GROHE INDIA PRIVATE LIMITED,GURGAON V. ASSESSMENT UNIT, INCOME TAX DEPARTMENT, ASSESSMENT UNIT, INCOME TAX DEPARTMENT

ITTPA 5231/DEL/2024

AI Insights

Grohe India Pvt. Ltd. appealed against the final assessment order for the assessment year 2021-22, which included adjustments based on the Arm's Length Price (ALP) of international transactions. The case involved a series of assessments and appeals, including a draft assessment order, objections to the Dispute Resolution Panel, and a final assessment order that incorporated significant adjustments to the assessee's declared income. The primary contention was the non-compliance of the AO/TPO with the DRP's directions regarding the elaboration of the search methodology and the details of comparables used in the transfer pricing analysis. The Tribunal found that the AO/TPO did not adequately follow the DRP's directions, leading to the remand of the case for proper adherence to these instructions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705594 (ITAT-DELHI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2021-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Assessee Lawyers: NITIN NARAY
• Keywords: Transfer pricing; International transaction; Rectification of order
• Section: 143(3); 92D

Judgement Text

"ITA No.5231/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “H” BENCH: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.5231/Del/2024 [Assessment Year : 2021-22] Grohe India Pvt.Ltd., Plot No.75, Sector-8, IMT Manesar, Gurgaon, Haryana-122050. PAN-AACCG6062B vs Assessment Unit, Income Tax Department, Delhi APPELLANT RESPONDENT Appellant by Shri Nitin Naray, Adv. Respondent by Shri S.K.Jhadav, CIT DR Date of Hearing 07.04.2025 Date of Pronouncement 30.06.2025 ORDER PER MANISH AGARWAL, AM : The present appeal is filed by the assessee against the final assessment order dated 18.09.2024 passed u/s 143(3) r.w.s 144C(13) r.w.s.144B of the Income Tax Act, 1961 [“the Act”] in compliance to the directions given by Ld. Dispute Resolution Panel-1, New Delhi (ld. DRP) u/s 144C of the Income Tax Act, 1961 dated 29.08.2024 pertaining to assessment year 2021-22. 2. Brief facts of the case are that the assessee company was set up in India in June, 2006 for selling and marketing Grohe’s products in Indian market. Accordingly the assessee was sole selling distributor of sanitary products and systems manufactured by its Associated Enterprises (“AEs”) to various distributor /dealers located in various part of India. The return of income was e-filed on 14.03.2002 ITA No.5231/Del/2024 Page | 2 declaring total income at INR 8,72,04,320/-. The case was selected for complete scrutiny under CASS and during the course of assessment proceedings, the matter was referred to the TPO for determination of ALP on international transaction u/s 92CA of the Act. The TPO in terms of its order dated 30.10.2023 proposed the total adjustment of INR 10,47,48,746/-. The said adjustment was incorporated by the AO in the draft assessment order passed u/s 144C dated 22.11.2023 against which the assessee filed objections before Ld. DRP, who vide its order dt. 29.08.2024 has given directions according to which, the TPO passed the giving effect order on 07.09.2024 and thereafter the final assessment order was passed by the AO on 18.09.2024 wherein the total income of the assessee is computed at INR 207768986/- after making adjustments on account of ALP on international transaction at INR 10,47,48,746/-. 3. Against such order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That on the facts and circumstances of the case and in law, the order of assessment framed by the Assessment Unit, Income Tax Department (hereinafter referred to as \"Ld. AO\") pursuant to the directions passed by the Hon'ble Dispute Resolution Panel (hereinafter referred to as \"Hon'ble DRP\") under Section 144C(5) of the Income Tax Act, 1961 (\"the Act\") read with Income Tax Rules, 1962 (\"the Rules\"), is bad in law and void as it is not in conformity with the legal provisions of the Act. Legal Ground 2. That on facts and circumstances of the present case and in law, the final assessment order passed by the Ld. AO was not in conformity with the order giving effect on transfer pricing issues as passed by the Ld. TPO, pursuant to the directions of Hon'ble DRP. Thus, the final assessment order is bad in law as per the ITA No.5231/Del/2024 Page | 3 provisions of Section 144C(10) of the Act read with Section 144C(13) of the Act and hence, liable to be quashed. Factual Grounds 3. The Hon'ble DRP/ Ld. TPO/ Ld. AO has erred, on facts and in law, by considering the other income of the Appellant as non- operating in nature without giving any cogent reasons and while calculating the operating margin without appreciating the facts of the case. 3.1. That the Hon'ble DRP/Ld. TPO/ Ld. AO erred in considering signing fee amounting to INR 27,04,729 as non-operating in nature. 3.2. That the Hon'ble DRP/Ld. TPO/Ld. AO erred in considering Service fee/ Management support fee amounting to INR 2,34,94,816 as non-operating in nature. 3.3. That the Hon'ble DRP/Ld. TPO/Ld. AO erred in considering receipts from Annual Maintenance Contracts income amounting to INR 21,54,972 as non-operating in nature. 3.4. That the Hon'ble DRP/Ld. TPO/Ld. AD erred in considering Liabilities no longer required written back amounting to INR 51,85,689 as non-operating in nature. 3.5. That the Hon'ble DRP/Ld. TPO/Ld. AO erred in considering Provision no longer required written back amounting to INR 3,42,44,946 as non-operating in nature. 3.6. That the Hon'ble DRP/Ld. TPO/ Ld. AO erred in considering Miscellaneous income amounting to INR 58,143 as non-operating in nature. 4. That the Hon'ble DRP/Ld. TPO/Ld. AO erred on the facts and in law, in rejecting the economic analysis in the TP documentation filed by the Appellant in terms of the Section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 (\"the Rules\") and proceeded to make the TP addition based on re-determination of the arm's length price (\"ALP\") of the international transaction pertaining to purchase of finished goods. 4.1. The Hon'ble DRP /Ld. AO/ Ld. TPO has erred, on facts and in law, by selecting certain comparable companies without providing details on the comparable search/ accept-reject matrix ITA No.5231/Del/2024 Page | 4 undertaken to arrive at such comparables, thereby not following the approach detailed in the Rules. 4.2. The Hon'ble DRP /Ld. AO/ Ld. TPO has erred by applying certain arbitrarily selected filters to arrive at his own comparable set based on frivolous grounds. 4.3. The Hon'ble DRP/Ld. AO/Ld. TPO have erred in undertaking a fresh comparable analysis, when all the comparables were already accepted as valid comparables. In such a situation, a fresh analysis or additional comparables were not warranted for the analysis. 5. The Hon'ble DRP/Ld. AO/ Ld. TPO has failed to make appropriate adjustments to account for differences such as in the level of working capital employed, level of varying risk profile, etc. of the Appellant vis-à-vis of the comparable companies while redetermining the arm's length price of the Impugned transaction carried on by the Appellant. 6. That the Ld. AO failed to consider the rectified order giving effect to the directions of the Hon'ble DRP passed by the Ld. TPO dated October 1, 2024, where in the impugned adjustment has reduced from INR 7,66,11,691 to INR 3,09,15,187 and failed to pass the rectified final assessment order. Other Consequential Grounds 7. That on the facts and circumstances of the case and in law, Hon'ble DRP/Ld. TPO/Ld. AD has erred in proposing to initiate penalty proceedings under Section 270A of the Act for under reporting of income. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and for any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 4. During the course of hearing, Ld.AR while addressing Ground No.2, argued that Ld. DRP at page 7 in para 22 of its order while disposing the objection regarding non-disclosure of search methodology adopted by TPO, directed the TPO/AO to elaborate upon ITA No.5231/Del/2024 Page | 5 the search methodology in final assessment order. Further, the assessee has objected that the TPO/AO has not provided the details on the comparables search/accept/ reject matrix undertaken to arrive at the comparables, to which Ld. DRP in para 7.3.1 at page 11 of its order, has directed TPO to provide the requisite details in the final order. Ld. DRP has further gave the following directions in para 7.7.1 of its order:- 7.7.1. Directions by DRP: “Assessee has requested for corrected margins, Panel observes that TP study by assessee as well as TPO has been carried out on public databases and both have relied upon the data in these databases. In this regard, TPO is directed to verify from where assessee/ TPO have taken margins for comparables in TP report/ during assessment proceedings and in the final list of comparables. TPO is directed to ensure that all margins in the final list are verified and according to audit reports of comparables. TPO Is directed to pass speaking remarks in the final order with respect to contention of the assessee for each comparable.” 5. However, Ld.AR stated that in the order giving effect the TPO while following the directions of the ld. DRP, reiterated what has stated in earlier in its order passed u/s 92CA without passing a speaking order as directed by Ld.DRP and he therefore, requested that the matter may be sent back to the file of AO/TPO with the direction that the directions given by ld. DRP in providing search methodology to be provided and further provide the details on the comparable search/accept-reject matrix undertaken to arrive at such comparables. ITA No.5231/Del/2024 Page | 6 6. On the other hand, Ld.CIT DR stated that the orders of AO/TPO are well-reasoned order however, has stated that he has no objection if the matter is sent back for making necessary compliance as per given by Ld.DRP. 7. Heard both the parties and perused the material available on record. It is seen that Ld.DRP in para 22 at page 7 of the order while deciding the objection No.1 taken by the assessee has made following directions:- 22. “Assessee has pointed out that TPO has not elaborated upon his search methodology in the draft order, accordingly, TPO is directed to elaborate upon the search methodology in final order.” 8. Likewise while disposing the ground of objection No.3.1, Ld.DRP has directed the TPO to provide requisite details of comparables during search, accept and reject matrix undertaken arrived at such comparables. Accordingly, Ld. DRP directed the TPO to provide such requisite details in the final order. Further, while disposing ground of objection No.3.5, Ld. DRP in para 7.7. had made specific directions to provide all margins in the final list and pass a speaking order. The relevant observations are reproduced herein above. 9. Further, while disposing the objection with respect to the adjustment made in the order passed u/s 143(1), Ld.DRP has directed the AO to address the issues before passing the final order. However, from the perusal of the order giving effect by TPO and final order passed by AO, it is seen that neither the TPO nor the AO had followed the directions given by Ld. DRP to elaborately discuss the ITA No.5231/Del/2024 Page | 7 issues in details nor provided relevant details as directed by Ld.DRP to the assessee. Further the TPO in order giving effect observed that all such issues were addressed in the first order passed by him by ignoring the fact that Ld. DRP after considering the said order of TPO dated 30.10.2023 gave such directions. Therefore, making this kind of observation by the TPO in order giving effect is an attempt to flout and disobey the directions given by the higher authorities. Therefore, we left with no alternate but to again direct he AO/TPO to follow the directions given by the Ld.DRP in its true perspective and provide the assessee an opportunity of hearing after providing all the relevant material of search methodology and details as directed by Ld.DRP and then pass the final order. With these directions, Ground of appeal No.2 raised by the assessee is accordingly, allowed. 10. Since we have already allowed the ground of appeal No. 2 of eh assessee and remand back the matter to the file of AO/TPO with certain directions therefore, other grounds of appeal taken on merits are not adjudicated upon. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 30.06.2025. Sd/- Sd/- (ANUBHAV SHARMA) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER ITA No.5231/Del/2024 Page | 8 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "