in availing the services from the AEs and corresponding payment of management charges, d. exceeding the jurisdiction in applying the benefit test to the payment of management charges;
e. concluding that certain services are duplicative merely on the basis of nomenclature of these services and ignoring the nature of these services; f. rejecting the allocation methodology of the Appellant without providing any cogent reasons;
g. holding that the payment of management charges is towards shareholder activities of the AE;
h. concluding that the payment made for management fees is a way of siphoning of profits from India with minimum incidence tax i.e. 10% vs 40% if the same was shown as profit and remitted as dividend;
i. not appreciating that in the case under consideration none of the conditions set out in Section 92C(1) of the Act are satisfied;
j. determining the arm's length price of the transaction under Comparable Uncontrolled Price ('CUP') Method without identifying any valid comparable uncontrolled transaction; k. erroneously concluding that the transaction has been benchmarked by aggregating all the international transactions by using Transactional Net Margin Method ('TNMM') at entity ITA No. 273/Bang/2022 Page 3 of 13 level whereas in reality the management charges are separately benchmarked under TNMM; and l. erroneously concluding the imports from AEs have been compensated enough in the form of purchase price as well as payment towards technology from the AE and there is no separate requirement to make payment for management charges; m. questioning that such expenses has not been incurred wholly and exclusively for the purpose of business and therefore not allowable u/s, 37 of the Act. n. not appreciating that the ALP of the international transaction cannot be determined at NIL.
The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of management fees ought to be accepted and the TP addition of INR 3.44,02,611 be deleted.
Ground No. 3: Determination of ALP for payment of SAP implementation cost as 'Nil On the facts and in the circumstances of the case and in law, the Hon'ble DRP and Ld. AO/TPO erred in determining the ALP of international transaction pertaining to payment for SAP implementation cost by the Appellant to its AE as 'Nil' as against INR 69,57,397 and in doing so, grossly erred in:
a. disregarding the transfer pricing documentation and evidences in support of SAP implementation cost paid by Appellant to AE (in the nature of cost incurred by the AE, determining allocable cost, allocation of the cost based on the allocation keys etc.) b. concluding that such services were never requested by the Appellant and are just incidental expenses provided by AF;
c. disregarding the agreement and other documentation maintained and produced by the Appellant to substantiate the need for payment of SAP implementation cost, receipt of such allocation and benefits arising therefrom an ALP perspective; d. holding that no services have been rendered by the AEs to the Appellant without any basis;
e. questioning the commercial expediency of the Appellant for payment of such charges; f. holding that the payment of SAP implementation cost is towards the shareholder activities of the AEs;
g. exceeding the jurisdiction in applying the benefit test to the payment of SAP implementation cost h. not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied; and i. not appreciating that the ALP of the international transaction cannot be determined at NII.ITA No. 273/Bang/2022 Page 4 of 13
The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of SAP implementation cost ought to be accepted and the TP addition of INR 69,57,397 be deleted.
Ground No. 4: Determination of ALP for payment of Technology license and Trademark, license fees as 'Nil' On the facts and in the circumstances of the case and in law, the Hon'ble DRP and Ld.. AO/TPO erred in determining the ALP of transaction pertaining to payment of Technology license and Trademark license fees to its AE as 'Nil' instead of INR 13,69,32,060 and in doing so, grossly erred in:
a. disregarding the economic analysis carried out by the Appellant with respect to payment of Technology license fees and Trademark license fees without providing any justification for rejecting the economic analysis provided by the Appellant; b. ignoring the transfer pricing documentation and agreement submitted by the Appellant to substantiate the need for payment of license fees for technology and trademark, and benefits arising therefrom;
c. questioning the business/commercial expediency of the Appellant for payment of Technology license and Trademark License fees without providing adequate reasons for the same, d. considering that the Appellant has not received any benefit from payment of Technology license and Trademark license fees;
e. observing that the growth advantage of the Appellant from payment of such fees is insignificant;
f. not appreciating that in the case under consideration none of the conditions set out in Section 92C(3) of the Act are satisfied.; and g. holding that payment of Technology license and Trademark license fees should not be made by the Appellant as the AE had certain obligations towards the Appellant as a shareholder, h. not appreciating that the ALP of the international transaction cannot be determined at NIL The Appellant prays that the benchmarking analysis conducted by the Appellant in the TP study pertaining to payment of Technology licence and Trademark license fees ought to be accepted and the TP addition of INR 13,69,32,060 be deleted.
Ground No. 5:
The Id. AO has erred in law and in circumstances of the case by disallowing employees' contribution to Provident fund/ESIC of Rs. 6,08,545 under section 36(1)(va) of the Act, disregarding provisions of section 43B of the Act.ITA No. 273/Bang/2022 Page 5 of 13
Ground No. 6:
On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceeding under section 274 of the Act read with 270A of the Act.
The Appellant prays that the Ld. AO be directed that to drop the penalty proceedings initiated under section 270A of the Act.
Ground No. 7:
On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest u/s. 234B and 234C of the Act.
The Appellant prays that the Ld. AO be directed to delete the levy of interest u/s. 234B and 234C of the Act.
The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing.
3. The facts of the case indicate that the Assessee, incorporated in 1999 as a wholly-owned subsidiary of M/s. Bostik (Australia) Pty Ltd, operates within the adhesive industry, manufacturing industrial adhesives primarily for the footwear sector. The Assessee filed its income tax return on 29 November 2017, declaring a total income of Rs. 34,19,11,190/-.
4. To note assessee's benchmarking as per Transfer pricing Study report [ TPSR] of Several international transactions were conducted by the Assessee, including payments for trademark licenses amounting to Rs. 6,90,66,020/- and technology licenses totaling Rs. 6,78,66,040/-, with an aggregate sum of Rs. 13,69,32,060/-, SAP support services valued at Rs. 69,57,397/- and management fees totaling Rs. 2,97,32,333/- were likewise benchmarked adopting the Transactional net margin Method. It was adopted that these transactions are interlinked and connected with the transaction of trading and purchases and so TNMM method was the most appropriate method. Assessee selected selecting 60 comparable companies wherein the PLI of the Assessee of operating profit at total cost is 12.81% whereas the median margin of the comparable is 9.86% and therefore under Transactional Net Margin Method, the Assessee's international transactions are at arm's length.
5. The Learned Transfer Pricing Officer accepted all other transactions concerning purchases and sales of goods, accessories, and equipment spares as being at ITA No. 273/Bang/2022 Page 6 of 13 arm's length but contested the benchmarking of the aforementioned three transactions.The ld TPO was of the view that this transaction cannot be benchmarked as per TNMM method as these are intra group services. Assessee needs to satisfy the need Test, Rendition Test, benefit test, duplicity and shareholders' activity test.A show cause notice issued on 25 December 2020 required the Assessee to provide evidence demonstrating the actual rendering of these intra-group services, alongside documentation of costs incurred by Associated Enterprises (AEs) and the derived benefits. The Assessee responded by asserting that all intra-group services are closely associated with the primary activities of manufacturing and selling adhesives and thus have been aggregated under TNMM. The Assessee furnished various e-mails exchanged with associated enterprises as supporting material. It was further noted that the total employee cost of the Assessee amounted to Rs. 18.14 crores--representing only 5.2% of sales--while comparable companies exhibit a rate of approximately 10%. Consequently, the Assessee contended that overall support profits were remunerated to group entities.Regarding the SAP implementation cost of Rs. 69,57,397/-, the Assessee submitted that, pursuant to the service agreement, the AE provided computer-related software, licenses, server access, maintenance, and hosting services, which are utilized daily in manufacturing operations. Therefore, these transactions were aggregated with the principal transaction. The Assessee procured such services from M/s. Bostik (Shanghai) Management Company Limited, which facilitated software implementation and ongoing staff training.
6. The Learned Transfer Pricing Officer (TPO) observed that the Assessee had classified payments such as management fees, technology license and trademark fees, and SAP implementation costs as cost contributions to its associated enterprises, designating these as intra-group services. Given that the Assessee has been operational for over 15 years, the TPO determined that these costs should be benchmarked using the Comparable Uncontrolled Price (CUP) method. After considering multiple international judicial precedents, the TPO concluded that these costs can only be considered at arm's length if there is substantial evidence demonstrating that the services were actually rendered and that the Assessee derived corresponding benefits.He further noted that the ITA No. 273/Bang/2022 Page 7 of 13 Assessee's attempt to segregate these services was unacceptable, as they constitute a distinct class of their own. Consequently, he applied the CUP method and made an adjustment of Rs. 17,36,21,790/-, stating that the Arm's Length Price (ALP) for these services was taken as nil because the taxpayer failed to substantiate the receipt of such services from its associated enterprises and did not provide documentary evidence of tangible benefits received. He held that no economic or commercial benefit was conferred upon the Assessee through these services. Additionally, the TPO relied on findings from the Assessee's cases for the Assessment Years 2012-13 and 2013-14, where similar adjustments regarding intra-group services were confirmed by the Learned Dispute Resolution Panel (DRP).
7. Accordingly, an order under section 92CA (3) of the Act was issued on 27.01.2021. Pursuant to this, the Learned Assessing Officer issued a draft assessment order under section 144C of the Act on 05.04.2021, computing the total income of the Assessee at Rs. 51,61,36,525/-.
8. The Assessee subsequently filed objections before the DRP, which were rejected through directions issued on 31.01.2022. Based on these directions, a final Assessment Order was passed with minor adjustments, retaining the transfer pricing adjustment of Rs. 17,82,92,068/-, and the final Assessment Order was issued on 22.02.2022. This matter is now under challenge before us.
9. The Ld. Authorized Representative Shri Sumit Khurana CA &Ms. Divya Motwani CA appeared and filed a paper book containing 1062 pages and also relying upon the order of the ITAT for Assessment Year 2011-12 to 2013-14 in the Assessee's own case. The Ld. Authorized Representative also furnished a detailed written submission consisting of 29 pages.
10. They submitted,with respect to the payment of technology license fees, the Ld. Authorized Representative referred to page no. 787 to 793 of the paper books. It was submitted that the Assessee has entered into an agreement with its associated enterprise with France w.e.f. 01.01.2013 for right to use the technology relating to adhesive products. According to the agreement, in the manufacturing process of the Assessee this technology is used. Accordingly, the Assessee is paying 0.69% on its third party sales by excluding non-woven segment and at the rate of 6% on the sales to third parties on the non-woven ITA No. 273/Bang/2022 Page 8 of 13 segment. Assessee is doing only basic research and development with respect to modification and updating of existing product lines. The research & development with respect to new product is carried out by the France entity. Without this technology, the Assessee could not have manufactured any of its products. It was further stated that no royalty is paid by the Assessee on export to group companies. He explained in detail the global corporate research activity and technical assistance provided by the associated enterprises.
11. With respect to the SAP expenditure of Rs. 67,57,397/-, he referred to page no. 937 of the paper book and submitted that an agreement was entered into on 01.01.2015 between Chinese AE and the Assessee. He submitted that compensation is paid to the AE as per schedule B of the agreement wherein over and above the direct cost and indirect cost, a 5% markup is paid to the AE. Assessee referred to the day to day need issued by the foreign AE to the Assessee in terms of the agreement.
12. With respect to the management charges, the Ld. Authorized Representative referred to the service agreement between the France entity and the Assessee along with the various corporate service recharges. He referred to the various services rendered which were part of these skilled functions and services and paid by the Assessee at a markup of 5%. He referred to the transfer pricing study report at page no. 775 to show what kind of services are provided by the associated enterprises. He referred to para no. 1.4 wherein the various benefits derived by the Assessee were also listed.
13. On benefit derived by the assessee, he also submitted that at page no. 244, the Assessee has submitted what is the profitability when the material is sold to a related party and non-related party. He submitted that when material is sold to a related party, the Assessee only earns margin of 12.8% and when the material is sold to a non-related party, the profit earned by the Assessee is 15.86%. He further referred to the fact that even in the distribution segment, the Assessee's respective margin is 3.78% and 5.32%. Therefore, there is a distinct benefit available to the Assessee.
14. Coming to the directions of the ld. DRP, He referred to para no. 2.1.7 of the direction of the Ld. Dispute Resolution Panel relating to the management services wherein the Ld. Dispute Resolution Panel subject to minor adjustment ITA No. 273/Bang/2022 Page 9 of 13 has upheld the action of the Ld. Transfer Pricing Officer. With respect to the SAP implementation charges also, the Ld. Dispute Resolution Panel upheld the action of the Ld. Transfer Pricing officer and with respect to the technical fees, the action of Ld. Transfer Pricing Officer was confirmed.
15. Thus, The LdAuthorizedrepresentative submitted that the Assessee has demonstrated before the Learned Lower Authorities the necessity of these services, their actual provision, the substantial benefits conferred upon the Assessee, and that such services do not constitute shareholder activities or duplicate services. Accordingly, he argued that they should determine their arm's length price at Rs. Nil/- lacks merit. He further referenced the decision of the coordinate bench dated 10.05.2022, which involved similar facts where the Learned Transfer Pricing Officer also determined the arm's length price of these services at Rs. Nil/-. He noted that the coordinate bench considered the technology license fee and management fees to be interlinked, requiring benchmarking alongside purchase and sales services. Regarding IT support service expenses, the coordinate bench directed the Learned Transfer Pricing Officer to review evidence, noting that the Learned Dispute Resolution Panel for Assessment Years 2012-13 and 2013-14 instructed the deletion of the adjustment, as it was based on a scientific method of cost allocation. Therefore, he contended that the issue is entirely covered in favor of the Assessee.
16. The learned CIT-DR strongly endorsed the decision of both the Dispute Resolution Panel and the Transfer Pricing Officer. Additionally, regarding the ITAT's order in the Assessee's own case, the learned CIT-DR submitted that the ITAT determined management fees and technical fees should be combined and separated from manufacturing activities, with benchmarking not being required under the CUP method. Concerning the support services, she placed reliance on the findings of the Transfer Pricing Officer.
17. We have carefully considered the rival contentions and perused the orders of the Ld. Lower Authorities.
18. Ground no. 1 is general in nature; no separate arguments were advanced and therefore same is dismissed.
ITA No. 273/Bang/2022 Page 10 of 1319. Ground no. 2 is with respect to determination of the ALP of management charges amounting to Rs. 3,44,02,611/- at Rs. Nil/- and ground no. 4 is with respect to the arm's length pricing for payment of technology license and trademark license fee amounting to Rs. 13,69,32,060/- as Rs. Nil/-. On both these issues we find that identical issues arose in case of the Assessee for Assessment Year 2011-12 to 2013-14 wherein the Ld. Transfer Pricing Officer has determined the arm's length price of these transactions at Rs. Nil/- whereas Assessee segregated these transactions along with the other transactions of import, export etc., applying the Transactional Net Margin Method held it to be at arm's length. The Ld. Transfer Pricing Officer held it to be a separate transaction, required to be benchmarked separately, adopting CUP method and determining its ALP at Rs. Nil/-. The reasons given by the Ld. Transfer Pricing Officer are extracted by the coordinate bench at para no. 7 are almost the same. The Ld. Dispute Resolution Panel also held so upholding the action of the Ld. Transfer Pricing Officer on similar grounds. The coordinate bench at para no. 16.1 has accepted the fact that the management fee and technology license renewal fees are incurred with respect to the manufacture of industrial adhesives which is the only business of the Assessee. The coordinate bench has also held that these services have benefited the Assessee, duly supported by agreement with the nature of services performed and therefore these are interlinked and interconnected with the business of manufacture. In para no. 16.2 it held so. Further, in para no. 16.3, ITAT directed the Ld. Transfer Pricing Officer to consider the Transactional Net Margin Method as the most appropriate method for determination of ALP of payment of license and management fees.This isalso the finding of ITAT for AY 2021-22 also.
20. It was also not pointed out before us that there is any change in the facts and circumstances of the case as well as the functions, assets employed and resources used compared to those years.
21. Irrespective of the above findings of the ITAT in assessee's case for earlier years and subsequent years, before us also, the Ld. Authorized Representative hasshown the benefits derived by the Assessee in terms of profitability earned as well as the benefits of management services in the form of services in employee cost. Assessee has also shown the agreement based on which there ITA No. 273/Bang/2022 Page 11 of 13 wasevidence placed for rendition of services also, therefore the CUP method adopted by the Ld TPO though even if assumed to be correct but determination of ALP at RS Nil is absolutely incorrect. This is also so because of the reason that the assessee has produced reasonable evidences of need, Rendition, benefit of such payments.
22. As the Coordinate bench has held that adoption of CUP method for these two services is inappropriate and Transactional Net Margin Method is the most appropriate method, respectfully following the decision of the coordinate bench, we upheld the adoption of the Transactional Net Margin Method for benchmarking these two international transactions which Assessee has done in its TPSR. As the margins of the Assessee are better than the comparables, we direct the Ld. Assessing Officer to delete the adjustment of Rs. 3,44,02,611/- on account of payment of management fees as well as adjustment of Rs. 13,69,32,060/- on account of payment of technology license fees and trademark license fees. Thus, ground no. 2 and ground no. 4 of the Appeal of the Assessee are allowed.
23. Ground no. 3 of the Appeal is with respect to the determination of arm's length price for payment of SAP implementation which is determined by the Ld. Transfer Pricing Officer at arm's length price of Rs. Nil/-, we also find that the above payment is made by the Assessee for the services rendered from M/s. Bostik (Shanghai). We find that identical issues involved in the case of the Assessee for Assessment Year 2011-12 to 2013-14 wherein the nomenclature of this were stated to be commercial services (IT support services) and for Assessment Year 2021-22 is with the same nomenclature. The billing of the above services is made by the service provider on the basis of the head count, [number of users using the facility]. With respect to the need of the above services, it was reported that these services were vital for sharing, storing, processing, evaluating and retrieval of information which are critical for business decisions. Thus, SAP system is consumed by all the employees of the Assessee on a day-to-day basis for purpose of their routine duties. The billing of the above activity is also made on the basis of the number of users. The basic advantage derived by the Assessee is centralization of the data, automation and easy accessibility as the billing of the services are made on the actual head ITA No. 273/Bang/2022 Page 12 of 13 count of user of the above services which is not in dispute, the Assessee also posses the rendition test. However, the coordinate bench has categorically held that it is a cost allocation on the basis of number of IT users and therefore it was found in earlier years as well as in subsequent years that the basis of cost allocation is reasonable and cannot be found fault with. Further for Assessment Year 2012-13 and 2013-14 as noted by the ITAT that the Ld. Dispute Resolution Panel on this basis has granted relief to the Assessee holding it to be the cost allocation on scientific basis. Similar stand is taken by the ITAT for Assessment Year 2021-22. In view of the above facts, we find that the action of the Ld. Assessing Officer and Ld. Dispute Resolution Panel in confirming the adjustment of Rs. 69,57,397/- treating as the arm's length value of these services at Rs. Nil/- is not sustainable. Therefore, respectfully following the decision of the coordinate bench in Assessee's own case for earlier years and subsequent years, we allow ground no. 3 of the Appeal and direct the Ld. Assessing Officer to delete the above adjustment. Thus, ground no. 3 is allowed.
24. Ground no. 5 is with respect to the disallowance of employees' contribution to provident fund/ESIC of Rs. 6,08,545/- u/s. 36(1) (VA) of the Act which is squarely covered against the Assessee by the decision of the Hon'ble Supreme Court in case of M/s. Checkmate Service Private Limited, the Assessee has withdrawn this ground of appeal in line of the decision of the Hon'ble Supreme Court. Hence dismissed.
25. Ground no. 6 is against the initiation of the penalty proceedings. This ground is premature and hence dismissed.Ground no. 7 is against the levy of interest which is consequential in nature. Hence dismissed.
26. In the result, Appeal of the Assessee is partly allowed.
Order pronounced in the open court on 22nd April, 2026.
Sd/- Sd/-
(KESHAV DUBEY) (PRASHANT MAHARISHI)
JUDICIAL MEMBER VICE-PRESIDENT
ITA No. 273/Bang/2022
Page 13 of 13
Bangalore,
Dated, the 22nd April, 2026.
*TNTS*
Copy to:
1. Appellant 2. Respondent
3. CIT 4. DR, ITAT, Bangalore
5. CIT(A)
By order
Assistant Registrar,
ITAT, Bangalore