ADDL.CIT, SPECIAL RANGE- 3 , NEW DELHI V. DENSO HARYANA PVT. LTD., NEW DELHI

ITA 2877/DEL/2018

AI Insights

The case involves Denso Haryana Pvt Ltd, a wholly owned subsidiary of DENSO, Japan, which appealed against the orders of the CIT(A) pertaining to the Assessment Years 2011-12 and 2012-13. The appeals were related to the adjustments made by the Transfer Pricing Officer (TPO) regarding the arm's length price of certain international transactions, including payments for intra-group services, import of capital goods, and royalty payments. The Tribunal examined the benchmarking methods used by the assessee and the adjustments made by the TPO and CIT(A). The Tribunal found that the TPO's adjustments were not in accordance with the transfer pricing provisions and previous judicial decisions, leading to the decision in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37343 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Other Referred Cases: DCIT v Total Oil India Pvt Ltd, Bombardier Transportation India Pvt ltd ITA/1626/Del/2015, Krishak Bharti Cooperative Ltd 210 Taxman 123, Magneti Marelli Powertrain India (P.) Ltd. v. DCIT [2016] 75 taxmann.com 213 (Delhi), EKL Appliances case [2012] 345 ITR 241 (Delhi), Lumax Industries Ltd. [ITA No. 102/2014], Abhishek Auto Industries Ltd. [ITA No. 1433/Del/2009], Aztec Software & Technology Services Ltd (SB) 107 ITD 141(Bang)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIOM PRAKASH
• Assessee Lawyers: SUNIL KUMAR
• Keywords: Transfer pricing; International transaction; Business expenditure; Corroborative evidences; Depreciation; Cost of acquisition; Rule of consistency; Principle of natural justice; Wholly owned subsidiary; Double taxation relief
• Section: 271(1)(c); 22; 13; 234B; 92; 10B; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘I’ BENCH, NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 1310/DEL/2018 [A.Y. 2011-12] ITA No. 3228/DEL/2018 [A.Y. 2012-13] Denso Haryana Pvt Ltd Vs. The Dy.CI.T. B-1/D-4, Ground Floor Circle -7(1) Mohan Co-operative Industrial Estate New Delhi Mathura Road, Badarpur, New Delhi PAN – AAACD 6817 F ITA No. 1713/DEL/2018 [A.Y. 2011-12] ITA No. 2887/DEL/2018 [A.Y. 2012-13] TheDy.CI.T. Vs. Denso Haryana Pvt Ltd Circle -7(1) B-1/D-4, Ground Floor New Delhi Mohan Co-operative Industrial Estate Mathura Road, Badarpur, New Delhi PAN – AAACD 6817 F (Applicant) (Respondent) Assessee By : Shri Sunil Kumar, Adv Department By : ShriOm Prakash, Sr. DR Date of Hearing : 06.01.2025 Date of Pronouncement : 26.03.2025 2 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- The above captioned two separate appeals by the assessee and two separate cross appeals by the Revenue are preferred against two separate orders of the CIT(A)-44, New Delhi dated 11.02.2015 and 26.12.2017 pertaining to Assessment Years 2011-12 and 2012-13 respectively. 2. Since the underlying facts in the captioned cross appeals by the assessee and Revenue are same and were heard together, they are disposed of by this common order for the sake of convenience and brevity. 3. Representatives of both the sides agreed to address the appeals on the facts of A.Y 2011-12. On such concession, representatives were heard at length. Case records carefully perused. 1310/DEL/2018 (2011-12) [Assessee’s appeal] 4. Grounds raised by the assessee read as under: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer (\"AO\") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error 3 as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was \"expedient and necessary\" to refer the matter to the Ld. Transfer Pricing Officer (\"TPO\") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 (\"Act\"). 3. That on facts and circumstances of the case and in law, the Ld. AO / Ld. TPO / Ld. Commissioner of Income Tax (Appeals) [\"CIT(A)\"] erred in making an addition of INR 7,006,041 on provision of Intra Group services to the returned income of the Appellant by re-computing, the arm's length price of the above international transactions under section 92 of the Act by: 3.1 Erred in facts and in law by not considering that payment made is closely linked to the primary business functions of the Appellant and by arbitrarily rejecting the Transactional Net Margin Method (\"TNMM\") analysis adopted by the Appellant 3.2 by not appreciating that payment made is closely linked to the primary business functions of the Appellant and erred in analyzing the transaction separately for the determination of arm's length price 3.3 Erred in facts and in law in holding that neither the Appellant has received any service and/ or benefit in lieu of the payment made by it for services availed nor there was any need for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard; 4 3.4 Erred in holding that the Appellant has not furnished any documentary evidence as to demonstrate the services received from the AEs. 3.5 Erred in facts and in law, in determining the ALP of the transaction at NIL, by applying CUP method, merely based on presumptions and without furnishing details of price charged in any comparable uncontrolled transaction which is in contravention of the provisions of Rule 10B of the Rules. 4. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. CIT(A) erred in making an addition on purchase of fixed asset by disallowing the markup charged by AE from Appellant and in doing so have grossly erred by: 4.1 Erred in facts and in law by not considering and thereby arbitrarily rejecting the TNMM analysis adopted by the Appellant and by re-computing the arm's length price withoutusing any of the methods specified in Rule 10B of Income Tax Rules, 1962. 4.2 The Ld. CIT(A) erred in facts and in law by disallowing the mark-up without any data on comparable, to uphold his analysis. 4.3 Erred by disregarding the separate benchmarking analysis submitted by the Appellant during the course of proceedings. 5. That the Ld. AO also erred in initiating penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income. 6. That the Ld. AO's action to charge interest under sections 234A, 234B and 234D of the Act, based on the assessment is bad in law. That the above grounds are independent and without prejudice to each other. 5 The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of objection either before or during the course of proceedings in the interest of the natural justice.” 5. The assessee has raised the following additional grounds of appeal and prayed for its admission relying on the Supreme Court decision of NTPC and Jute Corporation: 1. That on the facts and circumstances of the case and in law, the Assessing officer (AO) ought to have restricted the levy of Dividend Distribution Tax (\"DDT\"), on the dividend paid to M/s Denso Corporation, Japan, to 10 percent in terms of Article 10 of Double Taxation Avoidance Agreement (“DTAA”) between India and Japan, instead of 16.61 percent charged in terms of section 115-O of the Income tax Act, 1961(\"Act\") 2. That AO failed to appreciate that the recipient of the dividend income being a non-resident is governed by the provisions of relevant DTAA and the income being taxable in the hands of non-resident could not be subjected to a rate in excess of the rate prescribed under the DTAA and hence, erred in subjecting the Appellant to additional income tax in terms of section 115- O of the Act. 5.1 In the course of hearing before us, the ld AR stated fairly that the issue of taxation of Dividend Distribution Tax is to be decided against the assessee. 5.2 The issue of the DDT has been decided against the assessee by the Special Bench of Mumbai in the case of DCIT v Total Oil India Pvt Ltd. The additional ground of the assessee is accordingly dismissed. 6 6. Briefly stated, the facts of the case are that the assessee is a resident corporate entity, engaged in the business of manufacturing automobile components including fuel pumps, fuel injectors, idle speed control valves, electronic control units, AC amplifiers, armatures, holder bearings etc. Additionally, the Assessee had purchased and sold products such as, oxygen sensors, diesel injections and variants of fuel pumps, fuel injectors etc. The Assessee is a wholly owned subsidiary of DENSO, Japan. The assessee is a routine manufacturer of automobile components and uses all the valuable intellectual property rights, know-how, copyrights and other commercial or marketing intangibles such as brand names, trademarks etc, owned by the DENSO group. 7. The assessee has filed the ROI on 29.11.2011 declaring an income of Rs 1,07,55,93,206/-. The TPO made an adjustment of Rs 18,40,35,200/- and accordingly, the AO assessed the total income at Rs 1,25,96,28,400/-. 8. The assessee has considered 13 transactions for AY 2011-12 and 8 transactions for AY 2012-13 as International transaction. Except cost recharges of Rs 35,04,917/- to group companies in AY 2011-12 and 7 reimbursement of expenses of Rs 14,00,698/- received in AY 2012-13, the assessee adopted aggregate approach and clubbed all the other transactions together, being closely linked with each other, to benchmark for determination of arm's length price (\"ALP\") by selecting Transactional Net Margin Method (\"TNMM\") as the most appropriate method with operating profit to total cost (OP/OC) as profit level indicator. The benchmarking analysis of aggregated transactions is tabulated below: Assessee’s margin Arithmetic mean of OP/OC of comparable/Working Capital adjusted] For A.Y 2011-12 – 17.76% For A.Y 2012-13 – 12.48% For A.Y 2011-12 – 3.63% For A.Y 2012-13 – 7.55% 9. The assessee considered the transactions with AEs to be at arm's length since the margins of the assessee was more than the average margin of the comparable.The TPO while examining the benchmarking done by the assessee for determination of arm's length price (ALP), accepted the assessee's approach in respect of all transactions except three, which are payments made towards intra-group services, payment made towards import of capital goods and payment for royalty. The TPO held that the ALP of Intra-group servicesis Nil as against Rs 70,06,044/- determined by assessee; ALP of payment made towards import of capital goods is Rs 2,66,59,615/- as against Rs 8 2,95,92,173/-determined by assessee and ALP for payment for royalty is Nil as against Rs 17,40,96,601/- determined by the assessee. Thus the TPO worked out a difference of ALP of Rs 18,40,35,200/- u/s 92CA. 10. Aggrieved, the assessee went in appeal before the CIT(A) who gave relief and following his own decision for AY 2010-11,deleted the adjustment made in respect of transaction of ‘Intra Group services’, reduced the ALP disallowance of mark-up charged by AEs on ‘purchase of fixed assets’ and deleted the ALP on account of 'payment of royalty'. The CIT(A) also held that material facts are same in the AY 2011-12 and 2012-13. 11. The ld AR at the outset vehemently submitted that the issue ‘Intra Group services’ and disallowance of mark-up charged by AEs on ‘purchase of fixed assets’ has been decided by the coordinate bench of this Hon'ble ITAT in favour of the Assessee in its own case for AY 2010- 11 [ITA No. 3811/Del/2017], wherein the adjustment in respect of intra-group services has been deleted. As the material facts remains the same in the AY 2011-12 and 2012-13, the same may be deleted in these years also. 9 12. Per contra, the ld. DR stated that with respect to intra group services (IGS), the ld DR submitted that the assessee has to establish the payment for services received. It is the say of the ld DR that the cost allocation for services as well as its rendering has not been established. The ld DR submitted that the foreign AE has merely allocated expenses and that the ITAT has not discussed the aspect of allocation of expenses, hence the same can not be considered as precedent. The ld DR relied on the ITAT Delhi decision in the case of Bombardier Transportation India Pvt ltd ITA/1626/Del/2015 dated 4.11.2015 for the proposition that ALP of IGS can be determined separately rather than aggregating it with other transactions. 13. With respect to the purchase of assets from the AEs, the ld DR submitted that the assets are used assets and the basis of mark up of 11% has not been given by the assessee. Further the ITAT has not determined the correct approach to determine the correct mark up. The ld DR argued that ALP is required to be determined and prayed for setting aside the order to AO for fresh determination relying on the decision of Aztec Software & Technology Services Ltd (SB) 107 ITD 141(Bang). The ld DR also relied on the decision of Delhi High Court in 10 the case of Krishak Bharti Cooperative Ltd 210 Taxman 123 for the proposition that rule of consistency is not sacrosanct. 14. We have heard the rival submissions and have perused the relevant material on record. The ground no 1 and 2 is regarding validity of the assessment orderon the ground that the AO had no recorded any reasons to refer the matter to the TPO. The issue has been answered by thedecision of Aztec Software & Technology Services Ltd (SB) 107 ITD 141(Bang) against the assessee. In view of the same the ground 1 and 2 are dismissed. 15. With respect to the ground no 3 and its sub-grounds regarding the issue of Intra Group Services, we are of the considered view that the coordinate Bench of the ITAT Delhi in ITA No. 3811/Del/2017 in assessee’s own case has decided the issue in favour of the assessee as follows: 14. We have considered rival submissions and perused materials on record. As discussed earlier, the assessee has entered into various international transactions with its AE during the year. Except thetransactions relating to cost recharges to group companies, the assessee has aggregated all other transactions and benchmarked them by applying TNMM. Undisputedly, the Assessing Officer has accepted assessee's benchmarking under TNMM in respect of all the transactions except two of the transactions, viz., import of raw materials and components and payment for receipt of services. In respect of these two transactions, the TPO has applied CUP method and determined the ALP at nil. 11 15. The issue arising for consideration is, when assessee's aggregate approach under TNMM has been accepted by the TPO in respect of other transactions, such as, import of finished goods, import of capital goods, payment for royalty, payment for technical services, payment for application cost, payment of training fees, cost allocation from group companies, is there any necessity to segregate these two transactions including payment towards intra-group services ? In our view, the TPO was not justified in selectively picking of only a couple of transactions for different treatment. As discussed earlier, the assessee has entered into 12 transactions with AE. Except one transaction, rest eleven transactions have been benchmarked by the assessee underTNMM by adopting the aggregate approach. While the TPO has accepted assessee's approach in respect of nine transactions, he has segregated two transactions including the transaction relating to intra- group services. Thus, it is not a case where the TPO has entirely disbelieved assessee's claim that the transactions are closely linked transactions. Therefore, in our view, the approach adopted by the TPO to segregate this payment made towards intra-group services is unsustainable. 16. Though, learned Departmental Representative has relied upon the decision of the coordinate Bench in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra) to emphasise that aggregate approach is not acceptable, however, in our view, the decision is factually distinguishable, as in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra), the assessee itself adopted different methods for different sets of transactions. Whereas, in the present case, the assessee has clubbed all the transactions together and adopted TNMM for benchmarking. Even otherwise also, assuming that the payment made towards intra-group services has to be benchmarked separately, it needs to be examined whether theapproach of TPO in determining the ALP at nil by apply CUP method is acceptable. 17. The main reasoning of the TPO to discard assessee's benchmarking under TNMM is, the assessee has failed to prove the need test and the benefit test. As could be seen from the materials placed on record, there is an agreement between the group entities for intra-group services. Further, in course of proceedings before the TPO, the assessee has furnished voluminous evidences, which demonstrate that the assessee has received various services such as planning services, safety and environment services, information system, procurement services, human resource services. Under the planning services, the assessee has received services relating to business planning so as to strengthen and improve regional management system and to organize and run meetings and try to resolve the common issue among group companies. In this context, the assessee has placed on record the minutes and agenda of the Asia Presidents 12 conference containing the name of the senior personnel who had attended the planning meeting. Assessee has also placed on record quarterly reports sent by the AEs to the assessee mentioning theservices provided, performance evaluated and suggested measures for improvement. The assessee has also demonstrated the benefits received by way of cash improvement and profit improvement, increase in turnover, effective execution of business and access to skill and expertise. Under safety and environment services, the assessee has received various services to develop serious disaster prevention activity, support to establish safety, health and environment management system, support function improvement. Necessary supporting evidence towards receipt of such services have been placed on record. Assessee has also demonstrated the benefits received from such services regarding compliance with industry safety norms, avoid any unfair legal cost/penalty, lesser health issues of employees enabling them to perform regular work throughout the year, lesser quality issues etc. It has also helped in reduction of compensation cost to employees. Under the information system services, the assessee was helped to develop and maintain a common system, upgrade and maintain server, upgrade IT environment, internet gateway management, internet web access control, anti-virus software updating and maintenance support and remote accessgateway management etc. The receipt of such services was also supported by documentary evidences placed in the paper book. These services have benefited the assessee in reducing fixed cost and enhancement in quality, reducing man hours and inventory amount, clear IT issues and counter measure, centrally managed server, free of cost platforms/software, automated processes, economies of scale etc. In the procurement services, the assessee received services including assistance in selecting the materials and parts supplier to reduce purchase cost by order volume for the group companies, assistance in new material, help in negotiating the price of material centrally, assistance in standardizing cost calculation method etc. Such services have benefited the assessee to strengthen cost effectiveness, supplier basement and procurement function, management of KPI and progress of important activities resulting in cost saving in millions, material cost down and savings in material cost etc. Under human resource service, the assessee received help to establish system for local management, plan and run management training programs for expatriates and local management, promote global HR program, support on training at each group company regarding improvementwere received from AEs, the departmental authorities cannot ignore such evidences. In any case of the matter, the TPO could not have determined the ALP at nil under CUP method without bringing on record any comparable uncontrolled transaction. 13 19. So far as the decisions relied upon by the learned Departmental Representative, on carefully going through them, we are of the view that they have been decided on their own facts, hence, not applicable to the present case. Both in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra) as well as in case of Akzo Nobel India Ltd.(supra), the Bench has recorded a categorical finding of fact that the assessee failed to furnish substantive evidence to prove rendition of services. However, the facts are different in the present case, as the assessee has furnished cogent evidence to prove rendition of services by the AE. In view of the aforesaid, we hold that the transfer pricing adjustment suggested by the TPO and addition made by the Assessing Officer in pursuance thereof, is unsustainable. 16. We findthat, for the instant year, the ld DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11. We therefore, respectfully follow the decision of coordinate Bench cited above as the material facts and circumstances being the same in the impugned year, and hold that the action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the addition on Intra Group Services. Ground no 3 and its sub-grounds are allowed. 17. The ground no 4 with respect to disallowance of mark-up charged by AEs on ‘purchase of fixed assets’, we find that the coordinate 14 Bench of ITAT in its order in the assesse’s own case for AY 2010-11 (supra) has deleted the adjustments as follows: 24. Having considered rival submissions and perused materials on record, we find that the fact that assessee has purchased certain capital goods has not been disputed or denied by the departmental authorities. In fact, the TPO has determined the ALP at the cost of the goods purchased while disallowing the mark-up. While doing so, the TPO has not benchmarked the transaction under any one of the available methods. Whereas, learned Commissioner (Appeals) has allowed 2% mark-up on the written down value of the expenses. Thus, as could be seen, the approach adopted both by TPO and learned Commissioner (Appeals) is purely adhoc and not in accordance with Rule 10B. The fact that similar transaction was accepted by the TPO in past assessment years has not been countered by the department, though they have simply stated that each assessment, being a separate unit, the decision taken in earlier assessment years would not be applicable. The departmental authorities have failed to bring out any factual dissimilarity between the earlier years and the impugned assessment year. In any case of the matter, the approach of the TPO and learned Commissioner (Appeals) in determining the ALP is not inaccordance with the transfer pricing provisions. Therefore, we are inclined to delete the adjustment. 18. We find that again the ld DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11. We therefore, respectfully follow the decision of coordinate Bench cited above as the material facts and circumstances being the same in the impugned year, and hold that the action of the TPO and 15 the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the ALP adjustment on account of ‘purchase of fixed assets’.Ground no 4 and its sub- grounds are allowed. 19. Ground no 5 on penalty is premature and ground no 6 regarding charging of interest on 234 A, B and D is consequential in nature. ITA No 1713/Del/2018 for AY 2011-12 (Revenue’s appeal) 20. The Revenue has raised the following grounds of appeal: \"1. \"The Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of case in deleting the addition of Rs. 17,40,96,601/- made by the AO on account of ALP adjustment of payment of royalty when assessee in its submissions did not explain (i) need for the receipt of such services (ii) details of when and how these services we requisitioned from the AEs (iii) basis of determination of payment rate (iv) cost bene analysis forming the basis of expected benefits from the services and neither explain the tangible/direct benefits derived by it. 2. \"The appellant craves leave to modify, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.\" 21. Briefly, the TPO employed need-benefit test to reduce the ALP of the transaction of payment of Royalty to NILand the Ld. CIT(A) in both the AYs, i.e., AY 2011-12 & AY 2012-13 has deleted the adjustment in respect of transaction of 'payment of royalty’ by relying upon the decision of Hon'ble jurisdictional High Court in EKL Appliances case 16 [2012] 345 ITR 241 (Delhi), Lumax Industries Ltd. [ITA No. 102/2014] and coordinate bench's decision in Abhishek Auto Industries Ltd. [ITA No. 1433/Del/2009). 22. The ld DR submitted that Royalty has not been separately benchmarked. Royalty has been paid at 4 to 5% and has no basis as no comparable has been given by the assessee. It is the say of the ld DR that bench marking at entity level is not proper but it should be on transaction basis. 23. Per contra the ld AR submitted that the assessee aggregated the transaction of 'payment of royalty' with other closely linked transactions and benchmarked them under TNMM. The Ld. AR further stated that the TPO has accepted TNMM for all the transactions except for the three which are under dispute in these appeals and that the Ld. TPO has singled out the transaction of 'payment of royalty' and the other two transactions and reduced their ALP to NIL under CUP. The ld AR relied on decision of the Hon'ble High Court of Delhi in Magneti Marelli Powertrain India (P.) Ltd. v. DCIT [2016] 75 taxmann.com 213 (Delhi) which had held that such an approach is untenable. The ld AR 17 also relied on the decision of Hon'ble Delhi Court's judgment in EKL Appliances (supra). 24. We have heard the rival submissions and have perused the relevant material on record. We find that the Hon'ble jurisdictional High Court in EKL Appliances (supra) has negatived the application of need-benefit test and ruled in favour of the assessees on this issue. The relevant paragraphs of EKL Appliances (supra) are extracted below for reference: \"22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay 18 royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. 23. Apart from the legal position stated above, even on merits the disallowance of the entire brand fee/royalty payment was not warranted. The assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier. Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation costand capacity increase have contributed to the continuous losses There is no material brought by the revenue either before the CIT (Appeals) or before the Tribunal or even before us to show that these are incorrect figures or that even on merits the reasons for the losses are not genuine. 24. We are, therefore, unable to hold that the Tribunal committed any error in confirming the order of the CIT (Appeals) for both the years deleting the disallowance of the brand fee/royalty payment while determining the ALP. Accordingly, the substantial questions of law are answered in the affirmative and in favour of the assessee and against the Revenue. The appeals are accordingly dismissed with no order as to costs.\" 19 25. We also find that when the assessee has aggregated the transaction of 'payment of royalty' with other closely linked transactions and benchmarked them under TNMM, the TPO can not segregate some transaction out of the aggregated whole and reduce their ALP to NIL under CUP as held by the Hon'ble High Court of Delhi in Magneti Marelli Powertrain India (P.) Ltd. v. DCIT [2016] 75 taxmann.com 213 (Delhi). The relevant paragraph is extracted below for reference: \"17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of Rs. 38,58,80,000 only for which Comparable Uncontrolled Price (\"CUP\") method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, ie payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to 20 be disturbed, the end result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee; the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too.\" 26. Considering the factual matrix, the basis for reducing the ALP of royalty transaction to NIL itself does not hold ground in light of thejudicial precedent cited above and therefore, we are of the considered view that the appeal of the Department on this issue can not succeed. In view of the above discussion the appeal of the Revenue is dismissed. ITA No 3228/Del/2018 [AY 2012-13] (Assessee appeal) ITA No 2887/Del/2018 [AY 2012-13] (Revenue appeal) 27. The facts for the impugned year being mutatis mutandis similar to the other appeals as discussed above, we partly allow the grounds raised by the assessee in the A.Y. 2012-13 and delete the addition made by the Assessing Officer. Accordingly, the appeals of the Revenue for the A.Y 2012-13 stand dismissed. 21 28. In the result, the appeals of the assessee in both the A.Ys are partly allowed whereas the appeals of the Revenue in in both the A.Ys are dismissed. Order pronounced in the open court on 26.03.2025. Sd/- Sd/- [MAHAVIR SINGH] [NAVEEN CHANDRA] VICE PRESIDENT ACCOUNTANT MEMBER Dated: 26th March, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 22 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order "