IDEMITSU LUBE INDIA PRIVATE LIMITED,PANVEL, MAHARASHTRA V. ASSESSMENT UNIT, INCOME TAX DEPARTMENT

ITA 5132/DEL/2024

AI Insights

The case involves Idemitsu Lube India Private Limited appealing against a Transfer Pricing adjustment of INR 12,44,40,596 made by the TPO, which was upheld by the AO and DRP. The adjustment pertained to the international transaction of purchasing raw materials, which the TPO deemed not at arm's length. The Tribunal examined the inclusion of additional comparable companies proposed by the Assessee and found that these companies had been accepted in previous years and were functionally comparable, thus directing their inclusion in the comparables for the current assessment year.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839180 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2021-2022
• Appeal Filed On: 07-11-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JADHAV
• Assessee Lawyers: KETAN VED
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.5132/Del/2024A.Y 2021-22) And S.A No. 608/Del/2025 in ITA No.5132/Del/2024 (A.Y 2021-22) Idemitsu Lube India Private Limited,PlotNo.31,Additional Patalganga, M.I.D.C. Industrial Area, Taluka Panvel, Khalapur, Raigad, Maharashtra-410220 PAN-AABCI5684A Vs. DCIT Circle 10(1) New Delhi (Appellant) (Respondent) Appellant by Shri Ketan Ved, CA Respondent by Sh. S.K. Jadhav, CIT-DR Date of Hearing 06.01.2026 Date of Pronouncement 18.02.2026 ORDER PER YOGESH KUMAR U.S., JM: This appeal is filed by the Assessee against the Final Assessment Order passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (the Act in short) dated 10.09.2024 for Assessment Year 2021-22. Printed from counselvise.com 2 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 2. The grounds of Appeal are as under:- “On the facts and circumstances of the case and in law, the Appellant craves to prefer an appeal against an order dated 10 September 2024 passed by the Assessment Unit, Income Tax Department (hereinafter referred to as 'Ld. AO') under section 143(3) r.w.s 144C(13) and 144B of the Income-tax Act, 1961 ('the Act') in pursuance to the directions dated 23 August 2024 issued by the Hon'ble Dispute Resolution Panel ('DRP') u/s 144C(5) of the Act, on the grounds set out herein: 1. Ground No.1 - Transfer Pricing ('TP') adjustment amounting to INR 12,44,40,596 in respect of the international transaction pertaining to purchase of raw material. 1.1 That on the facts and circumstances of the case and in law, the Learned TP Officer ('Ld. TPO') has erred in making and the Ld. AO/ DRP have erred in upholding the TP adjustment of INR 12,44,40,596 in respect of the international transaction pertaining to 'purchase of raw material' alleging that the same is not at arm's length. 1.2 That on the facts and circumstances of the case and in law, the Ld. TPO erred in disregarding the economic analysis conducted by the Appellant to determine the arm's length price ('ALP') in relation to international transaction relating to 'purchase of raw material', thereby making arı adjustment of INR 12,44,40,596. 1.3 That on the facts and circumstances of the case and in law, the Hon'ble DRP erred in rejecting the additional comparable companies 'Iftex Oil and Chemicals Ltd. and 'Universal Petro-Chemicals Ltd.' proposed to be included by the Appellant, without appreciating that additional comparable companies included by the Ed. TPO in final set were also introduced arbitrarily. 1.3.1 On the facts and circumstances of the case and in law, the Hon'ble DRP also erred in rejecting the additional comparable companies 'Iftex Oil and Chemicals Ltd. and 'Universal Petro-Chemicals Ltd. proposed to be included by the Appellant, by randomly applying new turnover filter which has not been applied in the case of the Appellant. 1.3.2 On the facts and circumstances of the case and in law, the Hon'ble DRP also erred in rejecting the additional comparable company 'Iftex Oil and Chemicals Ltd. proposed to be included by the Appellant, alleging the same to be a persistent loss-making company being contrary to the facts on record 1.4 That on the facts and circumstances of the case and in law, while making the aforesaid TP adjustment, the Ld. TPO erred in adopting the following approach: 1.4.1 Erroneously rejecting functionally comparable company - \"GP Petroleums Ltd. selected by the Appellant in its TP Study. 1.4.2 Arbitrarily selecting two companies namely, Pratap Tex-Chem Pvt. Ltd. and Quaker Chemical India Pvt. Ltd.' as comparables for determination of arm's length price. Printed from counselvise.com 3 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 1.4.3 Not granting capacity utilization adjustment to the Appellant, for the purpose of calculation of operating profit margin relating to 'manufacturing segment'. Other grounds: 2. Ground No. 2: That on the facts and circumstances of the case and in law, the Ld. AO has erred in not granting appropriate credit under section 115JAA of the Act. 3. Ground No. 3: That on the facts and circumstances of the case and in law, the Ld. AO has erred in calculating interest under sections 234A, 234B and 234C of the Act incorrectly. 4. Ground No. 4: That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act. Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant.” 3. Brief facts of the case are that, the Assessee engaged in manufacturingwide range of automotive lubricants for motor bike, scooters cars and commercial vehicles. The dispute in the present Appeal regarding International transaction of purchase of raw material. The Assessee applied TNMM Method for bench marking which has not been disputed by the TPO. The Assessee applied margin of 11.02% (post capacity utilization adjustment), 5.23% without capacity utilization adjustment and the margin of the Assessee as per the TPO was 5.23%. The TPO made Transfer Pricing Adjustment vide order dated 31/10/2023u/s 92CA(3) of the Act of Rs.12,44,40,596/-. Printed from counselvise.com 4 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 4. During the proceedings before the DRP, Assessee filed additional grounds of objection seekingadditional comparables namely Iftex Oil and Chemicals Ltd. and Universal Petrochemicals Ltd. As per the Assessee,those 2Additional comparablesfulfill all the filters applied by the TPO and the same are deserves to be considered in the final list of comparables. However, DRP held that both the Additional comparables filed by the Assessee in the additional grounds of objections are not proper comparable. The findings of the DRP is reproduced as under:- “Discussion of Issue: \"Additional\" Comparables proposed by Applicant: Cherry-picking of entities with Low margins: Applicant has further proposed 2 \"additional\" comparables which are outside the Transfer Pricing Study Report: 1 Iftex Il and Chemicals Ltd. Additional 11.0 2% 2 Universal Petro Chemical Ltd. Additional 0.41 % Printed from counselvise.com 5 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. The Panel finds that these comparables have not been taken from the Transfer Pricing Study Report of the applicant. The relevant search process and the profile examination have not been shown. Prima facie, the additional companies as provided by the applicant are rejected by the Panel on account of factor that there has been cherry picking approach. The Panel has examined the \"additional\" comparables and has attempted to investigate into the impact of these comparables. The median margin of the applicant in the Transfer Pricing Study Report has been 8.87%. After the introduction of the so-called \"additional comparables\", the median fell to 7.38% and as per Applicant, it is within the tolerance range: Printed from counselvise.com 6 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. It can be seen from the selections that the comparables have very low margins. Even 1 has miniscule, one has a negative margin. These comparables were not adopted in the Transfer Pricing Study Report based on applicant's own quantitative and qualitative filters and criteria. But upon audit by the Transfer Pricing Officer, the applicant has introduced these so as to push the medical value down. The turnover of the applicant is above Rs. 600 Crores. However, as seen above, the comparables have less than 1/10th of the turnover of the applicant. Hence, both the comparables fail the Turn-over Filter. Further, in absence of qualitative and quantitative examination by the applicant and the existence of these comparables in the Transfer Pricing Study Report of the been examined by the Transfer Pricing Officer/applicant. applicant, the inclusion at a later stage is not due. Even the Search Process has not The comparables have a clear negative impact on the margin and are unilateral in a downward pressure on the median and the Arm's Length Price determination. Persistent Losses of Iftex Oil & Chemicals Ltd.: Iftex Oil & Chemicals Ltd. has reported consistent losses, and it is not a proper comparable. This Comparable is rejected as \"persistent loss\" filter. Printed from counselvise.com 7 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. No Disclosure of the Search process or other Resulting \"Additional\" Comparables: There has been no discoloured regarding Search Process. Further, it is not understood how exact 2 comparable companies with negative/low profitability are discovered after the Transfer Pricing proceeding, while no other additional comparables were found. This is a blatant and clear case of cherry-picking so as to push the median margin down and the Panel has no hesitation in rejection of these comparables. 