Income Tax Appellate Tribunal - Chennai
M/S. Farida Classic Shoes Pvt. ... vs Acit, Cc-3(2), Chennai on 26 May, 2026
आयकर अपील य अ धकरण 'डी' यायपीठ, चे नई।
IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH: CHENNAI ी मनु कुमार िग र, ाियक सद एवं ी एस. आर. रघुनाथा, लेखा सद य के सम BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER IT (TP)A No. 1/Chny/2026 Assessment Year: 2019-20 M/s Aston Shoes Private Limited, v. ACIT, Central Circle 3(2), NO.151/4 MOUNT POONAMALEE ROAD Chennai-600034 RAMAPURAM, Nandambakkam Kudiyiruppu S.O, Nandambakkam KANCHIPURAM-600089 [PAN: AAFCA9529A] IT (TP)A No. 2, 3, 4 & 5 /Chny/2026 Assessment Year: 2019-20, 2020-21, 2021-22 & 2022-23 M/s Farida Classic Shoes Private ACIT, Central Circle 3(2), Limited, Chennai-600034 NO.151/4 MOUNT POONAMALEE ROAD Ramapuram, Nandambakkam Kudiyiruppu, S.O, Nandambakkam, KANCHIPURAM-600089 [PAN: AAACF0451B] IT (TP)A No. 42 & 43 /Chny/2025 Assessment Year: 2020-21, 2022-23, M/s Aston Shoes Private Limited, ACIT, Central Circle 3(2), NO.151/4 MOUNT POONAMALEE ROAD Chennai-600034 RAMAPURAM, Nandambakkam Kudiyiruppu S.O, Nandambakkam KANCHIPURAM-600089 [PAN: AAFCA9529A] IT (TP)A No. 44, 45 /Chny/2025 Assessment Year: 2020-21, 2021-22 M/s India Shoes Exports Pvt. Ltd. ACIT, Central Circle 3(2), NO.151/4 MOUNT POONAMALEE ROAD Chennai-600034 RAMAPURAM, Nandambakkam Kudiyiruppu S.O, Nandambakkam KANCHIPURAM-600089 [PAN: AAACI5683A] IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 2 ::
IT (TP)A No. 46, 47, 48, 49 /Chny/2025 Assessment Year: 2019-20, 2020-21, 2021-22, 2022-23, M/s Delta Shoes Private Limited, ACIT, Central Circle 3(2), NO.151/4 MOUNT POONAMALEE ROAD Chennai-600034 RAMAPURAM, Chennai-600 089 [PAN: AAACD 1292 J ] IT (TP)A No. 50, 51, 52 & 53 /Chny/2025 Assessment Year: 2019-20, 2020-21, 2021-22, 2022-23 M/s Farida Shoes Private Limited ACIT, Central Circle 3(2), NO.151/4 MOUNT POONAMALEE ROAD Chennai-600034 RAMAPURAM, Nandambakkam Kudiyiruppu S.O, Nandambakkam KANCHIPURAM-600089 [PAN: AAACF 0496 Q ] (अपीलाथ /Applicant) ( यथ /Respondent) अपीलाथ क ओर से/Appellant by : Mr. D. Anand, Advocate यथ क ओर से/Respondent by : Mrs. C.Yamuna, CIT सुनवाई क तार ख/Date of Hearing : 08.04.2026 घोषणाक तार ख /Date of Pronouncement : 26.05.2026 आदे श / O R D E R PER BENCH:-
The captioned appeals are filed by the different assessees, against the final assessment orders passed by Assistant Commissioner of Income Tax, Central Circle 3(2), Chennai u/s.147 r.w.s 144C(13) of the Income Tax Act, 1961 ("the Act") for Assessment Years on various dates as mentioned below:
ITA Nos. AYs Assessee AO's date of
order
IT(TP)A No. 2019-20 M/s.Aston Shoes Pvt. Ltd. 26.12.2025
1/Chny/2026
IT(TP)A No.2, 3, 2019-20, M/s.Farida Classic 26.12.2025,
4 & 5/Chny/2026 2020-21, Shoes Pvt. Ltd. 26.12.2025,
2021-22 & 26.12.2025,
2022-23 24.12.2025
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 3 ::
IT(TP)A No.42, 2020-21, M/s.Aston Shoes Pvt. Ltd. 26.12.2025,
43/Chny/2025 2022-23 25.12.2025
IT(TP)A No.44, 2020-21, M/s India Shoes Exports 16.12.2025,
45/Chny/2025 2021-22 Pvt. Ltd. 15.12.2025
IT(TP)A No.46, 2019-20, M/s Delta Shoes Pvt. Ltd. 26.12.2025,
47, 48, & 2020-21, 26.12.2025,
49/Chny/2025 2021-22, 26.12.2025,
2022-23, 24.12.2025
IT (TP)A No. 50, 2019-20, M/s Farida Shoes Pvt. Ltd. 26.12.2025,
51, 52 & 2020-21, 26.12.2025,
53/Chny/2025 2021-22, 29.12.2025,
2022-23 24.12.2025
2. The brief facts emanating from the records are that the assessees' M/s.Farida Shoes Pvt. Ltd., M/s. Farida Classic Shoes Pvt.
Ltd., M/s.Delta Shoes Pvt. Ltd., M/s. Aston Shoes Pvt. Ltd., and M/s. India Shoes Exports Pvt. Ltd. are companies engaged in the manufacture and export of leather footwear. They are part of the well-known Farida Group of Companies, which has a combined turnover of approximately Rs.1,800 crores.
2.1 A search and seizure operation u/s.132 of the Income-tax Act, 1961 (in short "the Act") was conducted on Farida Group on 23.08.2022, and the Assessees were covered under these proceedings. Following the search, their cases were centralized and assigned to the Central Circle to facilitate coordinated assessments. Subsequently, in accordance with the applicable provisions and after obtaining the necessary approvals, the matters were referred to the 'Transfer Pricing Officer' (TPO) for determining the Arm's Length Price (ALP) of the international transactions undertaken by the Assessees.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 4 ::
3. The relevant draft assessment orders are as follows:
(a) dated 10.02.2025 in the cases of M/s. Farida Classic Shoes Pvt. Ltd., M/s.Delta Shoes Pvt. Ltd., and M/s. Aston Shoes Pvt. Ltd.;
(b) dated 01.03.2025 in the case of M/s. India Shoes Exports Pvt. Ltd.; and
(c) dated 23.03.2025 in the case of M/s. Farida Shoes Pvt. Ltd.
These were followed by the DRP's directions:
(a) dated 27.11.2025 in the cases of M/s.Farida Classic Shoes Pvt. Ltd., M/s. Delta Shoes Pvt. Ltd., M/s. Aston Shoes Pvt. Ltd., and M/s. India Shoes Exports Pvt. Ltd.; and
(b) dated 28.11.2025 in the case of M/s. Farida Shoes Pvt. Ltd.
Pursuant to these directions, the AO issued the final assessment orders as under:
(a) dated 26.12.2025 in the cases of M/s. Farida Classic Shoes Pvt. Ltd., M/s. Delta Shoes Pvt. Ltd., and M/s. Aston Shoes Pvt. Ltd.;
(b) dated 16.12.2025 in the case of M/s. India Shoes Exports Pvt. Ltd.; and
(c) dated 26.12.2025, 27.12.2025, and 30.12.2025 in the case of M/s. Farida Shoes Pvt. Ltd.
4. All these orders and directions together form the basis of the present proceedings. A summary of the details relating to the original returns of income filed by the Assessees, the returns filed in response to notices u/s.148 of the Act, and the additions made for Assessment Years 2019-20 to 2022-23 is set out below.
Farida Group of Companies
Other
Additions
RETURN RETURN
COMPAN Assessed Total Additions made
AY INCOME AS INCOME AS
Y NAME income Addition made by AO under
PER SEC. 139 PER SEC.148
Sec.143[1]
/High Pitch
2019-20 16,50,00,301 16,92,44,770 22,64,38,297 5,71,93,527 2,41,02,157 3,30,91,370
FARIDA 2020-21 14,83,67,030 15,33,03,420 19,35,72,449 4,02,69,029 3,93,14,925 9,54,100
SHOES
2021-22 4,04,37,170 4,53,02,540 6,48,91,932 1,95,89,392 1,95,89,392 -
PVT LTD
-
2022-23 8,55,90,832 N/A 10,84,51,869 2,28,61,037
2,28,61,037
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 5 ::
2019-20 18,17,77,625 8,97,30,704 20,07,39,154 1,10,08,450 1,10,08,454 FARIDA CLASSIC 2020-21 11,95,10,920 2,46,05,220 14,79,16,537 2,33,11,317 1,95,73,197 37,38,120 SHOES 2021-22 4,55,20,910 4,89,97,400 7,10,96,087 2,20,98,687 -
2,20,98,687 PVT LTD 2022-23 8,88,50,719 N/A 9,10,55,050 22,04,331 22,04,331 -
2019-20 5,08,25,597 5,08,25,597 5,63,55,056 55,29,459 38,16,541 17,12,915 DELTA 2020-21 4,06,79,560 4,06,79,560 5,07,53,890 1,00,74,330 1,00,74,328 - SHOES PVT LTD 2021-22 3,08,79,800 3,08,79,800 3,46,94,403 38,14,603 38,14,608 -
2022-23 3,97,50,830 N/A 4,29,40,126 31,89,296 31,89,296 -
2019-20 9,16,55,088 9,16,55,088 9,88,33,148 71,78,060 47,32,678 24,45,386 ASTON SHOES 2020-21 9,15,57,370 9,15,57,370 9,43,67,320 28,09,950 28,09,954 - PVT LTD 2022-23 8,52,89,227 N/A 10,40,57,620 1,87,68,393 1,87,68,397 -
INDIA 14,27,18,26
2020-21 4,23,00,210 4,26,61,090 20,41,21,777
SHOES 16,14,60,687 1,87,42,420 7
EXPORTS
2021-22 2,50,17,210 2,50,17,210 2,75,77,415
PVT LTD 25,60,205 25,60,204 -
5. The additions made by the revenue pertain to both transfer pricing adjustments and corporate tax matters. For the sake of clarity and to facilitate effective adjudication, the issues arising in the present appeals are segregated and dealt with separately under the heads of (i) Corporate Tax Issues and (ii) TP issues. Aggrieved by the additions / disallowances made by the Assessing Officer, the assessees are in appeal before us.
(I) Corporate Tax Issues :
Farida Group of Companies Corporate issue - Common addition/disallowance Cash Payments within Cash prescribed Other Payments monetary Sale of additio Inflated Credit Devaluatio above limit but to Sale of Total AY Company Grade B n/disal purchase card n of Stock prescribed be Scrap additions Shoes lowanc monetary disallowed e limit due to no supporting vouchers/ evidences IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 6 ::
Farida Shoes Private 2022-23 Limited 28,28,450 23,70,315 27,70,647 6,44,000 3,58,124 3,67,500 17,71,000 1,11,10,036 Farida Shoes Private 2021-22 Limited 28,61,167 24,43,093 - 9,91,158 3,29,766 - - 66,25,184 Farida Shoes Private 2020-21 Limited 32,88,544 42,95,245 - 45,03,549 3,82,200 - - 1,24,69,538 Farida Shoes Private 2019-20 Limited 47,15,825 66,22,660 38,51,310 14,96,045 5,60,507 - - 1,72,46,347 Total 1,36,93,986 1,57,31,313 66,21,957 76,34,752 16,30,597 3,67,500 17,71,000 - 4,74,51,105 Farida Classic Shoes Private 2019-20 Limited 40,71,273 24,79,241 65,50,514 Farida Classic Shoes Private 2020-21 Limited 43,44,198 35,30,167 78,74,365 Farida Classic Shoes Private 2021-22 Limited 19,35,476 8,06,081 27,41,557 Farida Classic Shoes Private 2022-23 Limited 22,04,331 22,04,331 Total 1,25,55,278 68,15,489 - 1,93,70,767 Delta Shoes 2019-20 Private 21,20,867 - 13,750 Limited 21,34,617 Delta Shoes Private 2020-21 Limited 28,86,539 - 28,86,539 Delta Shoes Private 2021-22 Limited 6,35,906 - 6,35,906 Delta Shoes Private 2022-23 Limited 5,98,405 - 5,98,405 Total 62,41,717 - 13,750 62,55,467 Aston Shoes Private 2019-20 Limited 47,32,678 - 47,32,678 Aston Shoes Private 2020-21 Limited 28,09,954 - 28,09,954 Aston Shoes Private 2022-23 Limited 17,87,711 21,40,910 39,28,621 Total 93,30,343 21,40,910 - 1,14,71,253 India Shoes Exports Private 2020-21 limited 37,00,884 8,02,763 45,03,647 India Shoes Exports Private 2021-22 limited 20,18,482 5,41,722 25,60,204 Total 57,19,366 13,44,485 - 70,63,851 Grand Total 4,75,40,690 2,60,32,197 66,21,957 76,34,752 16,30,597 3,67,500 17,71,000 13,750 9,16,12,443 IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 7 ::
(II) TP Issues
Farida Group of Companies
TP Related Issues
Specific
Specific Issue - Issue - India
Specific Issue
Common Issue Farida Shoes Pvt Shoes
- 2 AY's
ltd Exports Pvt
ltd
Erroneous
exclusion of
Erroneous Export Inconsistent Erroneous
treatment of incentives treatment of exclusion of Erroneous
Erroneous miscellaneous such as Rates & Taxes comparables treatment of Guest
classification expenses as Duty between the based on loss House income as
of bad debts non-operating Drawback tested party and criteria in two non-operating Commission
Company AY
as non- & and Focus comparables - out of three while to AE
operating in ii)Failure to Product violation of financial years corresponding
nature give effect to Scheme comparability (AY 2021-22 expenses are
DRP directions incentives principles under & AY 2022- treated as operating
in toto from transfer pricing 23)
operating
income
Farida Shoes Private
Limited 19-20 YES YES YES YES - YES
Farida Shoes Private
Limited 20-21 YES YES YES YES - YES
Farida Shoes Private
Limited 21-22 YES YES YES YES YES YES
Farida Shoes Private
Limited 22-23 YES YES YES YES YES YES
Delta Shoes Private
Limited 19-20 YES YES YES YES -
Delta Shoes Private
Limited 20-21 YES YES YES YES -
Delta Shoes Private
Limited 21-22 YES YES YES YES YES
Delta Shoes Private
Limited 22-23 YES YES YES YES YES
Farida Classic Shoes
Private Limited 19-20 YES YES YES YES -
Farida Classic Shoes
Private Limited 20-21 YES YES YES YES -
Farida Classic Shoes
Private Limited 21-22 YES YES YES YES YES
India shoes exports
private limited 20-21 YES YES YES YES - YES
Aston Shoes Private
Limited 22-23 YES YES YES YES YES
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 8 ::
CORPORATE TAX ISSUES:
6. Issue of alleged inflation of purchases - Addition on account of alleged undisclosed commission income attributed to PSPL (Singapore Entity) (Pages 3 to 24 of the Assessment Order; Refer Volume 7) 6.1 This issue is common across all the relevant assessment years and applies to the entire Farida Group. Reference may be made to pages 3 to 24 of the assessment order dated 29.12.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2022-23.
6.2 In the course of the search proceedings conducted at No.151/4, Mount Poonamallee Road, Ramapuram, Chennai, certain books of account relating to M/s.Pacific Strides Pvt. Ltd.
(Singapore), formerly known as M/s.Farida Shoes Pacific Pvt. Ltd., were discovered and seized. Additionally, debit notes issued to suppliers of the Farida Group in respect of alleged commission payments, along with corresponding email communications, were also found during the search.
6.3 It was noted that M/s.Pacific Strides Pvt. Ltd. (Singapore) is managed by Irshad Ahmed Mecca, with its shareholding held by Irshad Ahmed Mecca, Iqbal Ahmed Mecca, Israr Ahmed Mecca, and Ashfaque Ahmed Mecca. It was further observed that Smt.Suganya, who was associated with the accounts function of M/s.Farida Holdings Pvt. Ltd., maintained the books of account of the Singapore entity, and that Irshad Ahmed Mecca received remuneration from it. The statements were recorded during the search from Smt.Suganya and Mr.Chittibabu, who were serving as IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 9 ::
Associate Head - Accounts of M/s.Farida Shoes Pvt. Ltd. and also as Accounts Head of M/s.Pacific Strides Pvt. Ltd. (Singapore). 6.4 On the basis of these materials and statements, the AO concluded that the commission payments reflected therein constituted inflated purchases in the hands of the Assessees.
Farida Group of Companies Inflated AY Company ITAT Appeal No purchase 2022-23 Farida Shoes Private Limited ITTPA53/CHNY/2025 28,28,450 2021-22 Farida Shoes Private Limited ITTPA52/CHNY/2025 28,61,167 2020-21 Farida Shoes Private Limited ITTPA51/CHNY/2025 32,88,544 2019-20 Farida Shoes Private Limited ITTPA50/CHNY/2025 47,15,825 Total 1,36,93,986 Farida Classic Shoes Private 2019-20 Limited ITTPA2/CHNY/2026 40,71,273 Farida Classic Shoes Private 2020-21 Limited ITTPA3/CHNY/2026 43,44,198 Farida Classic Shoes Private 2021-22 Limited ITTPA4/CHNY/2026 19,35,476 Farida Classic Shoes Private 2022-23 Limited ITTPA5/CHNY/2026 22,04,331 Total 1,25,55,278 2019-20 Delta Shoes Private Limited ITTPA46/CHNY/2025 21,20,867 2020-21 Delta Shoes Private Limited ITTPA47/CHNY/2025 28,86,539 2021-22 Delta Shoes Private Limited ITTPA48/CHNY/2025 6,35,906 2022-23 Delta Shoes Private Limited ITTPA49/CHNY/2025 5,98,405 Total 62,41,717 2019-20 Aston Shoes Private Limited ITTPA1/CHNY/2026 47,32,678 2020-21 Aston Shoes Private Limited ITTPA42/CHNY/2025 28,09,954 2022-23 Aston Shoes Private Limited ITTPA43/CHNY/2025 17,87,711 Total 93,30,343 India shoes exports private 2020-21 limited ITTPA44/CHNY/2025 37,00,884 India shoes exports private 2021-22 limited ITTPA45/CHNY/2025 20,18,482 Total 57,19,366 Grand Total 4,75,40,690 IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 10 ::
6.5 The ld.AR assailing the action of the Assessing Officer's final assessment orders, submitted the paper books along with copies of judicial precedents relied upon. He submitted that the Assessees are engaged in the export of leather footwear across international markets. Their manufacturing operations rely on key raw materials such as finished leather, PVC soles, TPR soles, synthetic lining, and fabrics. A significant portion of these inputs is sourced from globally reputed suppliers, including JBS S.A., a Brazil-based multinational specializing in leather processing, and Sadesa, a globally recognized manufacturer of premium-quality leather. Procurement from such established entities ensures adherence to stringent quality standards required for sustaining an export-driven business model. 6.6 At the outset, he submitted that the addition made by the AO, treating the commission income earned by Pacific Stride Pte. Ltd.
("PSPL"), Singapore, as undisclosed income of the Assessees, is fundamentally flawed both on facts and in law. The addition is based on mere presumptions without any substantive evidence to establish that such income belongs to the Assessee.
6.7 He further submitted that M/s.PSPL is an independent legal entity incorporated in Singapore and is actively engaged in its own business operations. It is neither fictitious nor a sham. The entity has consistently filed its tax returns in Singapore, duly reporting and paying taxes on the commission income under the respective laws of the country. This fact clearly establishes that the income accrues to PSPL in its own right. Therefore, the ld.AR stated that in the absence of any material to disregard its separate legal identity, IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 11 ::
attributing its income to the Assessee is arbitrary and unsustainable.
6.8 Further the ld.AR also argued that AO's conclusion that PSPL's commission represents inflated purchases or profit diversion lacks evidentiary support. On the contrary, the Assessees have furnished substantial documentation establishing the genuineness of transactions. The Email correspondence demonstrates PSPL's active role in vendor identification, price negotiation, and procurement facilitation. Further, the ld.AR drawn our attention to the independent customs import data which shows that the prices paid by the Assessee are at arm's length and, in fact, lower than comparable imports, thereby disproving any allegation of inflated purchases.
6.9 He further highlighted that there is no funds flow from PSPL to the Assessee. In fact, the agreed commission is directly received by PSPL from overseas suppliers for services rendered. Therefore, the ld.AR pointed out that the Assessee neither pays nor receives any portion of such commission. In the absence of any economic benefit or nexus, taxing such income in the hands of the Assessee is contrary to settled principles of taxation.
6.10 Further, the ld.AR argued that the AO's reliance on statements recorded during search proceedings is misplaced. A proper reading of such statements supports the Assessees' case, confirming PSPL's role as a facilitator. There is no admission indicating that PSPL acted as a conduit for routing income. Further ld.AR submitted that it is a trite law that statements alone, without corroborative evidence, cannot justify the additions.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 12 ::
6.11 Further, ld.AR argued that the addition disregards commercial realities of international trade, where independent intermediaries commonly earn commissions for sourcing and facilitation services.
In the present facts the PSPL's role aligns with such accepted practices and does not, by itself, imply tax evasion. Accordingly, the ld.AR submitted that the addition is based on conjecture and lacks evidentiary backing.
6.12 The ld.AR relied on the following documents and referred to the paper book filed.
1. Assessment Notices issued to PSPL in Singapore evidencing taxation of commission income in the hands of the said entity
- Vol. 7, Pages 2335 (AY 2019), 2339 (AY 2020), 2340-2341 (AY 2021).
2. Details evidencing that Irshad Ahmed Mecca is a Director of the Assessee Company and the sole employee of PSPL - Vol. 7, Pages 2342-2343.
3. Assessment Orders/Notices in Singapore in the case of Irshad Ahmed Mecca evidencing tax paid on remuneration received from PSPL - Vol. 7, Pages 2344-2347 (AY 2019), 2348-2351 (AY 2020), 2352-2354 (AY 2021).
4. Income-tax returns of Irshad Ahmed Mecca filed in India, wherein exemption has been claimed in respect of the said income under the applicable Double Taxation Avoidance Agreement (DTAA) - Vol. 7, Pages 2355-2654 o AY 2019-20 - Page 2401 o AY 2020-21 - Page 2465 o AY 2021-22 - Page 2557 IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 13 ::
o AY 2022-23 - Page 2634
5. Email correspondence with suppliers demonstrating active negotiation and facilitation of procurement, evidencing rendition of services - Vol. 7, Pages 2655-2675.
6. Independent data obtained from raw material suppliers in the leather industry, including Sadesa (Pages 2678-2694) and JBS S.A. (Page 2677), substantiating comparative pricing and commercial justification.
7. Invoice for procurement of trade data from SEAIR Exim Solutions, an authorized customs data provider - Page 2695.
8. It is submitted that SEAIR Exim Solutions is a recognized private data aggregator compiling information from customs records, shipping documents, and other trade-related sources. While the underlying data is derived from official or semi- official sources, the same is independently processed and presented. Such data is widely regarded as reliable for commercial and analytical purposes, and serves as corroborative material capable of supporting the Assessee's position, particularly in matters involving pricing analysis and market intelligence.
6.13 Further, he drew our attention to the paper book pages nos. 2335, 2342, 2344 of Vol. VII for A.Y.2022-23, Page Nos.2355 to 2401 for A.Y.2019-20, Page Nos.2465, 2557, 2634, 2695, 2676, 2678, 2655 to 2675 for A.Y.2020-21. In view of the above arguments the ld.AR stated that the Assessees have discharged their burden through comprehensive documentation, while the Revenue has failed to rebut the same, hence he prayed for deleting the same.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 14 ::
6.14 Per contra, the ld.DR submitted that the director Irshad Ahmed Mecca of the Farida group, is also a director of the PSPL and hence the commission earned by him is nothing but shifting income to Singapore. Therefore, the ld.DR supported the orders of the authorities and prayed for confirming the same. 6.15 We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with paper books filed. The short issue that arises for consideration is whether the commission income admittedly earned by M/s.Pacific Strides Pte. Ltd., Singapore, can be assessed in the hands of the Assessees merely on the basis of suspicion that the same represented inflated purchases or diverted profits. 6.16 At the outset, it is an undisputed fact emerging from the records that PSPL is an incorporated entity in Singapore and is carrying on business operations in its own name. It is also not disputed by the Revenue that PSPL has filed its tax returns in Singapore and the commission income in question has been duly disclosed before the Singapore tax authorities. The Revenue has nowhere brought any material on record to establish that PSPL is a non-existent or fictitious concern.
6.17 It is a settled proposition of law that a company incorporated under law has a separate and distinct legal identity independent of its shareholders and directors. The corporate veil can be lifted only where the Revenue establishes by cogent evidence that the entity is a sham, façade or merely a colourable device created for tax evasion. Mere commonality of directors or managerial control IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 15 ::
cannot, by itself, justify disregard of the separate legal existence of a company.
6.18 In the present case, except drawing adverse inferences from the relationship between the promoters of the Assessees and PSPL, the Revenue has not brought any independent evidence to demonstrate that the income earned by PSPL actually accrued to the Assessees. There is no evidence of any money trail, fund diversion, circular routing or repatriation of commission income back to the Assessees.
6.19 We further find force in the submissions of the ld.AR that the commission received by PSPL was directly paid by overseas suppliers for procurement facilitation and related services rendered by PSPL. The Revenue has failed to controvert this factual position with any substantive evidence. Even the seized email correspondences relied upon by the Revenue only indicate coordination and facilitation activities undertaken by PSPL and do not establish any arrangement for siphoning of profits. 6.20 The AO has also alleged inflation of purchases without carrying out any independent benchmarking or market comparison to demonstrate that the prices paid by the Assessees exceeded prevailing market value. On the contrary, the Assessees have produced customs import data and comparable pricing details indicating that the import prices were at arm's length. The Revenue has not rebutted such evidences by bringing any contrary material on record.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 16 ::
6.21 It is well settled that suspicion, however strong, cannot take the place of evidence. Additions under the provisions of the Act must be supported by credible and tangible material establishing accrual of income in the hands of the Assessee. In the present case, the entire edifice of the addition rests upon conjectures and presumptions without establishing any live nexus between the commission income earned by PSPL and the Assessees before us. 6.22 We also find merit in the contention of the ld.AR that in international trade practices, procurement facilitators and sourcing intermediaries commonly earn commission from suppliers for identifying buyers, coordinating supplies, quality assurance and logistics support. Merely because such intermediary entity is associated with the promoter group does not automatically render the transaction sham or colourable unless the Revenue discharges its burden through cogent evidence.
6.23 As regards the reliance placed by the Revenue on statements recorded during search proceedings, we find that none of the statements relied upon contain any categorical admission that the commission income belonged to the Assessees or that PSPL acted merely as a conduit entity. It is trite law that statements recorded during search, in the absence of corroborative material, cannot form the sole basis for sustaining additions.
6.24 We further note that the Revenue has not invoked or established applicability of any anti-avoidance provisions, nor has any transfer pricing adjustment been made on the footing that the purchases were excessive or not at arm's length under the relevant statutory provisions. In the absence of any statutory determination IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 17 ::
of excessiveness of expenditure, the ad hoc attribution of commission income earned by a foreign entity to the Assessees is legally unsustainable.
6.25 It is a trite law that the legitimate business structures and commercial arrangements cannot be disregarded merely on suspicion unless there exists clear evidence of tax evasion or sham transactions. The burden lies heavily upon the Revenue to establish that the apparent is not real. In the present case, such burden has not been discharged.
6.26 On a careful appreciation of the entire factual matrix, we are of the considered view that the AO proceeded entirely on presumptions without bringing any legally sustainable material to establish:
(i) that the purchase prices paid by the Assessees were inflated;
(ii) that the commission income earned by PSPL actually accrued to the Assessees;
(iii) that there was any flow back of funds to the Assessees;
or
(iv) that PSPL was a sham or fictitious entity.
6.27 In the absence of such foundational facts, the additions made by the AO cannot be sustained. The Assessees, on the other hand, have discharged the primary onus cast upon them by producing documentary evidences including supplier correspondences, customs import data, tax records of PSPL and details of services rendered by PSPL.
6.28 Therefore, considering the totality of the facts and circumstances of the case, we hold that the additions made towards alleged inflated purchases by attributing the commission income IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 18 ::
earned by M/s.Pacific Strides Pte. Ltd., Singapore, as undisclosed income of the Assessees are unsustainable in law and on facts. Accordingly, the additions made in the respective assessment years in the hands of all the Assessees under this issue are directed to be deleted and hence the grounds raised by all the captioned Assessees on this issue are allowed.
7. Disallowance of Credit Card Expenditure:
7.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2019-20 to 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2019-20 to 2021-22 in the case of Farida Classic Shoes Pvt. Ltd.; and
c) AY 2022-23 in the case of Aston Shoes Pvt. Ltd.
d) AY 2020-21 & 2021-22 in the case of India Shoes Exports Pvt Ltd.
7.2 The assessee had claimed expenditure spent through credit of the promoters to the extent of 37% after disallowing voluntarily in the computation to the tune of 63% treating it as personal expenses. However, the AO completed the assessment by disallowing the expenditure claimed by spending through credit cards to the tune of 37% also.
7.3 The ld.AR submitted that the disallowance of credit card expenses is arbitrary and ignores the assessee's bona fide conduct. He further stated that the assessee had undertaken a detailed review and suo moto disallowed approximately 63% of the expenditure where any personal element could be inferred. Only the remaining 37%, clearly attributable to business purposes such as IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 19 ::
travel, client interactions, and business promotion were claimed. The summary of credit card expenditure, along with the suo motu disallowance made by the Appellant under Section 37, is set out in Volume 8, Page 2696 of the typed set of papers. Further, the sample extracts reproduced in the Assessment Order at Page 38 (AY 2019-20: Page 43; AY 2020-21 - Farida Shoes: Page 38; AY 2021- 22: Page 35; AY 2022-23: Page 52) clearly demonstrate the nature and character of the expenses incurred.
7.4 The ld.AR further stated that despite submission of complete documentation including transaction-wise details and supporting evidence the AO disallowed the entire balance without proper examination. This approach is mechanical and contrary to law.
The ld.AR argued that the disallowance of credit card expenditure by the AO proceeds on an erroneous presumption that such expenses are inherently personal in nature, without appreciating the scale, nature, and commercial realities of the Appellant's business. The assessee is engaged in a high-volume, export-oriented line of business, involving continuous interaction with overseas customers, suppliers, and intermediaries. In such a business environment, it is neither unusual nor avoidable that a portion of operational and business development expenses are incurred through credit cards, including those held by senior executives and directors. 7.5 Further, he stated that u/s.37(1) of the Act, the allowability of expenditure depends on its business purpose, not the mode of payment. The use of credit cards, including those held by directors or employees, is a standard business practice, particularly in export- oriented industries involving international transactions.
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The AO has failed to identify any specific instance of personal expenditure within the claimed amount and has made a blanket disallowance based on presumption. Such action is legally untenable, especially when the assessee has already exercised due diligence in excluding personal expenses.
7.6 The ld.AR further argued that the business expediency must be assessed from the perspective of the businessman as judicially acknowledged. The Hon'ble Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. has clearly held that the question whether an expenditure is incurred for the purposes of business must be judged from the perspective of the businessman and not from that of the Revenue authorities. The commercial expediency of an expenditure is to be evaluated having regard to the business needs of the Assessee. In the present case, the Learned AO has substituted his own assumptions in place of objective analysis and has disregarded the Assessee's explanation without any cogent reasoning. The AO's approach disregards this principle and substitutes it with subjective assumptions.
7.7 In view of the above, the ld.AR stated that the disallowance is arbitrary, unsupported by evidence, and liable to be deleted.
Per contra, the ld. DR relied upon the findings of the AO and submitted that the assessees had failed to conclusively establish that the entire expenditure claimed was incurred exclusively for business purposes. According to the Revenue, the possibility of personal element could not be eliminated merely because partial disallowance had already been offered by the assessees.
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We have carefully considered the rival submissions and perused the orders of the lower authorities as well as the material available on record. The short controversy before us is whether the AO was justified in disallowing the balance portion of credit card expenditure after the assessees had already voluntarily disallowed a substantial percentage of such expenditure in the computation of income. 7.8 At the outset, it is pertinent to observe that the assessees themselves have undertaken an exercise of segregation and voluntarily disallowed approximately 63% of the expenditure by treating the same as personal or not fully verifiable in nature. Such conduct of the assessees demonstrates bona fides and a fair approach in computing taxable income.
7.9 Once the assessees have already made substantial suo moto disallowance after internal verification, the burden shifts upon the Assessing Officer to establish, with cogent material and specific findings, that the remaining expenditure claimed also contains personal or non-business elements. In the present case, we find that the AO has failed to identify even a single specific transaction within the balance 37% expenditure which could be categorised as personal in nature.
7.10 The disallowance has been made purely on presumptions and general observations without undertaking any transaction-specific examination. Such blanket disallowance, in our considered view, is unsustainable in law. It is a settled principle that u/s.37(1) of the Act, the allowability of expenditure depends upon the purpose for which the expenditure is incurred and not upon the mode through which payment is made. Merely because the expenditure was IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 22 ::
incurred through credit cards held in the name of promoters/directors cannot automatically lead to the conclusion that the expenditure is personal.
7.11 In modern business environments, particularly in export-
oriented industries such as leather footwear manufacturing involving overseas buyers, international travel, customer meetings, trade exhibitions, hospitality, and urgent commercial transactions, usage of credit cards of directors/promoters is a commercially accepted business practice. Commercial realities and business expediency cannot be ignored while adjudicating allowability of expenditure. The ld.AR referred to the paper book Vol. VIII, page Nos.2696 for the details of credit card expenses.
7.12 We further note that the AO has not disputed the genuineness of the expenditure nor brought any evidence on record to establish that the expenditure resulted in any personal benefit to the directors or promoters. No finding has been recorded that the expenditure was fictitious, inflated, or unsupported by books of account. 7.13 It is equally well settled that suspicion, however strong, cannot take the place of evidence. Ad hoc disallowances made merely on conjectures and surmises are not permissible, particularly when books of account are maintained and supporting materials are available. The Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT reported in 288 ITR 1 has held that the expression "commercial expediency" is of wide import and the Revenue authorities cannot substitute their own wisdom in place of the businessman's decision. Similarly, various judicial precedents have consistently held that where expenditure is incurred for business IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 23 ::
purposes and the Revenue fails to establish personal use with cogent evidence, disallowance cannot be sustained merely on estimated or presumptive basis.
7.14 In the present case, the assessees have not only maintained books of account but have also voluntarily disallowed substantial expenditure wherever any personal element was perceived. In such circumstances, further blanket disallowance without identifying specific defects or personal transactions amounts to double disallowance of the same stream of expenditure and leads to arbitrary taxation.
7.15 We therefore hold that the AO was not justified in disallowing the balance 37% of credit card expenditure claimed by the assessees. Accordingly, the additions made on account of disallowance of credit card expenditure in the hands of the respective assessees are directed to be deleted. Thus, the grounds raised by the all the assessees as referred in preceding para on this issue stand allowed.
8. Disallowance u/s.40A(3):
8.1 This issue pertains exclusively to M/s.Farida Shoes Pvt. Ltd. and spans Assessment Years 2019-20 to 2022-23. The assessee respectfully draws the attention of the Bench to Pages 36 to 43 of the AO in the case M/s.Farida Shoes Pvt. Ltd in the AY 2021-22. 8.2 The facts in the present case relating to the disallowance of packing and forwarding expenses on account of alleged cash payments made in violation of section 40A(3) of the Act and alleged IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 24 ::
non-genuine cash expenditure unsupported by proper vouchers/evidences.
8.3 The AO identified from the seized Tally data that during the Financial Year 2021-22 relevant to Assessment Year 2022-23, the assessee had allegedly made cash payments exceeding the prescribed monetary limit under section 40A(3) amounting to Rs.
6,44,000/- and cash payments amounting to Rs.17,90,621/- claimed under packing and forwarding charges without supporting vouchers/evidence. Accordingly, the dispute pertains to the allowability, and genuineness of the aforesaid expenditure claimed by the assessee.
8.4 The AO observed that despite issuance of show cause notice, the assessee failed to furnish satisfactory documentary evidence in support of the impugned cash payments. The assessee contended that the payments represented temporary wages and overtime payments to migrant workers engaged in the packing section and were made in cash due to social audit concerns raised by overseas customers. However, except for ledger extracts and unsigned cash vouchers, no corroborative evidence such as worker registers, signed acknowledgements or proper vouchers were furnished. 8.5 The AO further recorded the following findings • The ledger extracts reflected cash payments exceeding the prescribed limit u/s.40A(3) of the Act, booked under random names, without supporting details or signed records from workers/staff.
• The assessee furnished only unsigned vouchers and failed to produce proper documentary evidence to substantiate the genuineness of the expenditure. Consequently, the Assessing Officer inferred that bogus expenses could have been booked under packing and forwarding charges, though complete IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 25 ::
disallowance was not considered appropriate considering the labour-oriented nature of business.
• During the course of search proceedings, statements recorded u/s.132(4) of the Act from Shri T. Mohammed Arshad, HOD (Finance), and Shri Irshad Ahmed Mecca, Director, revealed that the impugned cash expenses did not have supporting documentary evidences and vouchers were not raised for such expenses.
• The AO also noted that substantial expenditure had already been claimed separately under "salary and wages" in the audited financial statements and, therefore, booking additional labour-related expenses under packing and forwarding charges without proper evidence raised doubts regarding genuineness. • Considering the nature of business and the admissions made during search proceedings, the Assessing Officer concluded that part of the expenditure was not genuine and that the cash payments violating section 40A(3) were not fully substantiated.
Based on the above findings, the AO proposed disallowance of 20% of the aggregate amount of Rs.24,34,621/- comprising both the alleged section 40A(3) violations and unsupported cash payments. Accordingly, an addition of Rs.4,86,924/- was proposed in the draft assessment order.
8.6 The DRP examined the objections raised by the assessee against the draft assessment order passed u/s.144C(1) of the Act.
The DRP observed that the AO had identified cash payments exceeding the prescribed limit u/s.40A(3) amounting to Rs. 6,44,000/- from the seized Tally data and that the assessee failed to furnish credible evidence to establish that no individual cash payment exceeded the threshold prescribed under the Act. Therefore, the DRP directed the AO to disallow the entire amount of Rs. 6,44,000/- u/s.40A(3) of the Act. In respect of the remaining IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 26 ::
unsupported cash expenditure of Rs.17,90,621/-, the DRP confirmed the AO's action in disallowing 20% thereof on the ground that the assessee failed to substantiate the expenditure with proper supporting evidences.
Consequently, pursuant to the directions of the DRP, the total disallowance was enhanced and finally computed at Rs.10,02,125/- comprising:
• Rs. 6,44,000/- u/s.40A(3); and • 20% of Rs. 17,90,621/- towards unsupported expenditure. 8.7 The ld. ld.AR for the assessee submitted that the disallowance made u/s.40A(3) of the Act is founded upon an erroneous interpretation and application of the statutory provision. It was contended that the monetary threshold prescribed u/s.40A(3) is applicable qua each person per day and not on the aggregate of payments made to different individuals.
8.8 The Ld.AR submitted that, in the present case, no cash payment exceeding Rs.10,000/- was made to any single person on any particular day. However, the AO, without appreciating the true scope of section 40A(3), has wrongly aggregated payments made to various workers and treated the same as violative of the provision, which is contrary to the scheme and intent of the Act.
The ld.AR drew our attention to the comprehensive summary of the alleged disallowance is set out at Volume 8, Page 2697 of the typed set of papers. He further contended that a detailed verification of the underlying records clearly demonstrates that no individual payment exceeds the threshold of Rs.10,000/-, thereby fully complying with the statutory requirements.
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8.9 He submitted that a detailed summary of the impugned disallowance is provided at Volume 8, Page 2697 of the typed set of papers. A perusal thereof would reveal that Column 2 comprises payments duly supported by vouchers and documentary evidence, and therefore do not warrant any disallowance under Section 40A(3) of the Act. In contrast, Column 4 relates to payments for which supporting vouchers are not available, and accordingly, any disallowance, if at all, ought to be restricted to 20% as reflected in Column 3.
He drew our attention to the paper book for the sake of clarity and ease of reference, wherein the relevant documents are placed on record in a year-wise chronological manner as under:
• Assessment Year 2019-20:
o Ledger copies: Pages 2698 to 2882 o Supporting documents: Pages 2883 to 2900 • Assessment Year 2020-21:
o Ledger copies: Pages 2901 to 3009 o Supporting documents: Pages 3010 to 3018 • Assessment Year 2021-22:
o Ledger copies: Pages 3019 to 3115 o Supporting documents: Pages 3116 to 3120 • Assessment Year 2022-23:
o Ledger copies: Pages 3121 to 3227 Supporting documents: Pages 3228 to 3231 8.10 It was further submitted that the impugned payments represented routine packing and forwarding expenses incurred towards wages and labour charges paid to multiple workers engaged in the assessee's business operations and each payment was within the permissible monetary limit prescribed under law. 8.11 The Ld.AR further contended that the ad hoc disallowance of 20% of the expenditure is wholly arbitrary and dehors the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 28 ::
provisions of the Act, as section 40A(3) does not contemplate any estimated or proportionate disallowance without identification of specific instances of violation. It was argued that the expenditures were genuine in nature, duly recorded in the regular books of account, and incurred wholly and exclusively for the purpose of business. Accordingly, it was submitted that the impugned disallowance made by the Assessing Officer and sustained by the DRP is legally unsustainable and liable to be deleted. 8.12 In light of the facts and circumstances of the case, the material placed on record, and the settled position of law, it is most respectfully prayed by the ld.AR to delete the disallowance made u/s.40A(3) of the Act in respect of packing and forwarding charges, as the payments are either duly supported by documentary evidence or are within the prescribed limits; and in the alternative, restrict the disallowance strictly to 20% of such payments where supporting vouchers are not available, as reflected in the summary placed on record.
8.13 Per contra the ld.DR relied on the orders of the authorities and submitted that these are the expenditure were disallowed based the seized materials, wherein the amounts spent was in excess of the threshold limit of section 40A(3) of the Act and hence prayed for dismissing the grounds of the assessee.
8.14 We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the material available on record. The issue arising for consideration relates to the disallowance made u/s.40A(3) of the Act and the estimated IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 29 ::
disallowance sustained in respect of packing and forwarding expenses allegedly unsupported by proper vouchers/evidences. The AO made the impugned addition primarily on the basis of seized Tally data, certain unsigned vouchers and statements recorded during the course of search proceedings. The DRP thereafter enhanced the disallowance by directing complete disallowance of Rs.6,44,000/- u/s.40A(3) of the Act and sustaining 20% disallowance in respect of the remaining expenditure of Rs.17,90,621/-.
8.15 Upon careful consideration of the entire material on record, we find substantial merit in the submissions advanced by the ld.AR for the assessee. The provisions of section 40A(3) clearly contemplate disallowance only in cases where payment exceeding the prescribed monetary threshold is made to a person in a single day otherwise than through prescribed banking channels. The statutory requirement is person-specific and day-specific. However, in the present case, neither the AO nor the DRP has brought on record any concrete material demonstrating that any individual worker or payee received cash payment exceeding the prescribed limit on any particular day.
8.16 On the contrary, the consistent explanation of the assessee has been that the payments represented labour charges, overtime wages and routine packing expenses paid to multiple migrant workers engaged in the packing section and that each payment remained within the permissible statutory limit. The Revenue authorities have merely aggregated various payments made to different individuals and proceeded on presumptions to invoke IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 30 ::
section 40A(3), which, in our considered opinion, is contrary to the scheme and intent of the provision.
8.17 We further notice that no independent enquiry has been conducted by the AO to establish that the payments were bogus or fictitious in nature. The books of account of the assessee have not been rejected. The expenditure stands duly recorded in the regular books maintained in the ordinary course of business. Merely because certain vouchers were unsigned or complete supporting documentation was not maintained in the manner desired by the Revenue authorities, the genuine business expenditure cannot be disallowed in the absence of any material demonstrating falsity of the claim.
8.18 The observations of the AO are largely based on suspicion, surmises and general allegations. Even the estimated disallowance of 20% has no statutory basis. Section 40A(3) does not authorize adhoc or proportionate disallowance without identification of specific instances of violation. The Revenue authorities have failed to point out any inflated claim, fictitious payee or diversion of funds. In the absence of such findings, the impugned addition cannot be sustained merely on conjectures.
8.19 We also find that the statements recorded during the course of search proceedings merely indicate absence of proper vouchers in certain cases and do not establish that the expenditure itself was non-genuine. It is a settled principle of law that suspicion, however strong, cannot substitute legal proof. The Revenue having failed to discharge the burden cast upon it to establish actual violation of IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 31 ::
section 40A(3) or falsity of expenditure, the disallowance made by the AO and sustained by the DRP is liable to be deleted. 8.20 Accordingly, we hold that the disallowance of Rs.6,44,000/-
made u/s.40A(3) of the Act are unsustainable in law. The AO is directed to delete the entire addition of Rs.6,44,000/-. Accordingly, the grounds raised by the assessee as referred in the preceding para for all the assessment years pertaining to 2019-20 to 2022-23 are allowed.
8.21 Coming to the issue of estimated disallowance of 20% on Rs.17,90,621/- towards alleged unsupported expenditure, we note that the assessee, even before us failed to substantiate the expenditure with any of the supporting evidences / vouchers. Hence, we are of the considered opinion that the department has fairly restricted the disallowance to 20% of the expenditure claimed and hence we confirm the action of the AO and of the ld.CIT(A). Accordingly, the grounds raised by the assessee as referred in the preceding para for all the assessment years pertaining to 2019-20 to 2022-23 are dismissed.
9. Addition on Account of Stock Devaluation:
9.1 This issue pertains solely to M/s.Farida Shoes Pvt. Ltd. and relates to Assessment Years 2019-20 and 2022-23. The assessee respectfully invites the attention of the Bench to Pages 26 to 38 of the Assessment Order for AY 2019-20 and Pages 34 to 48 of the Assessment Order for AY 2022-23 in the case of the said assessee.
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9.2 The brief fact of the present issue relates to the addition made on account of alleged suppression of gross profit arising from devaluation of leather stock by the assessee-company during the FY 2021-22 relevant to AY 2022-23. The Revenue alleged that the assessee had manipulated the valuation of closing stock through systematic devaluation of non-moving leather stock in order to reduce taxable profits and generate unaccounted cash. 9.3 During the course of search proceedings conducted on 23.08.2022 in the business premises of the assessee, the Department found a separate "Devalue" option in the Eureka ERP system and also seized loose sheets containing details of stock devaluation. Based on such materials and statements recorded during search proceedings, the AO concluded that the assessee had been consistently reducing the value of leather stock without following proper accounting standards and thereby suppressing its gross profit.
9.4 The specific addition made for the year under consideration pertained to alleged under-valuation of leather stock measuring 20,056 sq.ft., wherein the actual value of Rs.32,31,935/- was reduced to Rs.4,61,288/-, resulting in an alleged suppression of gross profit of Rs.27,70,647/-.
The AO observed that during search proceedings, it was discovered from the Eureka ERP system and seized loose sheets that the assessee had been devaluing leather stock over multiple years. Statements recorded from Shri Chittibabu, AHOD Accounts, u/s.132(4) of the Act revealed that substantial quantities of leather stock had been drastically reduced in value based on prevailing IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 33 ::
market rates for unused leather. It was also admitted that no separate ledger or separate workstation was maintained for devalued stock.
9.5 The AO further observed that during post-search investigation it was found that the assessee had directly altered the purchase price of old leather stock by running a Structured Query Language (SQL) command in the ERP system, whereby the purchase cost of leather items was changed to Rs.20/- per unit. Approximately 5,000 entries were found to have been modified through such SQL commands.
According to the AO, this established that the assessee had manipulated stock values arbitrarily without adopting any recognized accounting methodology or item-wise identification process.
9.6 The AO also rejected the assessee's explanation that the devalued stock represented obsolete and non-moving leather stock arising due to leftover materials, cancellation of export orders and rejected leather. The AO held that the assessee failed to furnish proper supporting documents to substantiate the claim of obsolescence and further noted that the assessee had allegedly sold such stock to M/s.Skywalk Shoes through unaccounted cash transactions discovered during search proceedings. 9.7 The Assessing Officer further held that:
• The assessee had repeatedly carried out stock devaluation year after year;
• No systematic accounting standards were followed for valuation;
• No separate records were maintained for devalued stock; and • The devaluation exercise was intended to suppress gross profit and generate unaccounted cash.
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Accordingly, the AO treated the under-valuation of stock amounting to Rs.27,70,647/- as suppression of gross profit and added the same to the total income of the assessee for AY 2022-23. Aggrieved by the draft assessment order passed u/s.144C(1) of the Act, the assessee filed objections before the DRP. The DRP observed that the explanations furnished by the assessee were unsupported by verifiable evidence and stood contradicted by the seized materials and sworn statements recorded during search proceedings. Accordingly, the DRP confirmed the addition of Rs.27,70,647/- made by the AO on account of manipulation of stock valuation.
9.8 The ld.AR for the assessee submitted that the addition made by the AO on account of alleged stock devaluation is wholly unjustified both on facts and in law. It was contended that the impugned stock represented non-moving and obsolete leather stock arising due to leftover materials after execution of export orders, cancellation of export orders and rejected leather unsuitable for regular production purposes.
9.9 The Ld.AR submitted that the stock was valued on the basis of prevailing market price for unused and obsolete leather as on the year-end and such valuation is permissible under settled principles of stock valuation and recognized accounting practices. It was argued that valuation of obsolete or non-moving inventory at realizable market value is an accepted accounting principle and the assessee had consistently followed the same method. 9.10 The Ld.AR further submitted that the devalued stock remained reflected in the books of account and was ultimately sold to IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 35 ::
M/s.Skywalk Shoes through banking channels. The assessee had furnished copies of invoices, ledger extracts and corresponding bank statements evidencing the sale transactions. It was specifically denied that any unaccounted cash sales had taken place in respect of the impugned stock.
