INNOVATIVE TEXTILES LIMITED,DELHI V. DCIT, CIRCLE-10(1), NEW DELHI

ITA 1160/DEL/2022

AI Insights

Innovative Textiles Limited appealed against the assessment order passed by the Income Tax Department, which included a transfer pricing adjustment of Rs.84,95,443 to their book profits under section 115JB for the Assessment Year 2017-18. The Tribunal considered the legal precedents, particularly the Supreme Court's decision in Apollo Tyres Limited, which restricts adjustments to book profits under section 115JB to only those explicitly provided in the section's Explanation. The Tribunal also referenced a similar ITAT decision in Cash Edge India Private Ltd., which supported the assessee's position. The Tribunal's decision to exclude the transfer pricing adjustment from the book profits was based on these precedents, emphasizing that the Assessing Officer exceeded his jurisdiction by making such an adjustment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793298 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2017-2018
• Appeal Filed On: 24-05-2022
• Other Referred Cases: Apollo Tyres Limited vs. DCIT, Cash Edge India Private Ltd. vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JADHAV
• Assessee Lawyers: GAUTAM JAIN
• Keywords: Transfer pricing; International transaction; Depreciation; Principle of natural justice
• Section: 143(3); 115JB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.1160/DEL/2022 (Assessment Year : 2017-18) Innovative Textiles Limited, vs. DCIT, Circle 10(1), 81, Vighyan Vihar, New Delhi. Delhi – 110 092. (PAN : AAACI0473J) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Gautam Jain, Advocate REVENUE BY : Shri S.K. Jadhav, CIT DR Date of Hearing : 05.08.2025 Date of Order : 24.09.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against assessment order dated 26.03.2022 passed by the Income Tax Department/National Faceless assessment Centre, Delhi u/s 143(3) read with section 144C(13)/144B of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2017-18 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act raising following grounds of appeal :- “1. That the orders of the learned lower tax authorities is/are contrary to the law and facts of the case. Printed from counselvise.com 2 ITA No.1160/Del/2022 2. That the Order of the learned Assessing Officer is framed without following the mandatory procedural provisions of section 144B of the Income - tax Act, 1961 as no show cause notice being draft assessment order was served on the appellant before making the final assessment order. 3. That the learned Hon'ble Dispute Resolution Panel (DRP) /lower tax authorities had contrary to law and facts of the case, without any proper basis and properly appreciating and considering the submissions / evidences / material produced on record by the appellant, added Rs.84,95,443 being TP adjustment with reference to international transaction of purchase of cotton of Rs.27,14,55,905 from an associated enterprise to the returned business loss of Rs.8,54,00,730, thereby assessing / reducing the returned business loss to Rs.7,69,05,287. 4. That the Hon'ble Dispute Resolution Panel (DRP) / learned lower tax authorities erred in law and facts of the case, without any proper basis and properly appreciating and considering the submissions / evidences / material produced on record by the appellant, in rejecting the comparable Uncontrolled Price (CUP) method and applying Transactional Net Margin Method (TNMN). 5. That the Hon'ble DRP / learned lower tax authorities erred in law and facts of the case, without any proper basis and properly appreciating and considering the submissions / evidences 1 material produced on record by the appellant, In selecting functionally different companies 1 companies with extreme results as comparables for the purpose of undertaking benchmarking analysis applying TNMN. 6. That the Hon'ble DRP/ lower tax authorities erred in law and facts of the case in not appreciating that the international transactions of the appellant were accepted o be at arm's length on Comparable Uncontrolled Price (CUP) method in the earlier assessment years viz assessment year 2012-13 and assessment year 2013-14. 7. That the learned Assessing Officer 1 TPO had failed to appreciate that the addition of Rs.84,95,443 is only marginally higher by a mere 0.13% (3.13% {addition on 84,95,443 on international transaction of~ 27,14,55,905} as against a 3% variation (ie Rs. 81,43,677 being 3% of Rs. 27,14,55,905) permitted by notification no. Printed from counselvise.com 3 ITA No.1160/Del/2022 50/2017; F .No. 500/1/2014 - APA - II dated 9th June 2017. In view of the said fact and considering all the facts and the materiality, the learned Assessing Officer shouldn't have made the addition at all or limited the addition to only Rs.3,51,766 (being the difference between 3.13% and 3.00%) by allowing marginal relief on the grounds of natural justice and by drawing analogy to various marginal relief provisions 1 sections in the Income - tax Act, 1961, itself. 8. That the lower tax authorities had contrary to law and facts of the case, without any jurisdiction, basis and merely on surmises and conjectures, added Rs.84,95,443 being TP adjustment to the book profits under section 115JB of the Income - tax Act, 1961. 9. That the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, charged interest under section 234A, 234B, 234C & 234D of the Income - tax Act, 1961 that the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, initiated penalty proceedings under section 270A of the Income - tax Act, 1961. 10. That the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, initiated penalty proceedings under section 270A of the Income - tax Act, 1961. 11. It is prayed as under : a. That the Order of the learned lower tax authorities be declared null, void & non - est as not being in accordance with the mandatory procedural provisions of section 144B of the Income - tax Act, 1961 as no show cause notice being draft assessment order was served on the appellant before making the final assessment order; b. That the addition of Rs.84,95,443 being TP adjustment with reference to international transaction of purchase of cotton of Rs.27,14,55,905 from an associated enterprise to the returned business loss of Rs.8,54,00,730, thereby assessing / reducing the returned business loss to Rs.7,69,05,287 be deleted; c. That the Hon'ble DRP / learned lower tax authorities be directed to apply Comparable Uncontrolled Price (CUP) method and accept the Printed from counselvise.com 4 ITA No.1160/Del/2022 price at which international transaction has been entered by the appellant), more so, when it has been accepted in earlier years; d. That the Hon'ble DRP / learned lower tax authorities be directed to select only functionally similar companies with normal results if TNMN has to be applied; e. That the lower tax authorities, in any case, be directed to limit the addition to Rs.3,51,766 (being the difference between 3.13% and 3.00% variance permitted by notification no. 50/2017; F.No. 500/1/2014 - APA - II dated 9th June 2017) by allowing marginal relief on the grounds of natural justice and by drawing analogy to various marginal relief provisions / sections in the Income - tax Act, 1961, itself; f. That the lower tax authorities had contrary to law and facts of the case, be directed to delete Rs.84,95,443 being TP adjustment from the book profits under section 115JB of the Income - tax Act, 1961; g. That the lower tax authorities be directed not to charge interest under section 234A, 234B, 234C & 234 D of the Income - tax Act, 1961; h. That the lower tax authorities be directed to drop penalty proceedings under section 270A of the Income - tax Act, 1961.” 2. At the time of hearing, ld. AR of the assessee pressed the issue in Ground No.3 only. In this regard, he submitted that the TPO has raised TP adjustment of Rs.84,85,443/- and submitted that in the final assessment order, the Assessing Officer has made the abovesaid TP adjustment in the normal computation of income and reduced the returned business loss from Rs.8,54,00,730/- to Rs.7,69,05,287/-. Further he submitted that the Assessing Officer proceeded to make the abovesaid TP adjustment in computing the book profit under section 115JB of the Income-tax Act, 1961 (for short ‘the Printed from counselvise.com 5 ITA No.1160/Del/2022 Act’) and added to the declared book profit of Rs.93,55,782/-. In this regard, he submitted that the abovesaid adjustment in the determination of book profit is not in accordance with law and contrary to the judgment of Hon’ble Apex Court in the case of Apollo Tyres Limited 255 ITR 273 and further submitted that in the decision of ITAT, Delhi in ITA No.64/Del/2015 in Cash Edge India Private Ltd., the similar issue was considered and adjudicated that Assessing Officer erred in adding back the transfer pricing adjustment of the book profit u/s 115JB of the Act. He submitted that exactly similar issue was considered by the coordinate Bench in the abovesaid decision. Therefore, he prayed that the abovesaid adjustment in the book profit is patently untenable and not in accordance with law and, therefore, it should be deleted. 3. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities. 4. Considered the rival submissions and material placed on record. We observe that the TPO proposed TP adjustment of Rs.84,95,443/- for the year under consideration and while passing the final assessment order, the Assessing Officer made the abovesaid TP adjustment in both regular computation of income under the Income-tax Act and also made the adjustment while determining the book profit u/s 115JB of the Act. Before us, ld. AR submitted that this is a covered issue and made his detailed submissions. Printed from counselvise.com 6 ITA No.1160/Del/2022 After considering the issue under consideration, we observe that Hon’ble Supreme Court in the case of Apollo Tyres Limited (supra) held as under :- “Therefore, we are of the opinion that the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.” 5. We observe that the coordinate Bench in the case of Cash Edge India Pvt. Ltd. (supra) had considered the exactly similar issue. For the sake of brevity, it is reproduced below :- “34. In this regard, the learned counsel for the assessee submitted that the AO has added the transfer pricing adjustment of Rs.1,18,93,468/-to the book profits of the Assessee under section 115JB of the Act without appreciating that book profits of the company cannot be adjusted except as provided in Explanation I section 115JB(2) of the Act and that transfer pricing adjustment is not one of the adjustments contemplated under that Explanation: He placed reliance upon the following decisions to contend that except for adjustments provided in Explanation I section 115JB(2) of the Act, no other adjustment can be made to book profits under section 115JB of the Act :- i. Apollo Tyres 255 ITR 273 (SC) ii. Malayalam Manorma 300 ITR 251 (SC) iii. DCIT v. Bisleri Sales Ltd. 151 TT] 285 (Mum) (IT AT) 35. The Ld. Sr. DR on the other hand supported the order of the AO on the strength of the decision of the Special Bench of the Tribunal in the case of Rain Commodities v. DCIT: 92010) 40 SOT 265. 36. We have considered the rival submissions and perused the material on record. It is settled law that except for adjustments provided in Explanation I Section 115JB(2) of the Act, no other adjustment can be made to book profits under section 115JB of the Act. We find that the transfer pricing adjustment is not one of the adjustments contemplated under Explanation I section 115JB(2) of the Act and therefore could not have been added back to the book profits under section 115JB. Printed from counselvise.com 7 ITA No.1160/Del/2022 37. The case-law relied upon by the Ld. Sr. DR i.e. decision of the Special Bench in the case of the Tribunal in Rain Commodities (supra) does not also advance the case of the Revenue. In that case the Special Bench was considering whether the AO can alter the net profits declared by an assessee. The Special Bench has, following the decision the apex court in Apollo Tyres and HCL Comnet (supra), inter alia, held that the AO cannot travel beyond the net profits declared by the assessee unless (a) it is discovered that profit and loss account is not drawn up in accordance with Part n and Part III of Schedule VI of the Companies Act, or (b) the incorrect accounting policies, accounting standards have been adopted for preparing such accounts and the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account. 38. In the present case there is no allegation is the assessment order much less any finding that either that profit and loss account has been drawn up in accordance with Part II and Part III of Schedule VI of the Companies Act, or that any incorrect accounting policies, accounting standards has been adopted for preparing such accounts or that the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account. 39. In view of aforesaid, we hold that the AO erred in adding back the transfer pricing adjustment of the book profits under section 115JB of the Act. Accordingly, this ground of the appeal raised by the assessee is allowed and the AO is directed to exclude the transfer pricing adjustment, if such adjustment survives, from the book profits computed under section 115JB of the Act.” 6. Respectfully following the above decisions, we are inclined to allow Ground No.3 raised by the assessee. 7. All other grounds raised by the assessee are kept open at this stage. 8. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on this 24th day of September, 2025. Sd/- sd/- (YOGESH KUMAR U.S.) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 24.09.2025 TS Printed from counselvise.com 8 ITA No.1160/Del/2022 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "