ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, TIRUNELVELI, TIRUNELVELI V. MS.PHILLIPS FOODS INDIA PRIVATE LIMITED, TUTICORIN

ITA 739/CHNY/2024

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The case involves Phillips Foods India Pvt. Ltd., a company engaged in processing and exporting crab meat, which faced an upward adjustment of Rs.13.98 crores to its margin from exports to its Associated Enterprise (AE) as determined by the Transfer Pricing Officer (TPO). The assessee contested this adjustment, leading to a series of appeals. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal by adopting a 4.5% operating profit margin as per a Unilateral APA agreed with the CBDT for the years 2021-22 to 2025-26. The Revenue's appeal against this decision was dismissed by the Tribunal, which found that the APA margin could be applied retrospectively to the assessment year in question due to the consistency in the assessee's business activities and international transactions during the APA period and the year of consideration.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 707246 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 20-03-2024
• Other Referred Cases: DCIT vs. M/s.AGS Customer Services India P. Ltd., Springer India Pvt. Ltd., Ameriprise India (P.) Ltd., Kone Elevator India Pvt. Ltd., Timken Engineering & Research India Pvt. Ltd., FIS Global Business Solutions India Pvt. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V. SREENIVASAN
• Assessee Lawyers: K. AMULYA; VINAY JAIN
• Keywords: Transfer pricing; International transaction