9.11 It was further contended that the Revenue authorities failed to appreciate that the closing stock of one year automatically becomes the opening stock of the succeeding year and therefore the entire exercise is revenue-neutral in nature. The Ld.AR submitted that no prejudice whatsoever had been caused to the Revenue, particularly when the stock was subsequently sold at a value lower than the devalued figure adopted by the assessee.
9.12 The assessee also relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs Alfa Laval (India) Pvt. Ltd. in support of the proposition that obsolete and non-moving inventory can legitimately be valued at realizable market value. It was submitted that the AO had rejected the assessee's explanation merely on suspicion and presumptions without bringing any cogent material on record to establish inflation or suppression of profits.
Accordingly, the Ld.AR prayed for deletion of the addition made on account of alleged stock devaluation.
9.13 Per contra, the ld.DR strongly relied upon the findings recorded by the Assessing Officer and the directions issued by the DRP. The Ld.DR submitted that incriminating materials discovered during search proceedings clearly established systematic manipulation of stock valuation by the assessee through the ERP system. Particular reliance was placed upon the seized loose sheets, ERP data and the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 36 ::
statements recorded from Shri Chittibabu u/s.132(4) of the Act admitting stock devaluation and absence of separate records for such stock.
9.14 The Ld.DR further submitted that the assessee had directly altered stock values through SQL commands by reducing purchase cost of leather items to arbitrary figures and approximately 5,000 entries were modified in the ERP system. According to the Revenue, such manipulation could not be regarded as genuine stock valuation carried out in accordance with accounting standards. 9.15 It was further argued that the assessee failed to furnish any independent valuation report, item-wise inventory details or documentary evidence substantiating the alleged obsolescence of stock. The Revenue also contended that search findings indicated unaccounted cash sales to M/s. Skywalk Shoes and therefore the plea of genuine business valuation was not acceptable.
Accordingly, the Ld.DR submitted that the AO as well as the DRP had rightly concluded that the assessee had manipulated stock valuation with the intention of suppressing gross profit and generating unaccounted income. The Ld.DR therefore prayed for sustaining the addition made by the lower authorities. 9.16 We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the materials available on record. The issue involved in the present appeal relates to the addition made on account of alleged suppression of gross profit arising from devaluation of leather stock by the assessee-company during the FY 2021-22 relevant to AY 2022-23.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 37 ::
9.17 The Revenue proceeded to make the impugned addition primarily on the basis of certain data found in the Eureka ERP system, seized loose sheets and statements recorded during the course of search proceedings, alleging that the assessee had systematically manipulated the value of closing stock in order to reduce taxable profits. The Assessing Officer further relied upon the alleged modification of stock values through SQL commands and treated the difference between the original value and devalued value of leather stock amounting to Rs.27,70,647/- as suppression of gross profit.
9.18 At the outset, we find that there is no dispute with regard to the fact that the impugned stock represented old, unused and non-
moving leather stock. The consistent explanation of the assessee before the lower authorities as well as before us has been that such stock arose on account of leftover materials after completion of export orders, cancellation of export orders and rejected leather unsuitable for regular production purposes. The assessee has also consistently stated that the stock was valued at realizable market value based on prevailing market rates for obsolete and unused leather.
9.19 It is a settled principle of accounting and taxation that closing stock is ordinarily to be valued at cost or net realizable value, whichever is lower. Reduction in the value of obsolete, damaged or non-moving stock based on realizable market value is a recognized and accepted accounting principle. The Hon'ble Supreme Court in CIT vs Alfa Laval (India) Pvt. Ltd. has recognized the permissibility of valuation of obsolete inventory at realizable value where such IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 38 ::
valuation is supported by commercial prudence and business realities.
9.20 In the present case, we find that the AO has not disputed the existence of the stock or its subsequent sale. The assessee has placed on record invoices, ledger extracts and bank statements evidencing sale of such stock to M/s. Skywalk Shoes through banking channels. Except making general allegations regarding alleged cash transactions, the Revenue has not brought any cogent material on record conclusively establishing that the impugned stock was sold outside the books of account or that the consideration received by the assessee exceeded the disclosed value. 9.21 The principal basis adopted by the AO for making the addition is that the assessee had modified stock values in the ERP system through SQL commands and that separate ledgers were not maintained for devalued stock. However, in our considered opinion, these circumstances by themselves do not automatically establish suppression of income unless it is demonstrated that the valuation adopted by the assessee was fictitious, arbitrary or higher realizable value existed in the market.
9.22 The Revenue has also failed to place on record any independent material, market valuation report or expert opinion demonstrating that the realizable market value adopted by the assessee was incorrect or artificially depressed. Merely because the valuation process was carried out through ERP modifications or internal software entries, the same cannot lead to automatic inference of undisclosed income in the absence of evidence showing actual inflation or suppression of profits.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 39 ::
9.23 We further find considerable force in the submission of the assessee that valuation of closing stock is revenue-neutral over a period of time, since the closing stock of one year automatically becomes the opening stock of the succeeding year. In the present case, the assessee has specifically demonstrated that the stock was subsequently sold at a value lower than the devalued figure reflected in the books. Thus, the allegation that the assessee derived any undue tax advantage or generated undisclosed profit remains unsupported by any concrete evidence. 9.24 The addition made by the AO is essentially founded upon suspicion arising from the search materials and software modifications. However, it is a settled proposition of law that suspicion, however strong, cannot substitute legal evidence. The burden lay upon the Revenue to establish with cogent evidence that the assessee had manipulated stock valuation with the intention of suppressing profits and generating unaccounted income. In the absence of any such direct evidence, the impugned addition cannot be sustained merely on presumptions and conjectures. 9.25 We also note that the AO has not rejected the books of account maintained by the assessee u/s.145 of the Act nor has any specific defect been pointed out in the quantitative records maintained by the assessee. Once the books are accepted and the stock is admittedly existing and subsequently sold through disclosed transactions, the addition made solely on estimated assumptions regarding valuation methodology becomes unsustainable. 9.26 Considering the entirety of the facts and circumstances of the case, we are of the considered opinion that the AO as well as the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 40 ::
DRP were not justified in treating the stock devaluation amounting to Rs.27,70,647/- as suppression of gross profit. Accordingly, the addition made on account of alleged manipulation of stock valuation is directed to be deleted. Thus, the grounds raised by the assessee for both the Assessment Years 2019-20 and 2022-23 are allowed.
10. Alleged Unaccounted Scrap and B-Grade Sales:
10.1 The facts in the present issue relates to the addition made towards alleged undisclosed income arising from unaccounted sale of Grade-B shoes/rejected shoes/damaged shoes by the assessee- M/s.Farida shoes Pvt. Ltd. for the FY 2021-22 relevant to AY 2022-
23. The Revenue alleged that the assessee had carried out cash sales of Grade-B shoes outside the regular books of account and thereby generated unaccounted income liable to tax. 10.2 During the course of search proceedings, statements recorded from Shri Mohammed Jaweed, cashier, and Shri T.Mohammed Arshad, HOD Finance, allegedly revealed that certain sales of Grade-
B shoes and damaged shoes were made in cash and were not fully recorded in the books of account. Based on such statements and seized loose sheets, the AO treated a sum of Rs.17,71,000/- pertaining to FY 2021-22 as undisclosed income of the assessee. 10.3 The AO observed that during search proceedings, the cashier Shri Mohammed Jaweed, while explaining the difference in cash found during search, stated in his sworn statement dated 23.08.2022 that a sum of Rs.9,82,246/- represented proceeds from sale of Grade-B shoes/damaged shoes and that such sales were not entered in the regular books of account.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 41 ::
10.4 Subsequently, during the operation of prohibitory order proceedings, statement u/s.132(4) of the Act was recorded from Shri T. Mohammed Arshad, HOD Finance, wherein he explained the nature and disposal of Grade-B and Grade-C shoes. It was stated that such shoes arose due to order cancellations, leather defects, growth marks, looseness and similar defects, and that such goods were sold either to original customers at discounted rates or to local brokers. He further admitted that while most of the sales were accounted in the books, certain Grade-B and Grade-C shoe sales made to vendors such as Habeeb, Nasir and Arif Ahmed on cash basis were not accounted in the books.
10.5 On verification of the submissions subsequently furnished by the assessee, the AO noted that the assessee itself admitted sale of rejected shoes/Grade-B shoes amounting to Rs.17,71,000/- during FY 2021-22 and Rs.34,26,784/- during FY 2022-23. The assessee also claimed that the cash receipts were utilized towards business expenses. However, according to the AO, no proper documentary evidence such as invoices, vouchers or details of payees were furnished in support of such utilization.
10.6 The AO rejected the assessee's contention that the impugned sales had already been offered to tax in AY 2023-24. According to the AO, the income pertaining to a particular assessment year is liable to be taxed in the same assessment year in which it arose and cannot be shifted to a subsequent year. In the absence of corroborative evidence establishing that the impugned amount had already been subjected to tax, the Assessing Officer treated the sum IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 42 ::
of Rs.17,71,000/- as undisclosed income for AY 2022-23 and added the same to the total income of the assessee. 10.7 Aggrieved by the draft assessment order passed u/s.144C(1) of the Act, the assessee filed objections before the DRP. The DRP dismissed the objections of the assessee and confirmed the addition made by the AO towards undisclosed income from sale of Grade-B shoes amounting to Rs.17,71,000/-.
10.8 The ld.AR for the assessee submitted that the addition made by the AO is wholly unsustainable both on facts and in law. It was contended that the assessee had already accounted for the sale of scrap, rejected shoes and Grade-B shoes and had duly discharged applicable GST liability through DRC-03 proceedings. The assessee had also furnished ledger extracts and supporting details evidencing such disclosure.
10.9 The Ld.AR submitted that the amount of Rs.17,71,000/-
pertaining to sale of Grade-B shoes for FY 2021-22 had already been offered to tax in the return of income filed u/s.139(1) of the Act for AY 2023-24. It was argued that once the income had already been disclosed and subjected to tax, the same amount could not again be brought to tax in AY 2022-23, as it would result in impermissible double taxation.
10.10 The Ld.AR further submitted that the Revenue authorities failed to appreciate the peculiar nature of the assessee's business, wherein rejected shoes, scrap and Grade-B products are periodically disposed of at discounted prices. The assessee had maintained details of such transactions and there was no material to establish suppression of sales over and above the amounts already disclosed.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 43 ::
It was further contended that the addition had been made merely on the basis of statements recorded during search proceedings without any independent corroborative evidence establishing undisclosed income. The assessee specifically denied that any unaccounted cash sales beyond the disclosed figures had taken place. Accordingly, the Ld.AR prayed for deletion of the addition. Per contra, the ld.DR strongly relied upon the orders of the AO and the DRP.
10.11 The Ld. DR submitted that the search proceedings had unearthed clear evidence of unaccounted sale of Grade-B shoes through sworn statements recorded from key employees of the assessee-company. Particular reliance was placed upon the statement of Shri Mohammed Jaweed, cashier, admitting that cash receipts arising from sale of Grade-B shoes/damaged shoes were not entered in the books of account.
10.12 The Ld.DR further relied upon the statement recorded from Shri T.Mohammed Arshad, HOD Finance, wherein it was categorically admitted that certain sales of Grade-B and Grade-C shoes carried out in cash to specified vendors were not accounted in the books of account.
It was argued that the assessee itself admitted sale of Grade-B shoes amounting to Rs.17,71,000/- during FY 2021-22 and therefore the AO was justified in treating the same as undisclosed income for the relevant assessment year. The Revenue further contended that the assessee failed to furnish credible evidence demonstrating that the said income had already been properly disclosed and taxed in AY 2023-24.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 44 ::
10.13 The Ld.DR submitted that undisclosed income detected during search proceedings is liable to be assessed in the year to which it pertains and cannot be shifted to another assessment year at the convenience of the assessee. Accordingly, it was contended that the AO as well as the DRP had rightly sustained the addition of Rs.17,71,000/- and the same deserved to be upheld. 10.14 We have heard the rival submissions and the issue for adjudication relates to the addition of Rs.17,71,000/- made by the AO towards alleged undisclosed income arising from sale of Grade-
B/rejected/damaged shoes for AY 2022-23.
The addition has primarily been made on the basis of statements recorded during the course of search proceedings from Shri Mohammed Jaweed, cashier of the assessee-company, and Shri T. Mohammed Arshad, HOD Finance, wherein it was stated that certain sales of Grade-B and damaged shoes were effected in cash and were not fully reflected in the regular books of account. The Assessing Officer further observed that the assessee admitted sale of rejected shoes/Grade-B shoes amounting to Rs.17,71,000/- during FY 2021-22 and accordingly treated the same as undisclosed income for the impugned assessment year. However, from the materials placed on record, it is observed that the assessee has consistently contended that the impugned transactions relating to disposal of rejected shoes, scrap and Grade-B products formed part of its regular business activities and that the corresponding income had already been disclosed in the subsequent assessment year. The assessee has also claimed to have discharged applicable GST IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 45 ::
liability through DRC-03 proceedings and furnished ledger extracts and supporting details in support of such disclosure. 10.15 We find merit in the contention of the assessee that merely because certain statements were recorded during search proceedings, the same by itself cannot automatically justify addition unless supported by cogent corroborative material establishing undisclosed income. It is a settled principle of law that statements recorded during search, though relevant pieces of evidence, cannot constitute the sole basis for addition in the absence of independent corroboration, particularly when the assessee disputes the inference drawn therefrom and places contrary documentary materials on record.
10.16 In the present case, except the statements recorded from employees and certain loose sheets, no independent investigation appears to have been carried out by the Assessing Officer to establish that the impugned sales represented income over and above what was already disclosed by the assessee. No finding has been recorded regarding suppression of stock, inflation of expenses, unexplained investment or generation of excess profits outside the books. Further, the AO has not disproved the assessee's claim that the corresponding income had already been offered to tax in AY 2023-24.
10.17 At the same time, the Revenue's contention that income pertaining to a particular assessment year cannot ordinarily be shifted to another year also carries force. However, if the assessee demonstrates with proper evidentiary support that the very same income has already suffered tax in another assessment year, then IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 46 ::
taxing the same amount again would undoubtedly result in impermissible double taxation, which is not sanctioned under the provisions of the Act.
10.18 We further notice that neither the AO nor the DRP has undertaken any factual verification of the ledger extracts, GST disclosures, DRC-03 filings or return of income for AY 2023-24 relied upon by the assessee. The authorities below proceeded primarily on the basis that the admission during search conclusively established undisclosed income for AY 2022-23. In our considered opinion, such an approach is incomplete and contrary to settled principles governing assessment of search cases.
10.19 Considering the entirety of the facts and circumstances of the case, we are of the view that the matter requires fresh factual examination at the end of the AO. Accordingly, the orders of the lower authorities on this issue are set aside and the matter is restored to the file of the AO for de novo adjudication. The AO shall verify:
(i) whether the impugned amount of Rs.17,71,000/- has already been disclosed in the books of account and offered to tax in AY 2023-24;
(ii) whether corresponding GST liability has been discharged through DRC-03 proceedings;
(iii) whether any part of the impugned sales still remains unaccounted after considering the documentary evidences produced by the assessee; and
(iv) whether the addition, if sustained, would result in double taxation of the same income.
The AO shall afford adequate opportunity of being heard to the assessee and decide the issue afresh in accordance with law after considering all evidences and explanations that may be furnished by the assessee and delete the additions, if it is already offered to tax IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 47 ::
in the AY 2023-24. Accordingly, the ground raised by the assessee on this issue for the FY 2021-22 relevant to AY 2022-23 is allowed for statistical purposes.
11.TRANSFER PRICING ISSUES:
11.1 The Transfer Pricing Officer ("TPO"), while determining the Profit Level Indicator ("PLI") of the assessee for the relevant assessment year, carried out various adjustments to the operating revenue as well as operating expenditure of the assessee-company.
Pursuant thereto, the AO passed the final assessment order in conformity with the directions issued by the DRP. Aggrieved by the said final assessment order, the assessee has preferred the present grounds of appeal challenging the Transfer Pricing adjustments made for the Assessment Year 2022-23 by raising the following grounds of appeal.
2.1. The learned TPO/AO has erred in law and on facts in making a TP downward adjustment amounting Rs. 1,17,51,000/- to the arm's length price without proper jurisdiction and without satisfying the mandatory conditions prescribed under Chapter X of the Act. 2.2. The learned TPO erred in not considering and adjudicating on the revised list of comparable companies submitted before the TPO during transfer pricing proceedings and has conducted an independent benchmarking analysis and erred in incorrectly selecting comparables from a functionally and operationally incomparable companies leading to an inaccurate and unreliable benchmarking analysis. The learned TPO erred in law and on facts in selecting companies as comparables which are functionally dissimilar to the Appellant, without considering the functional, asset and risk profile of the Appellant.