5. The Ld. Counsel for the Assessee arguing on Ground No. 1 of the Appeal submitted that, in the Assessment Years 2020-21 and 2018-19 the said Companies namely Universal Petrochemical Ltd. andIftex Oil and Chemicals Ltd. were included in the final set of comparables determining the Arm’s Length Price, wherein Revenue itself affirmed the functional comparability of those Companies with Assessee’s manufactural segment. Thus, the Ld. Counsel for the Assessee relying on the order of the TPO for Assessment Year 2020-21 and Assessment Year 2018-19, produced in the Paper book submitted that both the comparables are deserves to be accepted. Printed from counselvise.com 8 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 6. The Ld. Counsel for the Assessee further submitted that if the above said two comparables are included in final set of comparable companies, the margin earned by the comparable companies will work out to be 4.86% as 35th percentile and 9.83% as 65th percentile with a median of 7.38%, accordingly, the margin of the Assessee will be 5.23%, thereby falls within the comparable range and consequentially, there would be no transfer pricing adjustment. The Assessee has worked out the calculation in following manners:- Sr. No. Name of the Company Weighted average OP/OI 1 Advance Petrochemicals Ltd. 4.86% 2 Apar Industries Ltd. 5.49% 3 Continental Petroleums Ltd. 4.65% 4 Elofic Industries Ltd 12.55 5 Gandhar Oil Refinery (India) Ltd. 2.55% 6 Gulf Oil Lubricants India Ltd. 14.92% 7 Iftex Oil and Chemicals Ltd. -1.02% 8 Panama Petrochem Ltd. 8.82% 9 Pratap Tex-Chem Pvt. Ltd. 9.89% 10 Quaker Chemical India Pvt. Ltd. 8.91% 11 Savita Oil Technologies Ltd. 9.83% 12 Tashkent Oil Company Pvt Ltd 5.93 13 Universal Petro-Chemicals Ltd. 0.41 14 Valvoline Cummins Pvt. Ltd. 15.68% 35th Percentile 65th Percentile Median 4.86% 9.83% 7.38% Printed from counselvise.com 9 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 7. We have heard both the parties and perused the material available on record. In the assessment year 2020-21, the Ld. TPO included Universal Petrochemical Ltd. and in Assessment Year 2018-19, the Ld. TPO has included Iftex Oil and Chemicals Ltd. in the final set of comparables for determining the Arm’s Length Price.The Revenue has not disputed the functional comparability of those companies with Assessee’s manufacture segment for those years under consideration. For the sake for ready reference, the relevant portion of the order of the TPO for Assessment Year 2020-21 and 2018-19 are reproduce as under:- Printed from counselvise.com 10 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 8. Considering the above fact that both the additional comparables Companies i.e. Universal Petro-Chemicals Ltd. and Iftex Oil and Chemicals Ltd. have been included by the TPO/A.O. for the Assessment Year 2020-21 and 2018-19 respectively, wherein the Department has not disputed functional comparability of those Companies, we find no justifiable reason on the part of the Revenue to exclude those Companies in the final list of comparables for determination of Arm’s Length Price for the year under consideration. Therefore, we direct the A.O. to include both the additional Comparables Companies i.e. Universal Petro-Chemicals Ltd. andIftex Oil and Chemicals Ltd. in the final set of comparable for determining the Arm’s Length Price. Accordingly, we allow Ground No. 1 of the Assessee. 9. In the result, appeal of the Assessee is partly allowed. Printed from counselvise.com 11 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. 10. Since we have disposed the main Appeal the Stay Petition in S.A No. 608/Del/2025 filed by the Assessee is dismissed as having become in-fructuous. Order pronounced in open Court on 18th February, 2026. Sd/- Sd/- (MANISH AGARWAL) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:18.02.2026 Pk/R.N Sr.PS. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com 12 ITA No. 5132/Del/2024 Idemitsu Lube India (P.) Ltd. Printed from counselvise.com "