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘डी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 739/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Year:2015-16 & C.O No.17/CHNY/2024 [in I.T.A. No.739/CHNY/2024] The Assistant Commissioner of Income Tax, Circle 1, Tirunelveli vs. Phillips Foods India Pvt. Ltd., C-75/76, SIPCOT Industrial Complex, Tuticorin Central Stand S.O. Tuticorin – 628 002. PAN: AABCP 7916Q (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent/Cross Objector) राज᭭व कᳱ ओर से /Revenue by : Shri AR.V. Sreenivasan, CIT िनधाᭅᳯरती कᳱ ओर से/Assessee by : Ms. K. Amulya, CA & Shri Vinay Jain, CA सुनवाई कᳱ तारीख/Date of Hearing : 07.07.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 08.07.2025 आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed by the Revenue and cross objection at the instance of the assessee are directed against the order of the Commissioner of Income Tax (Appeals), Chennai-16 dated - 2 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 25.01.2024 passed u/s.250 of the Income Tax Act (hereinafter the ‘Act’). The relevant assessment year is 2015-16. 2. Brief facts of the case are as follows: The assessee is a private limited company. It is a captive contract manufacturer in processing and export of crab meat to its Associated Enterprise (AE). For the assessment year 2015-16, return of income was filed on 11.11.2015 disclosing total income of Rs.1.71 crores. The assessment was selected for limited scrutiny and notice u/s.143(2) of the Act was issued. During the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price of the international transaction undertaken by the assessee with its AE. The TPO vide order dated 01.11.2019 passed u/s.92CA(3) of the Act proposed upward adjustment of Rs.13.98 crores to the assessee’s margin from export of its manufactured product to its AE. In this context, it is relevant to note that said adjustment was determined by the TPO by adopting the assessee’s foreign AE as the tested party, upon rejecting the assessee’s TP documentational and benchmarking analysis. - 3 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 3. Subsequently, the AO passed draft assessment order on 28.11.2019 u/s.144C(1) of the Act and the final assessment order on 05.02.2020 u/s.144C(3) of the Act after incorporation the adjustment proposed by the TPO. 4. Aggrieved by the proposed adjustment of the TPO, assessee filed appeal before the CIT(A) challenging the adjustment proposed by the TPO. The assessee has also raised legal contentions stating that final assessment order was passed in violation of limitations prescribed under the Act. The CIT(A) dismissed the legal ground challenging the validity of TPO order and the final assessment order. As regards the issues on merits, the assessee furnished the Unilateral Advance Pricing Agreement (APA) entered on 25.08.2023 between CBDT for the assessment years 2021-22 to 2025-26 in support of its functional analysis and contention that assessee ought to be considered as a tested party. The CIT(A) concurred and held that assessee company shall be considered as tested party. Further, the CIT(A) directed the AO to adopt the margin mutually agreed under the APA i.e., 4.5% [operating profit (OP) / operating cost (OC)] as arm’s length profit margin for the impugned assessment year and accordingly determined the TP adjustment of 4.15 crores. Hence the appeal of the assessee was partly-allowed. - 4 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 5. Aggrieved by the order of the CIT(A), the Revenue has filed the appeal in ITA No.739/CHNY/2024 raising the following grounds:- 1.Whether on facts and circumstances of the case, the ld. CIT(A) was justified in adjudicating based on the additional grounds and evidences filed by the assessee in the form of Advance Pricing Agreement (APA) dated 25.08.2023, when the same document did not exist while passing the order u/s 92CA(3) dated 01.11.2019 and no remand report was called for in accordance with Sub-Rule 3 of Rule 46A of the I.T.Rules. 2.Whether on the facts and circumstances of the case, the Id. CIT(A) was justified in adopting the Margins as stipulated in APA to Non-APA covered year as the Margins in those years could only be comparable to the Margins of the comparables in the contemporary period. 3.Whether on the facts and in the circumstances of the case, the ld.CIT(A) was justified in holding that it is reasonable to consider the operating margin agreed in the advance pricing agreement entered by the assessee with the CBDT for the FY 2020-21 to 2024-25 and directed the TPO/AO to consider the APA agreement while passing order giving effect to the appeal for the Asst. Year 2015-16 when the agreement was entered for the FY 2020-21 to 2024-25. 4. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Id. CIT(A) may be reversed and that of the Assessing Officer restored. 6. The Ld.DR has filed the order of Pune Bench of the Tribunal in the case of DCIT vs. M/s.AGS Customer Services India P. Ltd., in ITA No.162/PUN/2022 & CO No.22/PUN/2022 dated 16.09.2022 and contended that for the relevant assessment year, the CIT(A) has - 5 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 erred in adopting 4.5% as arm’s length profit margin. It was submitted that the APA agreement is for assessment years 2021-22 to 2025-26. Hence, in view of provision of section 92CCA(4) of the Act, the relevant assessment year will not get covered or rolled back for adopting the APA margin of 4.5%. 7. Per contra, the Ld.AR relied on the following judicial pronouncements in support of her contention that CIT(A) is justified in directing the AO/TPO to adopt the APA net profit of 4.5% as arm’s length profit margin for the relevant assessment year:- i. Hon’ble Delhi High Court in the case of Springer India Pvt. Ltd., reported in TS-403-HC-2023 DEL-TP ii. Hon’ble Delhi High Court in the case of Ameriprise India (P.) Ltd., reported in 78 taxmann.com 373 iii. Chennai Bench of the Tribunal in the case of Kone Elevator India Pvt. Ltd., in IT(TP)A No.85/CHNY/2019 iv. Bangalore Bench of the Tribunal in the case of Timken Engineering & Research India Pvt. Ltd., in ITA Nos. 694/Bang/2019 v. Delhi Bench of the Tribunal in the case of FIS Global Business Solutions India Pvt. Ltd, in ITA Nos.422 /Del/2019. 8. We have heard rival submissions and perused the material on record. The assessee had concluded the APA process and entered into APA agreement with CBDT on 25.08.2022. The APA covers the assessment years 2021-22 to 2025-26. In the said APA agreement, - 6 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 CBDT had accepted the assessee itself to be selected as tested party with respect to international transactions undertaken by the assessee, with operating profits percentage on operating cost of the assessee benchmarked for arm’s length purposes. The business activities and the international transaction of the assessee company during the relevant assessment year have remained the same during the APA period as well. Since there is no difference in functional profile or in the nature of international transaction undertaken during the APA period and the year of consideration, the various judicial pronouncements relied on by the assessee cited supra had categorically held that adopting of margin mutually agreed under the APA can be adopted as arm’s length profit margin for the relevant assessment year. Therefore, we hold that the CIT(A)’s order is correct and no interference is called for. Hence, the appeal filed by the Revenue is dismissed. CO No.17/CHNY/2024 9. In the cross objection, the assessee has raised legal grounds stating that assessment proceedings is barred by limitation. The assessee also raised contention that the orders are invalid since the same is without signature. Since the Department’s appeal has been dismissed, the legal contention that is raised in the cross objection is - 7 - ITA No,739/CHNY/2024 & CO No.17/CHNY/2024 not adjudicated since the Ld.AR had not raised any specific arguments on the grounds raised in the cross objection. Therefore, the cross objection filed by the assessee is dismissed as infructuous. 10. In the result, the appeal filed by the Revenue and the cross objection filed by the assessee are dismissed. Order pronounced in the open court on 8th July, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चेÛनई/Chennai, Ǒदनांक/Dated, the 8th July, 2025 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. िनधाᭅᳯरती Assessee 2. राज᭭व /Revenue 3. आयकर आयुᲦ /CIT, Madurai 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF. "