2.3. The learned TPO erred in relying on data sourced from databases which is not based on audited financial statements and not following the audited financial statements of the comparables, whereas, the learned TPO computed the margin of the appellant based on audited financial statement.
3. The Hon. DRP erred in confirming the action of the learned TPO in rejecting certain comparable companies solely on the ground that they incurred losses in two out of three financial years, while IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 48 ::
benchmarking the international transactions of the Appellant. The learned TPO erred in ignoring judicial precedents, wherein it has been consistently held that loss-making companies cannot be excluded from the set of comparables merely on the ground of losses, unless it is demonstrated that such losses are persistent and abnormal in nature.
4. The learned TPO erred in computing the Profit Level Indicator (PLI) of the comparables and the Appellant by wrongly classifying operating and non-operating items, resulting in an erroneous transfer pricing adjustment. The Hon. DRP and learned TPO has erred in law and on facts in treating the Bad debts as non-operating expenses while computing the Profit Level Indicator (PLI) of the comparables/appellant despite the fact that the Appellant having duly relied upon and submitted binding judicial precedents of the Hon. ITAT which categorically held that Bad debts are operating in nature for the purpose of determination of arm's length price. The action of the Hon. DRP and learned TPO is arbitrary, contrary to settled legal position, and has resulted in an erroneous and inflated transfer pricing adjustment.
5. The learned TPO has erred in law and on facts in not giving full and proper effect to the binding directions of the Hon. DRP issued under section 144 C (10) of the Act, rendering the impugned order bad in law and void ab initio. The learned TPO has erred in treating the entire miscellaneous expenses as non-operating expenses despite the fact that Hon. DRP having categorically directed that only such miscellaneous expenses which are non-operating in nature should be excluded while computing the operating margins. The learned TPO has erred in adopting a mechanical approach and has failed to identify, examine, and segregate the non-operating component of miscellaneous expenses, as specifically directed by the Hon. DRP, the order of learned of TPO is to be quashed. Alternatively, we pray before your honour to direct the learned TPO to treat the entire miscellaneous expense as operating expenses while computing the PLI of the comparables/appellant.
6. The Hon. DRP and learned TPO erred in recomputing the operating margin of the Appellant and in some comparables by reducing income arising from Duty Drawback and Focus product scheme from Operating Income while computing the PLI without regarding the fact that such incomes are integral and inseparable from the export business. In simpler terms, such benefit is provided to the manufacturer and exporter for the purpose of compensating in the duty component which is already been included in the cost of raw material which is an integral part of the operating cost of the Appellant. The duty drawback received against such duty paid should essentially be a part of the operating income of the Appellant/comparables.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 49 ::
12.Export Incentives - To Be Included as Operating Income:
12.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2019-20 to 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2019-20 to 2021-22 M/s.Farida Classic Shoes Pvt. Ltd.;
c) AY 2022-23 M/s.Aston Shoes Pvt. Ltd.
d) AY 2020-21 M/s.India Shoes Exports Pvt Ltd.
e) A.Y. 2019-20 to 2022-23 - M/s.Delta Shoes Pvt. Ltd.
12.2 The ld.AR for the assessee contended that the assessee is predominantly an export-oriented entity, deriving over 90% of its revenue from exports. In contrast, the comparables selected by the TPO have a mixed revenue base comprising both domestic and export operations. In such a scenario, export incentives such as DEPB and duty drawback are intrinsically linked to the assessee's core business and constitute an essential component of its operating income. The ld.AR further submitted that the TPO/DRP excluded such incentives by relying on the Supreme Court's decision in Liberty India v. CIT. However, that ruling pertains to interpretation of the phrase "derived from" under Chapter VI-A, which is a restrictive test applicable only to deduction provisions. It has no relevance in the transfer pricing context.
12.3 Further, the ld.AR argued that under TNMM, the test is broader whether the income has a proximate nexus with business operations and impacts profitability. He further submitted that the export incentives arise solely from export activity and are directly linked to export turnover. Without exports, such income would not exist, clearly establishing operational nexus. Therefore, the ld.AR stated IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 50 ::
that the exclusion of export incentives disproportionately impacts the assessee, given its export-heavy profile, and results in distortion of margins vis-à-vis comparables. Further, such exclusion violates the matching principle, as export-related expenses are treated as operating costs while corresponding incentives are excluded. The ld.AR relied on the judicial precedents, including recent Tribunal rulings, wherein the courts have consistently held that export incentives form part of operating income, as they arise from normal business operations and are directly linked to manufacturing and export activity, and also impact profitability by offsetting costs. The ld.AR places reliance on the recent decision of the Hon'ble Chennai Tribunal "D" Bench in the case of Hyundai Wai India Pvt Ltd Vs DCIT- IT(TP)A No.48/CHNY/2024 dated 31.12.2025 (refer to para 9 page 5 upto para 15 page 10) and also the decision of Chennai Tribunal "D" Bench in the case ZF Rane Automotive India (P.) Ltd. v. DCIT- IT(TP)A No.53/CHNY/2024 dated 04.08.2025 which squarely covers the issue under consideration.
12.4 In ZF Rane Automotive India (P.) Ltd at Page 5, Para 4.2 of the said decision, the Tribunal has emphasized that the primary test for determination of operating vs. non-operating income is the nature of the income and its nexus with business operations, and that the TPO/DRP cannot exclude an item merely on the ground that comparable companies do not have such income, without first applying this fundamental test. Further, at Page 8, Para 5, the Tribunal has categorically held that the correct approach is to examine the character of the income and its proximity to normal business operations, and upon such examination, it was held that IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 51 ::
export incentives are inextricably linked to manufacturing and export activity, since entitlement arises only upon undertaking such operations. The Tribunal thus rejected the Revenue's approach of exclusion based on parity or absence in comparable and held that export incentives are derived during the course of normal business operations, they are intertwined with the core activity of manufacturing and export and they reduce operating costs and directly impact profitability. In view of the above the Tribunal concluded that such incentives form part of operating revenue for the purpose of computing margins under TNMM. 12.5 Applying the above principles to the present case, it is submitted that the export incentives are integral to the assessee's export-oriented business model, exclusion thereof leads to disproportionate distortion of PLI, especially in the absence of domestic turnover and the reliance on Liberty India is misplaced in the transfer pricing context. Accordingly, it is submitted that export incentives ought to be treated as operating income in the hands of the assessee, so as to ensure a fair, consistent, and accurate determination of the arm's length margin under TNMM. 12.6 Per contra, the ld.DR supported the orders of the authorities and prayed for confirming the same.
12.7 We have heard the rival submissions and perused the materials available on record. The issue involved in the present ground relates to whether export incentives such as DEPB, Duty Drawback, MEIS and similar export-linked incentives are to be treated as part of operating income while computing the Profit Level Indicator (PLI) under the Transactional Net Margin Method (TNMM).
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 52 ::
It is an admitted position that this issue is common across all assessment years and entities within the Farida Group, except for the specified years of India Shoes Exports and Aston Shoes. It is also an undisputed fact that the assessee is predominantly an export-oriented entity deriving more than 90% of its revenue from exports. In contrast, many of the comparables selected by the TPO have mixed revenue streams comprising both domestic and export turnover.
12.8 The primary dispute before us is whether export incentives earned by the assessee are to be considered as operating income for transfer pricing purposes.
The TPO/DRP excluded export incentives from operating income by relying upon the decision of the Hon'ble Supreme Court in Liberty India v. CIT. However, upon careful consideration, we find that the reliance placed on the said judgment is misplaced in the context of transfer pricing analysis. The Hon'ble Supreme Court in Liberty India v. CIT was concerned with the interpretation of the expression "derived from" appearing in Chapter VI-A deduction provisions, particularly section 80-IB of the Act. The said expression has been interpreted by the Hon'ble Apex Court to have a restrictive connotation for the purpose of granting deductions. The issue before the Hon'ble Supreme Court was entirely within the context of deduction eligibility and not determination of operating profitability under transfer pricing regulations.
12.9 In transfer pricing analysis under TNMM, the test is materially different. What is required to be examined is whether a particular item of income has a proximate nexus with business operations and IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 53 ::
whether such income impacts the operating profitability of the assessee. Therefore, the restrictive test of "derived from" applicable under Chapter VI-A cannot be mechanically imported into transfer pricing provisions.
12.10 We find considerable force in the submissions of the ld.AR that export incentives such as DEPB, Duty Drawback and MEIS arise solely because of export activity undertaken by the assessee.
Without export operations, such incentives would not accrue. Therefore, such receipts are intrinsically linked with the manufacturing and export business carried on by the assessee and bear a direct nexus with operational activities. We further find merit in the contention of the assessee that exclusion of export incentives, while simultaneously treating export-related expenditure as operating cost, leads to distortion of operating margins and violates the matching principle. Such distortion becomes particularly significant in the case of an assessee having an export-heavy business profile with negligible domestic turnover, whereas the comparable companies selected by the TPO have mixed domestic and export operations. At this juncture, it is relevant to refer to the recent decision of the coordinate bench of the Tribunal in the case of Hyundai Wia India Pvt. Ltd. v. DCIT wherein the Tribunal, after detailed consideration of the issue, held that export incentives form part of operating income for the purpose of computing margins under TNMM. The Tribunal observed that such incentives arise directly from export operations and have an immediate nexus with the business activities of the assessee. Further, in the case of ZF Rane Automotive India (P.) Ltd. v. DCIT, the coordinate bench of IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 54 ::
the Tribunal elaborately considered this issue. At para 4.2 of the said decision, the Tribunal emphasized that the primary test for determination of operating versus non-operating income is the nature and character of the income and its nexus with business operations. The Tribunal categorically held that the TPO/DRP cannot exclude a particular item merely because comparable companies do not have similar income, without first examining whether such receipt forms part of normal business operations. Further, at para 5 of the said decision, the Tribunal held that export incentives are inextricably linked to manufacturing and export activities since entitlement to such incentives arises only upon carrying on such operations. The Tribunal further observed that export incentives reduce operating costs and directly impact profitability and therefore form part of operating revenue for the purpose of computation of margins under TNMM.
The relevant findings of the Tribunal in the said decision are reproduced hereunder in substance:
"Export incentives are derived during the course of normal business operations, are intertwined with the core activity of manufacturing and export, reduce operating costs and directly impact profitability. Therefore, such incentives form part of operating revenue for the purpose of computing margins under TNMM."
12.11 We are in respectful agreement with the aforesaid reasoning adopted by the coordinate benches of this Tribunal (supra). Applying the above principles to the facts of the present case, we hold that export incentives earned by the assessee are integral to its export-oriented business model and possess direct operational nexus with the manufacturing and export activities carried on by it. Exclusion thereof would result in disproportionate distortion of the PLI of the assessee, particularly when the assessee predominantly IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 55 ::
derives export revenue and the comparables have mixed operational profiles. Accordingly, we hold that the reliance placed by the Revenue authorities on Liberty India v. CIT is misplaced in the transfer pricing context and export incentives such as DEPB, Duty Drawback, MEIS and similar incentives are liable to be treated as operating income for the purpose of computation of operating margins under TNMM. Therefore, the AO/TPO is directed to include export incentives as part of operating income while computing the PLI of the assessee. Hence, the ground raised by all the assessees for the respective assessment years referred in para 12.1 (supra) are allowed.
13. Erroneous Application of Persistent Loss Filter:
13.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2021-22 and 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2021-22 - Farida Classic Shoes Pvt. Ltd.; and
c) AY 2022-23 - Aston Shoes Pvt. Ltd.
d) AY 2021-22 and 2022-23 - Delta Shoes Pvt. Ltd.;
Refer to page 16 to 24 of DRP order dated 28.11.2025 in the case of Farida Shoes Pvt Ltd for AY 2022-23 and also to Volume 3 page 517 to 522.
13.2 The Transfer Pricing Officer, in the remand proceedings (refer pages 16 to 20 of the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2022-23), while computing the year- wise PLI of comparables and determining the final transfer pricing adjustment for the relevant years, has excluded certain IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 56 ::
comparables solely on the ground that they incurred losses in two out of three financial years.
13.3 The ld.AR submitted that for AY 2019-20, the TPO had finalized a set of 19 comparables, to which the assessee had no objection. Similarly, for AY 2020-21, the comparable set was reduced to 17, which was also accepted by the assessee. However, for AY 2021-22 and AY 2022-23, the number of comparables has been further reduced to 14 and 13 respectively, on account of applying the loss filter (i.e., losses in two out of three years), against which the assessee has serious objections. The said exclusion has also been upheld by the Hon'ble DRP. (kindly refer to page 17 to 22 of DRP order dated 28.11.2025 in the case of Farida Shoes Pvt Ltd for AY:2022-23) 13.4 The ld.AR submitted that the action of the TPO/DRP in rejecting or including comparables without properly applying the persistent loss filter and without maintaining consistency across assessment years is contrary to settled principles of transfer pricing law. It is submitted that under the TNMM, normal business fluctuations, including profits and losses, are inherent and acceptable. A company incurring loss in a single year may still be functionally comparable, as such loss may arise due to business cycles, economic conditions, or other commercial factors. Therefore, exclusion of comparables merely on account of single-year loss or low margins is contrary to settled law and defeats the very purpose of comparability analysis.
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13.5 The ld.AR submitted that it is a well-accepted principle that a company can be excluded from the list of comparables only if it is a persistent loss-making entity, i.e., it has incurred losses in at least three consecutive financial years. This standard has also been recognized and applied by the TPO himself, as evident from the accepted filter that "companies with persistent losses were excluded." Therefore, it is not open to the Revenue to deviate from this settled filter and exclude companies merely because they have incurred losses in a single year. (ref Vol 3 page 517 to 522) . 13.6 In the above context the ld.AR draws the attention of the Bench to Volume 3, Page 17, which encapsulates the list of comparables for AYs 2019-20 to 2022-23. For AY 2021-22 (refer Volume 3, Page 519), it is submitted that only ROJ Leather Pvt. Ltd.
has incurred losses for all three years, whereas Leayan Global Pvt. Ltd., Sara Suole Pvt. Ltd., and Drish Shoes Ltd. have incurred losses in only two out of three years and, therefore, do not qualify as persistent loss-making companies. Accordingly, the TPO ought not to have excluded these companies from the list of comparables. Similarly, for AY 2022-23 (refer Volume 3, Page 520), Florence Shoe Company Pvt. Ltd. has incurred losses in only two out of three years and, on the same reasoning, ought not to have been excluded by the TPO.
13.7 Without prejudice, it is also submitted that the assessee had accepted a final set of 19 comparables identified by the TPO in the remand proceedings for AY 2019-20. The functional profile, assets employed, and risk assumed (FAR analysis) of the Appellant remain unchanged in Ays 2021-22 and 2022-23. In such circumstances, in IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 58 ::
the interest of consistency and uniformity, the same set of comparables ought to have been adopted in the subsequent years as well. Any deviation from the accepted comparable set, in the absence of any change in facts or circumstances, is arbitrary, violative of the principle of consistency, and results in distorted benchmarking.
13.8 The above position is fortified by the decision of the Tribunal in ISG Novasoft Technologies Ltd. v. DCIT, wherein the Tribunal recognized the application of the persistent loss filter as a valid and necessary criterion in comparability analysis. The record clearly shows that the TPO himself applied the filter of losses in two out of three years, thereby affirming that only persistent loss-making companies can be excluded, and not those with isolated or normal business losses. This establishes that loss per se is not a ground for exclusion, and only consistent loss-making entities fail the comparability test. Further, the Tribunal in Netradyne Technology India Pvt. Ltd. v. ITO [(page 6 para 6(e)] has emphasized that comparability filters must be applied uniformly and objectively, and cannot be modified or applied selectively. The Tribunal reiterated that arbitrary application of filters, including the loss filter, leads to distortion in determination of the arm's length price and is impermissible in law. Thus, it is clear that comparability analysis must be based on consistent, scientific, and uniform application of filters, and not on ad hoc exclusions. In view of the above, the ld.AR submitted that M/s. Leayan Global Pvt. Ltd., M/s.Sara Suole Pvt.
Ltd., and M/s.Drish Shoes Ltd., having incurred losses in only two out of three financial years, cannot be regarded as persistent loss-
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 59 ::
making companies and, therefore, ought to be included as comparable for AY 2021-22. Similarly, Florence Shoe Company Pvt. Ltd., which has incurred losses in only two out of three years, ought to be included as a comparable for AY 2022-23. In the above circumstance the ld.AR prayed that the impugned action of the TPO/DRP in excluding these companies is unsustainable in law and submits that the resultant transfer pricing adjustment be set aside and suitably revised and justice rendered. In support of the aforesaid contentions, the ld.AR relies upon the decisions of coordinate bench in the case of Orange Scape Technologies Pvt Ltd Vs DCIT- IT(TP)A No.68/Chny/2024 dated 06.06.2025 page 23 (persistent loss filter) as also the following decision.
(i) Genesys Telecom Labs India Pvt. Ltd. v. DCIT: /IT(TP)A No.:
38/CHNY/2024
(ii) Nordex India Pvt Ltd-IT(TP)A.265/Bang/2022- ITAT Bangalore
(iii) Keysight Technologies international Pvt Ltd- ITA No.3813/Del/2024 dated 18.03.2026
(iv) KBACE Technologies Pvt. Ltd., vs The Deputy Commissioner of Income Tax, Circle-4(1)(1) ITA.No. 3189/ Bang/2018;
(v) Sumitomo Chemical India Private Limited vs The DCIT Range-3(3), ITA.No.3077/Mum/2012 and ITA.No. 7461/Mum/2013
(vi) Nihilent Technologies Private Limited vs., Income Tax Officer-Ward 3(2), ITA.No.2428/Pun/2012;
(vii) M/s. Bobst India Private Limited vs Deputy Commissioner of Income Tax, Circle-1(1), ITA.No. 1380/ PN/2010 and
(viii) M/s. Sabic Innovative Plastics India Private Limited vs DCIT-
2(1)(1) in ITA.No.2730/Ahd/2017.
13.9 Per contra, the ld.DR did not controvert the arguments and reliance placed on the judicial precedents of ld.AR.
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13.10 We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the material placed on record, including the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2022-23 and the documents placed in Volume-III at pages 517 to 522.
The issue involved in the present ground is common to the following assessees and assessment years within the Farida Group:
(a) Ays 2021-22 and 2022-23 in the cases of M/s. Farida Shoes Pvt. Ltd. and Delta Shoes Pvt. Ltd.;
(b) AY 2021-22 in the case of Farida Classic Shoes Pvt. Ltd.; and
(c) AY 2022-23 in the case of Aston Shoes Pvt. Ltd.
The dispute pertains to exclusion of certain comparable companies by the TPO while computing the arm's length margin under TNMM, solely on the ground that such companies incurred losses in two out of three financial years.
From the record, it is observed that during the remand proceedings, the TPO had finalized a set of 19 comparables for AY 2019-20, which was accepted by the assessee without objection. Similarly, for AY 2020-21, the comparable set was reduced to 17 and the same was also accepted by the assessee. However, for Ays 2021-22 and 2022-23, the TPO further reduced the comparable set to 14 and 13 companies respectively by excluding certain companies applying what has been termed as a "loss filter", i.e., companies incurring losses in two out of three years. The said action has also been upheld by the DRP.
13.11 The grievance of the assessee is that the TPO/DRP have incorrectly applied the persistent loss filter and excluded companies which are not persistent loss-making entities in the accepted legal sense. On careful consideration of the rival submissions, we find IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 61 ::
substantial merit in the contentions of the ld.AR. Under transfer pricing provisions, particularly while applying TNMM, comparability analysis is required to be carried out on a scientific, objective and consistent basis. Merely because a company incurs losses in a particular year or in isolated years, the same cannot be a reason for exclusion if the company is otherwise functionally comparable. It is now a settled proposition of law that loss-making companies cannot be excluded merely because they have incurred losses, unless such companies are found to be persistent loss-making entities. Business cycles, economic fluctuations, market conditions and commercial realities may result in temporary losses even for otherwise comparable entities. Therefore, isolated or intermittent losses do not render a company incomparable.
13.12 We find from the record that the TPO himself had adopted the filter of excluding "persistent loss-making companies". Thus, the accepted criterion itself recognizes that only companies consistently incurring losses over a sustained period can be rejected from the comparable set. The material placed before us demonstrates that for AY 2021-22, only ROJ Leather Pvt. Ltd. had incurred losses for all three financial years. However, M/s.Leayan Global Pvt. Ltd., M/s.Sara Suole Pvt. Ltd., and M/s.Drish Shoes Ltd. incurred losses only in two out of three years. Likewise, for AY 2022-23, Florence Shoe Company Pvt. Ltd. incurred losses only in two out of three years. In our considered opinion, companies incurring losses in two out of three years cannot automatically be characterized as persistent loss-making companies in the absence of any further finding demonstrating abnormal business conditions or functional IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 62 ::
dissimilarity. At this juncture, it is relevant to refer to the decision of the coordinate bench in Orange Scape Technologies Pvt. Ltd. v. DCIT wherein the coordinate bench of the Tribunal reiterated that only persistent loss-making companies are liable to be excluded and not companies suffering normal business losses. The Tribunal emphasized that the persistent loss filter must be applied consistently and objectively.
Similarly, in ISG Novasoft Technologies Ltd. v. DCIT, the Tribunal recognized the persistent loss filter as a valid comparability criterion and held that only companies incurring losses continuously over multiple years can be rejected from the final comparable set. Further, the Tribunal in Netradyne Technology India Pvt. Ltd. v. ITO observed that comparability filters must be applied uniformly and scientifically and cannot be modified selectively to suit the outcome desired by the Revenue authorities. The Tribunal held that arbitrary exclusion of comparables distorts the determination of arm's length price and defeats the object of transfer pricing analysis. 13.13 We also find force in the alternate contention of the assessee regarding consistency. It is an admitted position that for AY 2019-
20, the TPO himself finalized a set of 19 comparables, which stood accepted. The FAR profile of the assessee has not undergone any material change in Ays 2021-22 and 2022-23. In the absence of any change in business model, functions performed, assets employed or risks assumed, there must be consistency in the selection of comparables across years unless cogent reasons exist for deviation. The Hon'ble Courts and Tribunals have repeatedly emphasized that consistency is an important facet of transfer pricing IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 63 ::
jurisprudence. Arbitrary departure from an accepted comparable set without demonstrating material changes in facts or circumstances is impermissible and leads to distorted benchmarking results. We further note that the ld.DR neither controvert the factual submissions made by the ld.AR nor distinguish the judicial precedents relied upon by the assessee. In view of the foregoing discussion and respectfully following the judicial precedents cited supra, we hold that:
(i) merely incurring losses in two out of three years does not render a company a persistent loss-making entity;
(ii) exclusion of comparables solely on such basis is contrary to settled transfer pricing principles;
(iii) M/s. Leayan Global Pvt. Ltd., M/s. Sara Suole Pvt. Ltd., and M/s.
Drish Shoes Ltd. ought not to have been excluded from the comparable set for AY 2021-22; and
(iv) Florence Shoe Company Pvt. Ltd. ought not to have been excluded from the comparable set for AY 2022-23.
13.14 Accordingly, we direct the AO/TPO to include the aforesaid companies in the final set of comparables and recompute the arm's length margin in accordance with law. Thus, the ground raised by all the assessees for the respective assessment years referred in para 13.1 (supra) are allowed.
14. Miscellaneous / General Expenses - Operating in Nature:
14.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2019-20 to 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2019-20 to 2021-22 M/s.Farida Classic Shoes Pvt. Ltd.;
c) AY 2022-23 M/s.Aston Shoes Pvt. Ltd.
d) AY 2020-21 M/s.India Shoes Exports Pvt Ltd.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 64 ::
e) A.Y. 2019-20 to 2022-23 - M/s.Delta Shoes Pvt. Ltd.
14.2 The ld.AR drew our attention to Pages 24 to 26 of the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2022-23.
14.3 At the outset, the ld.AR submitted that the TPO has erred in treating miscellaneous/general expenses as non-operating in nature, in complete disregard of the binding directions issued by the DRP for AY 2021-22. As recorded in the DRP directions (Pages 24 to 26, specifically Page 26), it has been categorically held that general administrative and miscellaneous expenses, being routine and necessary for carrying on business operations, are to be treated as operating in nature. The DRP has recognized that such expenses form an integral part of the normal business functioning and cannot be excluded from operating cost while computing margins. 14.4 The ld.AR submitted that expenses under consideration include items such as factory maintenance, utilities, administrative overheads and other routine business expenses. These are recurring, unavoidable, and intrinsically linked to the day-to-day operations of the enterprise. It is submitted that no business can function without incurring such expenditure, and therefore, they clearly satisfy the test of having a direct nexus with business operations. The exclusion of these expenses from operating cost is therefore fundamentally flawed and contrary to both accounting principles and transfer pricing jurisprudence. 14.5 Despite the clear and categorical findings of the DRP, the TPO has proceeded to treat these expenses as non-operating, thereby acting in violation of binding directions issued u/s.144C of the Act. It IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 65 ::
is settled law that the TPO/AO is bound by the directions of the DRP and cannot deviate from the same. Such non-compliance vitiates the assessment and renders the order unsustainable in law. 14.6 Further, the ld.AR stated that the issue is squarely covered by the coordinate bench decision of the Tribunal in ZF Rane Automotive India (P.) Ltd. v. DCIT- IT(TP)A No.53/CHNY/2024 dated 04.08.2025, wherein the Tribunal, while dealing with an identical issue (Page 15 para 9 to Page 17 para 9.4), has held that miscellaneous expenses are part of normal business operations and must be treated as operating expenses. The Tribunal has categorically observed that:
a) Miscellaneous expenses are incurred in the ordinary course of business
b) Their characterization depends on their proximity to business operations
c) Such expenses cannot be excluded merely on the ground of nomenclature or lack of detailed break-up The Tribunal further held that since such expenses are allowable as business expenditure u/s.37 of the Act, they necessarily form part of operating costs for transfer pricing purposes as well. It was also emphasized that excluding such routine expenses would distort the computation of margins and defeat the comparability analysis.
14.7 In the present case, the action of the TPO in excluding these expenses has resulted in artificial inflation of operating margins, thereby leading to an incorrect determination of the arm's length price. This approach is contrary to the fundamental principle under TNMM, which requires that all costs having a nexus with business operations must be consistently included in the computation of operating cost.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 66 ::
Accordingly, it is submitted that:
a) Miscellaneous and general administrative expenses are operating in nature
b) The TPO has erred in disregarding binding DRP directions (Pages 24-26, Page 26)
c) The issue is squarely covered in favour of the assessee by the jurisdictional Tribunal in ZF Rane Automotive India Pvt. Ltd.
d) Exclusion of such expenses results in distorted and inflated margins, vitiating the TP analysis 14.8 In view of the above, the ld.AR submitted that miscellaneous and general administrative expenses are clearly operating in nature, both for the assessee and the comparables. The action of the TPO in disregarding the binding DRP directions is unsustainable, and the exclusion of such expenses results in distorted and inflated margins.
Accordingly, the impugned action of the TPO is liable to be set aside, and the said expenses ought to be treated as operating in nature both in the case of the assessee as well as the comparables while computing the margins and determining the PLI under TNMM.
14.9 Per contra the ld.DR supported the orders of the authorities and prayed for confirming the same.
14.10 We have heard the rival submissions and perused the materials available on record, including Pages 24 to 26 of the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2022-23.
The issue under consideration is common to all assessment years and entities within the Farida Group, except India Shoes Exports for AY 2021-22 and Aston Shoes Pvt. Ltd. for AYs 2019-20 and 2020-
21. The dispute pertains to the treatment of miscellaneous/general IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 67 ::
administrative expenses as non-operating in nature while computing the operating margins under TNMM.
14.11 From the records, it is observed that the TPO excluded certain miscellaneous and general administrative expenses from operating cost while determining the PLI of the assessee as well as comparables. The case of the assessee is that such expenses are routine business expenditure incurred in the ordinary course of operations and therefore necessarily form part of operating costs. 14.12 On careful consideration of the submissions and factual matrix, we find substantial merit in the arguments advanced by the ld.AR. At the outset, we note that the DRP itself, while issuing directions for AY 2021-22, had categorically held that general administrative and miscellaneous expenses are operating in nature.
The DRP, after examining the nature of such expenditure, specifically observed that these expenses are routine and necessary for carrying on business operations and therefore form part of normal operating costs. The relevant findings recorded by the DRP at Pages 24 to 26, particularly at Page 26, leave no ambiguity on this aspect. Once such a finding has been rendered by the DRP in exercise of powers u/s.144C of the Act, the TPO/AO is duty bound to give effect to the same. The directions issued by the DRP are binding upon the TPO/AO and cannot be disregarded or diluted while passing the consequential order. Therefore, the action of the TPO in again treating such expenses as non-operating despite categorical DRP directions is contrary to the statutory scheme u/s.144C of the Act and cannot be sustained. Even otherwise, on merits, we find that the expenses under consideration comprise factory IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 68 ::
maintenance expenses, utilities, administrative overheads and other miscellaneous routine business expenditure incurred during the course of carrying on manufacturing and export operations. Such expenditure is recurring in nature and intrinsically connected with the day-to-day functioning of the business enterprise. 14.13 Under TNMM, operating costs are required to include all expenditure having proximate nexus with normal business operations. The test is not the nomenclature assigned to an expense but its true character and relationship with operational activities. No business enterprise can effectively carry on manufacturing or trading operations without incurring administrative overheads, maintenance expenditure, utility charges and similar miscellaneous business expenses. Therefore, such expenditure clearly satisfies the operational nexus test and necessarily forms part of operating cost.
At this juncture, it is relevant to refer to the decision of the coordinate bench in ZF Rane Automotive India (P.) Ltd. v. DCIT wherein the Tribunal dealt with an identical issue. The Tribunal, after examining the nature of miscellaneous expenses, categorically held that such expenditure forms part of normal business operations and therefore constitutes operating expenditure for transfer pricing purposes.
The Tribunal in the aforesaid decision observed that:
(a) miscellaneous expenses are incurred during the ordinary course of business;
(b) characterization of such expenditure depends upon its proximity to business operations; and
(c) such expenses cannot be excluded merely because they are grouped under the nomenclature "miscellaneous expenses" or because detailed break-up is not furnished.
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The Tribunal further held that once such expenditure is allowable as business expenditure u/s.37 of the Act, it ordinarily forms part of operating expenditure for transfer pricing analysis as well, unless demonstrated otherwise by cogent material.
14.14 We are in respectful agreement with the aforesaid reasoning.
We also find merit in the contention of the assessee that exclusion of routine operating expenditure artificially inflates the operating margins of the assessee and comparables, thereby distorting the comparability analysis under TNMM. Such exclusion defeats the very object of arriving at a fair and reliable determination of arm's length margin.
Under transfer pricing principles, consistency and parity in treatment of operational items are of paramount importance. If expenses incurred in the normal course of business are selectively excluded from operating costs, the resultant PLI would cease to reflect the true operational profitability of the enterprise. 14.15 In the present case, the Revenue has not brought on record any material to establish that the miscellaneous/general administrative expenses are extraordinary, non-recurring, abnormal or unrelated to the business activities of the assessee. In the absence of such finding, there is no justification for treating the same as non-operating.
14.16 Further, the ld.DR could not controvert either the factual submissions made by the assessee or the judicial precedents relied upon by the ld.AR. Accordingly, considering the binding directions issued by the DRP, the nature of the expenditure involved and respectfully following the decision of the coordinate bench in ZF IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 70 ::
Rane Automotive India (P.) Ltd. v. DCIT, we hold that miscellaneous and general administrative expenses are operating in nature both in the case of the assessee as well as comparables. 14.17 The AO/TPO is therefore directed to treat such expenditure as operating cost while computing margins and determining the PLI under TNMM. Thus, the ground raised by all the assessees for the respective assessment years referred in para 14.1 (supra) are allowed.
15. Bad Debts - To Be Treated as Operating Expense:
15.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2019-20 to 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2019-20 to 2021-22 M/s.Farida Classic Shoes Pvt. Ltd.;
c) AY 2022-23 M/s.Aston Shoes Pvt. Ltd.
d) AY 2020-21 M/s.India Shoes Exports Pvt Ltd.
e) A.Y. 2019-20 to 2022-23 - M/s.Delta Shoes Pvt. Ltd.
15.2 The ld.AR submitted that bad and doubtful debts ought to be treated as operating in nature while computing the Profit Level Indicator (PLI) of the assessee, as they arise in the ordinary course of business. However, it is pertinent to point out that in the comparable companies selected in the Farida Group cases, bad debts have been treated as non-operating in nature. Further, in the assessee's own cases (test cases), bad debts have arisen in the following assessment years:
AY 2021-22 - M/s. Farida Shoes Pvt. Ltd.;
AY 2021-22 & 2022-23 - M/s. Delta Shoes Pvt. Ltd.; and AY 2022-23 - M/s. Aston Shoes Pvt. Ltd.
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The ld.AR drew our attention to Page 27 of the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. for AY 2020-21.
The ld.AR further submitted that Bad debts are nothing but amounts that have become irrecoverable out of sales made in the ordinary course of business. It is the submission of the ld.AR that when sales are treated as operating income, any corresponding diminution in such revenue in the form of bad debts must necessarily be treated as operating in nature. The appellant submits that the classification adopted by the TPO creates an inherent inconsistency, wherein the income side of the transaction is considered as operating, while the corresponding cost element is excluded. Such an approach is fundamentally flawed and leads to distortion in the computation of Profit Level Indicator (PLI) under the TNMM. He submitted that bad debts represent a normal business risk arising from credit sales and are an integral part of the operating cycle of any enterprise. The assessee, being engaged in regular business operations, cannot avoid such risks, and therefore, bad debts are clearly in the nature of operating expenses. Exclusion of such expenses artificially inflates the operating margins of the assessee and renders the comparability analysis unreliable. At the outset, the reasoning of TP/DRP that bad debts do not relate to the "current year's operating revenue" is misplaced. Under the Transactional Net Margin Method (TNMM), the focus is not confined to a strict year-wise matching of revenue and expense, but rather on capturing the true operating profitability arising from business activities, including normal business risks. Bad debts are a direct consequence of sales made in the ordinary course of business and represent an inherent risk of IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 72 ::
extending credit to customers. Therefore, they are intrinsically linked to the operating activity of the enterprise. The contention of the TPO/DRP that bad debts pertain to revenues recognized in earlier years does not alter their operational character. The write-off merely reflects the crystallization of a business loss arising from earlier operating transactions, which is an integral part of the business cycle. If such losses are excluded, it would present an incomplete and distorted picture of profitability, as the risks associated with earning such revenue are ignored. 15.3 The ld.AR further submitted that the observation of the TPO/DRP that bad debts are merely an "accounting treatment"
without nexus to operating income is factually and legally untenable. The ld.AR submitted that write-off of bad debts is not a notional or artificial entry, it represents a real economic loss suffered by the enterprise in the course of its operations. Such losses directly impact profitability and, therefore, must be considered while computing operating margins. 15.4 Thus, the ld.AR argued that the DRP's approach leads to asymmetrical and inconsistent treatment. While the corresponding sales giving rise to such debts are treated as operating income, excluding the associated loss in the form of bad debts results in artificial inflation of margins. This violates the fundamental principle of matching and consistency, which requires that all costs and risks associated with earning revenue be duly recognized. 15.5 The ld.AR contended that the issue is no longer res integra and is squarely covered by the decision of the Bangalore Tribunal in Carl Zeiss India (Bangalore) (P.) Ltd. v. DCIT) last but two page para 13, IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 73 ::
wherein it has been categorically held that provision for bad and doubtful debts is to be treated as operating in nature while computing the PLI. The Tribunal, after considering earlier precedents, directed that bad debts and provisions thereof must be included as operating expenses for the purpose of margin computation. The above decision also follows earlier rulings, including the decision in Evolving Systems Networks India (P.) Ltd. IT(TP)A No.2751/Bang/2017, thereby establishing a consistent judicial position that such expenses are part of operating cost. The rationale is that these items arise from core business activities and bear a direct nexus with revenue generation. Further, he submitted that similar items such as provision for doubtful debts, Expected Credit Loss (ECL), write-offs, etc., being in the same nature, must also be treated uniformly as operating expenses. Any selective inclusion or exclusion would violate the principle of consistency and comparability.
15.6 In view of the above, the ld.AR submitted that the bad debts arise from core operating activities and represent normal business risk, the timing of recognition does not sever their nexus with business operations and they are real economic losses, not mere accounting adjustments. Therefore, the exclusion leads to artificial inflation of margins and distorted PLI and the judicial precedents support their treatment as operating in nature. It is therefore the ld.AR submitted that the observations of the DRP are unsustainable, and bad debts ought to be treated as operating expenses both for the assessee and the comparables while computing margins and determining the PLI under TNMM.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 74 ::
15.7 Per contra the ld.DR relied on the orders of the authorities and prayed for dismissing the grounds of the assessee. 15.8 We have heard the rival submissions and perused the material available on record, including Page 27 of the DRP order dated 28.11.2025 in the case of Farida Shoes Pvt. Ltd. The issue under consideration is common to all assessment years and entities within the Farida Group, save and except India Shoes Exports for AY 2021-22 and Aston Shoes Pvt. Ltd. for AYs 2019-20 and 2020-21. The dispute pertains to whether bad debts and provision for doubtful debts are to be treated as operating in nature while computing the Profit Level Indicator (PLI) under the Transactional Net Margin Method (TNMM).
The assessee has specifically raised this issue in the following years:
(i) AY 2021-22 in the case of M/s. Farida Shoes Pvt. Ltd.;
(ii) AYs 2021-22 and 2022-23 in the case of M/s. Delta Shoes Pvt.
Ltd.; and
(iii) AY 2022-23 in the case of M/s. Aston Shoes Pvt. Ltd.
The case of the Revenue authorities is that bad debts do not relate to the current year's operating revenue and therefore are liable to be treated as non-operating in nature. The TPO/DRP further observed that such write-offs are merely accounting entries and do not bear direct nexus with operating profitability. 15.8 On careful consideration of the rival submissions and factual matrix, we find ourselves unable to agree with the aforesaid reasoning adopted by the TPO/DRP. It is an undisputed fact that the bad debts under consideration arise out of sales effected by the assessee during the course of its ordinary business operations. When the corresponding sales are admittedly treated as operating IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 75 ::
revenue, any subsequent irrecoverability arising from such sales necessarily assumes the same operational character. Under TNMM, the purpose of determining the PLI is to capture the true operational profitability arising from business activities undertaken by the enterprise. Therefore, all revenues, costs and business risks having proximate nexus with operating activities are required to be considered in determining operating margins. Bad debts represent nothing but crystallization of credit risk inherent in commercial transactions undertaken by the assessee. Every enterprise engaged in business operations involving credit sales assumes the risk of non-recovery from customers. Such risk is inseparable from normal business operations and forms an integral part of the operating cycle of the enterprise. Therefore, the write-off of bad debts cannot be viewed in isolation as a mere accounting adjustment divorced from business operations. It represents a real economic loss suffered by the enterprise arising directly from operational transactions.
15.9 We also find merit in the contention of the ld.AR that the approach adopted by the TPO/DRP leads to inconsistency and asymmetrical treatment. While the sales giving rise to such receivables are considered as operating income, exclusion of the corresponding loss arising from non-recovery artificially inflates the operating margins of the assessee. Such treatment violates the principle of matching and distorts the comparability analysis under TNMM.
The observation of the TPO/DRP that bad debts do not pertain to "current year operating revenue" is, in our considered view, IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 76 ::
misplaced. Under transfer pricing analysis, the test is not confined to strict year-wise matching of revenue and expenditure. What is relevant is whether the expenditure arises from and bears nexus to business operations.
The timing of crystallization of a business loss does not alter its operational character. Merely because the write-off occurs in a subsequent year does not sever the nexus between the bad debt and the original business transaction from which it arose. At this juncture, it is relevant to refer to the decision of the Bangalore Tribunal in Carl Zeiss India (Bangalore) (P.) Ltd. v. DCIT wherein the Tribunal categorically held that provision for bad and doubtful debts forms part of operating expenditure while computing PLI under TNMM. The Tribunal, after considering earlier judicial precedents, directed inclusion of such expenses in operating costs on the ground that they arise from core business operations and directly impact profitability. The aforesaid decision also follows the earlier ruling in Evolving Systems Networks India (P.) Ltd. wherein similar view was taken that bad debts and provisions thereof constitute operating expenditure for transfer pricing purposes. The rationale underlying the aforesaid decisions is that bad debts, expected credit losses, provisions for doubtful debts and similar write-offs arise directly from revenue-generating activities and therefore bear proximate nexus with operating functions of the enterprise.
15.10 We are in respectful agreement with the aforesaid judicial view. We also note that consistency in treatment of operating items is a fundamental requirement under TNMM. If corresponding IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 77 ::
revenue is treated as operating income, then associated business risks and losses arising therefrom must also necessarily be considered as operating in nature. Any selective exclusion would lead to distorted margins and unreliable benchmarking. 15.11 In the present case, the Revenue has not brought on record any material to establish that the bad debts in question are extraordinary, unrelated to business transactions or arising from non-operational activities. In the absence of such finding, there is no justification for treating the same as non-operating in nature.
Further, the ld.DR could not controvert the factual submissions advanced by the ld.AR nor distinguish the judicial precedents relied upon by the assessee. Accordingly, considering the nature of the expenditure involved and respectfully following the judicial precedents referred to supra, we hold that bad debts, provision for doubtful debts, expected credit loss (ECL) and similar write-offs arising from business transactions are operating in nature both in the case of the assessee and comparables for the purpose of computing margins under TNMM.
15.12 The AO/TPO is therefore directed to treat such items as operating expenditure while computing the PLI of the assessee and comparables. Thus, the ground raised by all the assessees for the respective assessment years referred in para 15.1 (supra) are allowed.
16. Guest House Income and Expenses - Inconsistent Treatment:
16.1 This issue is exclusive to M/s.Farida Shoes Pvt Ltd and span across AY:2019-20 to 2022-23.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 78 ::
16.2 The TPO, in the original order dated 14.11.2025 (refer to page 5 & 6 of the TPOs order dated 14.11.2025 for AY: 2019-20, 2020-
21, 2021-22 and 2022-23 M/s.Farida Shoes Pvt Ltd), has treated the guest house income as non-operating in nature and accordingly excluded the same from the operating income of the assessee. However, despite such exclusion, the corresponding guest house expenditure has not been excluded from operating expenses and continues to be treated as part of operating costs. 16.3 The ld.AR submitted that while computing the margins and determining the Profit Level Indicator (PLI), the TPO/DRP has adopted an inconsistent and legally untenable approach in the treatment of guest house income and the corresponding expenditure.
16.4 A perusal of the financials (refer Vol 6 pages 2219 & 2220, schedule 18 & 25 for AY:2019-20, Vol 6 pages 2272 & 2273 schedule 20 & 27 for AY:2020-21, Vol 6 pages 2299 & 2300, schedule 19 & 26 for AY:2021-22, Vol 6 page 2313 & 2314 for AY.2022-23) clearly evidences the incurrence of guest house expenses. Further, a reading of page 7 of the original TPO order dated 14.11.2024 for AY: 2019-20 to 2022-23 shows that no corresponding adjustment or reduction has been made to operating expenses, resulting in a mismatch in the computation of operating margins. The ld.AR submitted that the approach of the TPO is fundamentally flawed, as it violates the settled principle that if a particular income is treated as non-operating, the related expenditure must also be accorded similar treatment and any deviation from this principle leads to a distorted PLI and IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 79 ::
consequently an erroneous determination of the arm's length margin. In this regard the ld.AR placed reliance on the decision in Microsoft India (P.) Ltd. v. DCIT, wherein the Tribunal has held that there must be parity in the treatment of income and corresponding expenses while computing operating margins, and selective exclusion results in an artificial skewing of profitability. In view of the aforesaid arguments, the ld.AR submitted that the guest house expenditure be excluded from operating expenses, in line with the treatment accorded to the corresponding income, so as to ensure a consistent and accurate computation of the Profit Level Indicator (PLI) and to avoid any distortion in the determination of the Appellant's arm's length margin.
16.5 Per contra the ld.DR supported the orders of the authorities and prayed for confirming the same.
16.6 We have carefully considered the rival submissions, perused the orders of the lower authorities and examined the material placed on record along with the paper book filed and the judicial precedents relied on. The issue arising for consideration in the present appeals relates to the treatment of guest house income and corresponding guest house expenditure while computing the operating margin/Profit Level Indicator (PLI) of the assessee for transfer pricing purposes in the case of the assessee, Farida Shoes Pvt Ltd, for Assessment Years 2019-20 to 2022-23. From the records placed before us, it is noticed that the TPO, while passing the original orders dated 14.11.2025, has treated the guest house income earned by the assessee as non-operating income and accordingly excluded the same from the operating revenue for the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 80 ::
purpose of determining the operating margin. However, it is an admitted position that the corresponding expenditure incurred in relation to the guest house activity has not been excluded from the operating expenditure and continues to form part of the operating cost base adopted by the TPO/DRP. The grievance of the assessee is that such selective exclusion of income without granting corresponding exclusion of related expenditure results in an artificial suppression of the operating margin and consequently distorts the Profit Level Indicator (PLI). According to the assessee, once a particular stream of income is held to be non-operating in nature, the expenditure attributable thereto must necessarily receive identical treatment. Failure to do so violates the settled principles governing transfer pricing analysis and leads to an inconsistent computation mechanism.
16.7 On perusal of the financial statements and schedules referred to by the ld.AR, we find merit in the submissions advanced on behalf of the assessee. The financial statements clearly disclose the existence of guest house related expenditure for the relevant assessment years. At the same time, the computation mechanism adopted by the TPO demonstrates that though the guest house income has been excluded from operating income, no corresponding reduction has been carried out in the operating expenditure.
Consequently, the entire expenditure attributable to such non- operating activity has been loaded into the operating cost base, thereby depressing the operating profit margin of the assessee. 16.8 In our considered view, such an approach cannot be sustained either on facts or in law. Transfer pricing analysis under the TNMM IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 81 ::
proceeds on the foundational principle that there must be uniformity and parity in the treatment of operating and non-operating items. The computation of operating profit must reflect only those revenues and expenses which arise from the core operating activities of the assessee. Therefore, where a particular receipt is treated as non-operating, the corresponding expenditure connected thereto cannot simultaneously be retained as operating expenditure. Such selective treatment leads to a distorted and unrealistic PLI computation.
16.9 We find support for the aforesaid proposition from the decision relied upon by the ld.AR in the case of Microsoft India (P.) Ltd. v.
DCIT, wherein the Coordinate Bench has held that consistency must be maintained in the treatment of income and corresponding expenses while computing operating margins and that exclusion of only one side of the transaction results in artificial skewing of profitability. The principle emerging from the said decision is that symmetry in computation is an indispensable requirement for arriving at a correct arm's length result. The Revenue has not brought any material on record to establish that the guest house expenditure retained in the operating cost base is unrelated to the guest house income which has been excluded by the TPO. In the absence of any such finding, the action of the authorities below in adopting an asymmetrical approach cannot be approved. Accordingly, we hold that once the guest house income has been treated as non-operating income, the corresponding guest house expenditure is also required to be excluded from the operating expenses while computing the operating margin/PLI of the assessee IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 82 ::
for transfer pricing purposes. We therefore direct the AO/TPO to recompute the operating margins of the assessee after excluding the guest house expenditure corresponding to the guest house income already treated as non-operating in nature for Assessment Years 2019-20 to 2022-23. Thus, this ground raised by the assessee for all the four assessment years 2019-20 to 2022-23 as mentioned supra in para 16.1 stands allowed for statistical purposes.
17. Rates & Taxes / License Fees - Erroneously Treated as Non- Operating:
17.1 This issue is common to the following assessees and assessment years within the Farida Group:
a) AY 2019-20 to 2022-23 - M/s.Farida Shoes Pvt. Ltd.
b) AY 2019-20 to 2021-22 M/s.Farida Classic Shoes Pvt. Ltd.;
c) AY 2022-23 M/s.Aston Shoes Pvt. Ltd.
d) AY 2020-21 M/s.India Shoes Exports Pvt Ltd.
e) A.Y. 2019-20 to 2022-23 - M/s.Delta Shoes Pvt. Ltd.
17.2 The ld.AR submitted that rates and taxes /License fee ought to be treated as operating in nature while computing the Profit Level Indicator (PLI) of the assessee, as they arise in the ordinary course of business. However, it is pertinent to point out that in the comparable companies selected in the Farida Group cases, rates and taxes /License fee have been treated as non-operating in nature in most of the cases.
17.3 Further, Rates & Taxes / License Fees are treated as Non- Operating in the Case of Farida Shoes Pvt. Ltd for AY's 2019-20 to 2022-23. The ld.AR submitted that the TPO/DRP has erred in IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 83 ::
treating Rates & Taxes / License Fees as non-operating in nature only in the case of Farida Shoes Pvt. Ltd., leading to an inconsistent and distorted computation of the Profit Level Indicator (PLI). 17.4 The ld.AR submitted that Rates, Taxes and License Fees are statutory, mandatory and recurring expenditures, incurred in the ordinary course of business. These expenses are integrally connected with the functioning of the business, including the operation of manufacturing facilities, regulatory compliance, and continuity of business activities. Such expenses are neither extraordinary nor unrelated to core operations and therefore squarely fall within the ambit of operating expenses under the TNMM. However, it is observed that in the case of Farida Shoes Pvt.
Ltd., these expenses have been treated as non-operating (refer to Vol. 6, page 2220 for AY:2019-20, Vol. 6, page 2273 for AY:2020- 21, Vol. 6, page 2300 for AY:2021-22 and Vol. 6, page 2314 for AY:2022-23 & also to page 5 & 6 of the TPOs order dated 14.11.2025 for AY: 2019-20, 2020-21, 2021-22 and 2022-23 ). The ld.AR submitted that this treatment is not only incorrect on first principles but also inconsistent with the approach adopted in comparable entities and even within the group itself. 17.5 Attention of the Bench is drawn for a comparison with the case of Farida Classic Shoes (refer financials at page Vol 1 page 248 for AY:2021-22 and the TPO order dated 14.11.2024 at page 6 for AY:
2019-20 to 2022-23) clearly demonstrates that similar expenses have been treated as operating in nature. The differential treatment of identical expenses across similarly placed entities, without any IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 84 ::
cogent basis, is arbitrary and contrary to the settled principles governing transfer pricing analysis.
17.6 The ld.AR submitted that Rule 10B of the Income-tax Rules, 1962 mandates consistency and comparability in the computation of margins and that any selective exclusion of expenses, especially those which are intrinsically linked to business operations, leads to a skewed and unreliable PLI, thereby defeating the very purpose of TNMM analysis. The ld.AR vehemently argued that the exclusion of such operating expenses artificially inflates the operating margins of the assessee and results in an unjustified transfer pricing adjustment. It is a settled principle that all expenses incurred in the normal course of business and relating to operating activities must be included in operating costs, unless they are clearly demonstrated to be non-recurring, extraordinary, or unrelated to business operations, which is not the case here.
17.7 In view of the above, the ld.AR submitted that the treatment of Rates & Taxes / License Fees as non-operating in the case of Farida Shoes Pvt. Ltd. is erroneous, inconsistent, and contrary to law. The said expenses ought to be included as part of operating costs both in the case of the assessee as well as the comparables, so as to ensure consistency, eliminate distortion in margins, and enable a fair and accurate determination of the assessee's arm's length margin.
17.8 Per contra the ld.DR supported the orders of the authorities and prayed for confirming the same.
17.9 We have heard the rival submissions and carefully perused the material available on record. The present issue is common to all the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 85 ::
assessment years involved in the Farida Group cases, except in the case of India Shoes Exports for AY 2021-22 and Aston Shoes for AYs 2019-20 and 2020-21. The controversy before us pertains to the treatment of Rates & Taxes / License Fees while computing the operating margins and PLI under the TNMM. The grievance of the assessee is that the TPO/DRP has adopted an inconsistent approach in treating such expenditure as non-operating in the case of Farida Shoes Pvt Ltd for Assessment Years 2019-20 to 2022-23, whereas similar expenditure has been treated as operating in nature in other group entities as well as in the comparable companies. The ld.AR submitted that Rates & Taxes / License Fees are statutory and recurring expenditures incurred in the ordinary course of carrying on business operations. Such expenses are essential for maintaining manufacturing facilities, obtaining regulatory approvals, complying with statutory requirements and ensuring continuity of business activities. Therefore, according to the assessee, these expenditures are intrinsically connected with the operating activities of the business and cannot be regarded as non-operating in nature. On examination of the financial statements and the relevant portions of the TPO orders referred to by the ld.AR, we find that in the case of Farida Shoes Pvt. Ltd., the TPO has treated Rates & Taxes / License Fees as non-operating items while computing the PLI for AYs 2019- 20 to 2022-23. At the same time, the materials placed before us indicate that in similarly placed entities within the Farida Group, including the case of Farida Classic Shoes, similar expenses have been treated as operating in nature. Thus, identical categories of IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 86 ::
expenditure have received differential treatment without any discernible or cogent basis.
17.10 In our considered opinion, such inconsistency strikes at the very foundation of comparability analysis contemplated under Rule 10B of the Income-tax Rules, 1962. The object of TNMM is to compare like with like and to determine the arm's length margin on a consistent and uniform basis. Therefore, unless a particular expenditure is shown to be extraordinary, non-recurring, abnormal, or wholly unconnected with business operations, the same cannot be excluded from operating costs. Rates & Taxes / License Fees are expenditures which ordinarily arise in the course of regular business operations. Manufacturing and export-oriented entities cannot function without complying with statutory and regulatory requirements. Payments towards municipal taxes, statutory levies, factory licenses, regulatory permissions and similar charges are inextricably linked with the carrying on of business. Such expenses are recurring in nature and form part of the normal operational framework of the enterprise. Therefore, they cannot be characterized as non-operating merely on an adhoc basis. 17.11 We further find merit in the contention of the ld.AR that selective exclusion of such expenses from operating costs leads to distortion in the computation of operating margins. If such expenses are excluded in the case of the assessee while similar expenses are retained as operating in the case of comparables, the comparability analysis itself becomes unreliable and the resulting PLI ceases to reflect the true operating profitability of the assessee. The Revenue has not brought on record any exceptional circumstances to IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 87 ::
demonstrate that the impugned expenditure incurred by the assessee was extraordinary in nature or unrelated to the operating activities of the business. In the absence of any such finding, there is no justification for treating Rates & Taxes / License Fees as non- operating items in the case of the assessee alone. Accordingly, we hold that Rates & Taxes / License Fees incurred by the assessee are operating in nature and are liable to be included as part of operating costs while computing the PLI under TNMM. We further hold that similar treatment shall also be maintained consistently in the case of comparables to ensure uniformity and comparability in the determination of arm's length margins.
17.12 The AO/TPO is therefore directed to recompute the operating margins of the assessee after treating Rates & Taxes / License Fees as operating expenditure in accordance with the observations made hereinabove. Thus, the ground raised by all the assessees for the respective assessment years referred in para 17.1 (supra) are allowed.
18. Marketing Services - Erroneous ALP Determination at NIL and Unjustified Segregation of Commission under TNMM:
18.1 This issue is exclusive for M/s.India Shoes Pvt Ltd-AY 2020-21. 18.2 The assessee has entered into duly executed agency agreements with both Associated Enterprises (AEs) and Non-AEs for canvassing business and facilitating export orders, under which commission at the rate of 5% is paid. These agreements clearly define the scope of services, including market development, customer identification, relationship management, and facilitation of export sales, and are placed at Pages 2316-2319 of Volume 6.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 88 ::
18.3 Pursuant to these agreements, the assessee has made commission payments in the ordinary course of business, which have been duly accounted for in the financial statements (refer Vol. 6, Page 2273 - Note 27 for AY 2020-21).
18.4 The ld.AR submitted that the TPO has erred both on facts and in law in determining the ALP of marketing services at NIL and in rejecting the aggregation approach adopted by the assessee under the TNMM. The impugned adjustment is arbitrary, unsupported by any comparable analysis, and contrary to settled transfer pricing principles. The ld.AR stated that payments have been effected through proper banking channels with full regulatory compliance, including Form 15CA filings, and are supported by statements of commission on exports (Page 2325 of Volume 6). These documents conclusively establish the genuineness of the transactions, actual rendition of services, and business nexus of the expenditure. The ld.AR contended that the marketing services rendered by the AEs and Non-AEs are integral to the assessee's export-oriented business model and are neither duplicative nor in the nature of shareholder activities. The assessee operates in a competitive global environment where continuous customer engagement, sourcing of export orders, and maintenance of business relationships are critical. The services rendered have directly contributed to generation of export sales and business expansion, thereby establishing clear commercial benefit. In this context, he submitted that sales and the corresponding sales commission are intrinsically and inextricably linked. The commission expenditure is not an IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 89 ::
independent or standalone transaction but is incurred wholly for the purpose of generating revenue. It is embedded within the overall business activity and directly contributes to the earnings of income. Accordingly, the assessee has adopted TNMM at the entity level, aggregating all closely linked transactions, which is a recognized and accepted method in transfer pricing. Both OECD Guidelines and Indian jurisprudence support aggregation where transactions are so interrelated that they cannot be evaluated separately. The assessee has demonstrated that its overall operating margins are at arm's length when compared with comparable companies. However, the TPO has erroneously segregated the commission transaction and attempted to benchmark it independently, without assigning any cogent reason for rejecting the aggregation approach. Such segregation disregards the functional and economic interlinkage of transactions and leads to a distorted analysis. Once the entity-level margins are at arm's length, no separate benchmarking of individual components is warranted.
18.5 The ld.AR further argued that the determination of ALP at NIL is fundamentally flawed and contrary to law. It is a settled principle that the TPO cannot determine ALP at NIL based on subjective assumptions regarding necessity or benefit of services. The TPO is required to apply one of the prescribed methods and determine an arm's length price based on comparable. In the present case, the TPO has failed to bring on record any comparable uncontrolled transaction or apply any recognized method, rendering the adjustment unsustainable.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 90 ::
18.6 The TPO has also disregarded the overwhelming documentary evidence demonstrating:
a) the existence of valid agreements governing the transactions;
b) the actual rendition of services by AEs and Non-AEs;
c) the receipt of tangible commercial benefits in the form of export orders; and
d) the proper accounting and regulatory compliance of payments made.
18.7 In the absence of any material to controvert these facts, the conclusion that the ALP is NIL is purely conjectural and violative of principles of natural justice. It is also pertinent to note that the commission rate of 5% is uniformly applied to both AE and Non-AE transactions, thereby constituting a valid internal comparable, which reinforces the arm's length nature of the pricing. This aspect has not been disputed by the TPO.
In view of the above, the ld.AR submitted that:
a) the marketing services are genuine, necessary, and supported by agreements and documentary evidence;
b) the commission expenditure is an integral part of the revenue- generating process;
c) the aggregation approach under TNMM adopted by the assessee is appropriate and justified; and
d) the determination of ALP at NIL, as well as segregation of commission for separate benchmarking, is arbitrary and legally untenable.
18.8 In light of the facts and circumstances of the case, the detailed submissions made herein, and the settled position of law, the ld.AR prayed to:
a) Delete the transfer pricing adjustment made by the Learned TPO/AO by determining the Arm's Length Price of marketing services at NIL, and accept the benchmarking undertaken by the Appellant under TNMM;
b) Hold that sales commission, being intrinsically linked to sales, forms part of an integrated transaction, and accordingly reject IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 91 ::
the action of the TPO in segregating and separately benchmarking the same;
c) Direct appropriate recomputation of margins by including all operating items on a consistent basis, including export incentives as operating income and allowing proper treatment of expenses in line with settled principles of comparability.
18.9 Per contra the ld.DR supported the orders of the authorities and prayed for confirming the same.
18.10 We have carefully considered the rival submissions, perused the orders of the TPO, the DRP and the material available on record along with paper book filed and judicial precedents relied on. The present issue arises in the case of India Shoes Pvt Ltd for Assessment Year 2020-21 and relates to the transfer pricing adjustment made by determining the ALP of commission paid towards marketing services at NIL.
18.11 From the records placed before us, it is observed that the assessee had entered into agency agreements with both Associated Enterprises (AEs) as well as Non-AEs for canvassing export business and procuring orders in overseas markets. The agreements placed on record specify the nature and scope of services to be rendered, including identification of customers, market development, customer coordination, facilitation of export orders and maintenance of commercial relationships. It is further evident from the materials placed before us that commission at the rate of 5% has been uniformly paid both to AE and Non-AE agents.
18.12 The assessee has contended that the commission expenditure was incurred wholly and exclusively in connection with its export- oriented business operations and forms an integral part of the IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 92 ::
revenue generation process. The assessee has benchmarked the international transactions under the TNMM on an aggregated basis at the entity level by treating the commission expenditure as closely linked with the overall export activity. However, the TPO segregated the commission transaction from the bundled transactions and proceeded to determine the ALP of such payment at NIL without carrying out any comparable analysis under the prescribed methods. On careful consideration of the facts, we find substantial force in the submissions advanced by the ld.AR. The documents placed on record demonstrate the existence of duly executed agreements governing the commission arrangement. The commission payments have been routed through banking channels, supported by statutory compliance including Form 15CA filings and statements of export commission. The evidences placed before us also establish that the payments were made pursuant to actual export transactions facilitated through such agents.
18.13 It is a settled proposition of transfer pricing jurisprudence that the TPO cannot question the commercial expediency or business necessity of expenditure incurred by the assessee. The jurisdiction of the TPO is confined to determination of the ALP by applying one of the prescribed methods under the Act and Rules.
Once services are shown to have been rendered and the transactions are supported by agreements and documentary evidences, the ALP cannot be determined at NIL merely on subjective assumptions that the assessee did not derive adequate benefit therefrom.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 93 ::
18.14 In the present case, the TPO has neither brought on record any comparable uncontrolled transaction nor applied any recognized transfer pricing methodology for arriving at NIL ALP. The adjustment has been made merely on the premise that the assessee failed to establish commensurate benefit, which in our considered opinion is legally impermissible. The determination of ALP at NIL without undertaking any benchmarking analysis is contrary to the scheme of Chapter X of the Act.
18.15 We further find merit in the contention of the assessee that the commission expenditure is intrinsically linked with the export sales generated by the assessee. Sales commission paid for procuring export orders forms part of the integrated business activity and cannot ordinarily be viewed in isolation from the corresponding sales transactions. The TNMM adopted by the assessee at the entity level aggregates closely linked transactions and examines overall profitability. Such aggregation is recognized both under OECD Transfer Pricing Guidelines as well as Indian transfer pricing jurisprudence where transactions are economically and functionally interrelated.
18.16 In the instant case, the TPO has segregated the commission transaction for separate benchmarking without assigning any cogent reasons as to why the aggregation approach adopted by the assessee was not acceptable. In our considered view, once the international transactions are closely linked and the assessee's overall operating margins are demonstrated to be at arm's length, selective segregation of one component transaction without proper justification results in distortion of the transfer pricing analysis.
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 94 ::
Another important aspect which merits consideration is that the commission rate of 5% has been uniformly paid both to AE and Non-AE. Such internal comparable uncontrolled transactions provide a strong indicator supporting the arm's length nature of the commission payments. The Revenue has not disputed this factual position nor brought any material to demonstrate that the commission paid to AEs was excessive vis-à-vis non-AE transactions.
The evidences placed on record clearly establish:
(i) the existence of valid agreements governing the transactions;
(ii) actual rendition of services;
(iii) generation of export business and commercial benefit to the assessee; and
(iv) proper accounting and regulatory compliance in relation to the payments made.
In the absence of any material brought on record by the Revenue to controvert these evidences, the action of the TPO in determining the ALP of the commission payment at NIL is unsustainable in law. Accordingly, we hold that the marketing and commission services availed by the assessee are genuine and intrinsically linked with its export business operations. We further hold that the aggregation approach adopted by the assessee under TNMM is justified in the facts of the case and the segregation of commission expenditure for separate benchmarking by the TPO is unwarranted. 18.17 We therefore direct the AO/TPO to delete the transfer pricing adjustment made by determining the ALP of the commission payment at NIL and accept the benchmarking analysis undertaken by the assessee under TNMM. The AO/TPO is further directed to IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 95 ::
recompute the margins by considering all operating items consistently in accordance with law.
Accordingly, the grounds raised by the assessee for the A.Y.2020-21 is allowed.
19. In the result, all the captioned appeals of the different assessee are disposed of as under:
ITA Nos. AYs Assessee Result
IT(TP)A No. 2019-20 M/s.Aston Shoes Pvt. Ltd. Allowed
1/Chny/2026
IT(TP)A No.2, 3, 2019-20, M/s.Farida Classic Shoes Partly 4 & 5/Chny/2026 2020-21, Pvt.Ltd. allowed for 2021-22 & statistical 2022-23 purposes IT(TP)A No.42, 2020-21, M/s.Aston Shoes Pvt. Ltd. Allowed 43/Chny/2025 2022-23 IT(TP)A No.44, 2020-21, M/s India Shoes Exports Allowed 45/Chny/2025 2021-22 Pvt. Ltd.
IT(TP)A No.46, 2019-20, M/s Delta Shoes Pvt. Ltd. Allowed
47, 48, & 2020-21,
49/Chny/2025 2021-22,
2022-23,
IT (TP)A No. 50, 2019-20, M/s Farida Shoes Pvt. Ltd. Partly
51, 52 & 2020-21, allowed for
53/Chny/2025 2021-22, statistical
2022-23 purposes
Order pronounced on the 26th day of May 2026, in Chennai.
Sd/- Sd/-
(एस. आर. रघुनाथा) (मनु कुमार िग र)
(S.R.RAGHUNATHA) (MANU KUMAR GIRI)
लेखा सद&य/ACCOUNTANT MEMBER या'यक सद&य/JUDICIAL MEMBER
चे नई/Chennai,
(दनांक/Dated: 26th May, 2026.
SNDP, Sr. PS
आदे श क 'त+ल,प अ-े,षत/Copy to:
1. अपीलाथ /Appellant/Assessee
IT(TP) A. No.1-5/Chny/2026 & 42-53/Chny/2025 M/s Farida, Delta, Aston & India Shoes Pvt Ltd Vs ACIT CC-3(2) :: 96 ::
2. थ /Respondent/Department
3. आयकरआयु /CIT, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF