KNAUF INDIA PRIVATE LIMITED,GURGAON V. ITO,WARD-14(3), DELHI

ITA 4434/DEL/2024

AI Insights

Knauf India Private Ltd. appealed against the final assessment order for the assessment year 2020-21, which included significant Transfer Pricing adjustments amounting to INR 32,73,31,565. The Tribunal examined whether the TPO correctly applied the Net Profit Margin as the Profit Level Indicator instead of the Gross Profit Margin, which the assessee argued was more appropriate for its business model as a routine distributor. The Tribunal noted that similar issues had been addressed in the assessee's previous years' cases, where the RPM was accepted. Additionally, the Tribunal considered the assessee's challenge against the application of section 269T regarding the adjustment of security deposits through book entries, which the Tribunal found to be a non-issue as it did not involve actual repayments but adjustments through receivables.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126932 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2020-2021
• Other Referred Cases: CIT vs. EKL Appliances Ltd., Goetze (India) Ltd. v. CIT, Tri Riceland Pvt Ltd vs Acit, Circle 25(1), New Delhi, PCIT v. Headstrong Services India Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956, Income-tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASSESSEE. THEREFORE; RPM WOULD NOT BE APPROPRIATE; S.K. JHADAV
• Assessee Lawyers: AJIT KUMAR JAIN
• Keywords: Opportunity of being heard; Transfer pricing; International transaction; Corroborative evidences; Capital expenditure; Supporting evidence; Remitted; Professional expenses; Intimation u/s 143(1); AMP; Security deposits; Statistical purposes; Transfer; Transactions; Restored; Services rendered; Business Promotion; Directions; Department; Review; E-mail; Services; Returned loss; Distributor; Engineering services; Principles of consistency; CUP Method; Markup; Companies Act; Additional claim
• Section: 143(3); 143(1); 48; 13; 40A(3); 144C; 101

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4434/Del/2024 Assessment Year: 2020-21 Knauf India Private Ltd., 9th Floor, Plaza Tower, DLF Phase-1, Gurgaon, Haryana – 122 002. PAN: AABCL1984A Vs Income tax Officer, Ward-14(3), Delhi. (Appellant) (Respondent) Assessee by : Shri Ajit Kumar Jain, CA Revenue by : Shri S.K. Jhadav, CIT-DR Date of Hearing : 02.04.2025 Date of Pronouncement : 23.04.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the final assessment order dated 26.07.2024 passed by the Income tax Officer, Assessment Unit, Income- tax Department (hereinafter referred to as the Ld. AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) for the assessment year 2020-21. ITA No.4434/Del/2024 2 2. Heard and perused the records. The relevant facts are the assessee, USG Boral India was incorporated on 6 July, 2006 under the Companies Act, 1956 by the name of Lafarge Boral Gypsum India Private Limited. The Company changed its name from Lafarge Boral Gypsum India Private Limited to Boral Gypsum India Private Limited with effect from 12 December, 2011. The Company further changed its name from Boral Gypsum India Private Limited to USG Boral Building Products (India) Private Limited with effect from 9 May, 2014. The Company commenced commercial production of Gypsum Boards with effect from 1 June, 2008 and metal studs with effect from 1 January, 2009 at its manufacturing facility at Khuskhera, Rajasthan. The Company's revenues arise from sale of manufactured products (manufactured at the Company's plant in Rajasthan) and traded products imported mainly from group companies. This company is engaged in manufacturing of standards gypsum boards, technical gypsum boards, gypsum ceiling tiles, and metal studs. It is also engaged in the trading of standards gypsum boards, technical gypsum boards, and gypsum ceiling tiles, compounds, plaster, accessories, metal studs, fibrerock, durock, and grids which are mainly imported from its group companies. 2.1 During the year under consideration the assessee has entered into the following international transactions: S.No. International Transaction Value of Transaction (in Rs.) Method 1 Purchase of finished goods 1,086,081,000 Resale price Method 2 Purchase of raw materials 3,231,809 Other Method ITA No.4434/Del/2024 3 3 Availing of engineering support services 51,752,471 Other Method 4 Availing of professional services 2,119,194 Other Method 5 Interest on delayed payments 2,191,451 Other Method 6 Reimbursement of insurance expenses 2,987,270 Other Method 7 Reimbursement of expenses to The Siam Gypsum Industry (Sarabuti) Co. Ltd. 24,192,065 Resale price Method 8 Reimbursement of expenses 1,144,161 Other Method 9 Recovery of expenses 19,387,214 Other Method 10 Recovery of rejected finished goods 532,350 Resale price Method 11 Guarantee to secure working capital facility 0 Other Method 12 Purchase of IT software & license 26,050,376 Other Method 13 Payment of interest on external commercial borrowings 121,767,838 CUP . . ... is ................ 2.2. The TPO has proposed the following adjustments; Sl. No. Transactions Adjustment (in Rs.) 1. Purchase of finished goods 27,34,59,900 2. Intra group services 5,38,71,665 Total Adjustment 32,73,31,565 3. Ld. AR has submitted that ground no. 1 and 2 are general and in nature and need no separate adjudication. 4. Ground no. 3 to 5; These grounds are arising out of Transfer Pricing (‘TP’) adjustment of INR 32,73,31,565, an adjustment of INR 27,34,59,900 is relating to international transaction pertaining to Purchase of finished goods. Ld. AR has submitted that the Ld AO/ Ld Transfer Pricing Officer (‘TPO’) erred in disregarding the, provisions of Rule 10C read with Rule 10CA of the Income-tax Rules, 1962 (‘the Rules’) by rejecting Gross Profit margin (Gross profit/operating income) selected by the Assessee as the profit level indicator (‘PLI’) and substituting the same with Net Profit Margin (net profit/operating ITA No.4434/Del/2024 4 income) analysis. It was submitted that the Ld. AO/Ld. TPO while selecting Net Profit Margin as the PLI, erred in disregarding the fact that the Assessee operates as a routine distributor and sells products imported from its associated enterprise (‘AE’) without any significant value addition that makes the application of Gross Profit margin most appropriate. Ld. AR submitted that in doing so, the Ld. AO/Ld. TPO erred in disregarding various judicial pronouncements upholding the use of Gross Profit margin analysis in case of routine distributors. 5. We find that the issues covered by these grounds are sufficiently examined in assessee’s own case by co-ordinate bench in ITA No 2060 and 2061/DEL/2022 for AY 2017-19 and 2018-19, and has held as follows; “19. Considered the rival submissions and material available on record. We observed that assessee has filed TP study report before the TPO and also filed a segmental report before the TPO. However, TPO rejected the same with the observation that it is based on management report rather than audited report. We also observed that the segmental report submitted by the assessee before the TPO is without any certification. The TPO has rejected the method adopted by the assessee and proceeded to determine ALP based on the TNMM method. The DRP no doubt accepted the submissions of the assessee and remitted the issue back to the file of TPO to pass a speaking order on the aspect of applicability of RPM method in the case of the assessee considering the fact that same method was adopted by the assessee in the earlier assessment years and the same was accepted by the Revenue, considering the fact that there is no change in the FAR adopted by the assessee in the impugned assessment years and earlier assessment years. We observed that in OGE, TPO has passed the order rejecting the RPM method ITA No.4434/Del/2024 5 with the observation that assessee is not a pure distributor of tangible products and he also observed that assessee has availed engineering support services, business support services and IT expenses/income which shows that RPM method is prima face unlikely to be appropriate for assessee. Therefore, RPM would not be appropriate for benchmarking of the impugned transactions. In our considered view, TPO has misunderstood the clear directions of the DRP on the aspect of FAR profile of the assessee and applicability of RPM in the case of the assessee which was accepted by the Revenue in the earlier assessment years. There is no clear finding on the aspect of non-applicability of RPM and TPO merely and grossly rejected the RPM with the observation that assessee is not a pure distributor and it also does manufacturing activity. In our considered view, the TPO has grossly misunderstood the business of the assessee and proceeded to complete the ALP on the basis of TNMM method. In our considered view, the TPO has to redo the ALP adjustment on the basis of various details available on record which shows that assessee has two segments – (a) manufacturing and (b) trading activities – and the ALP of the trading activities was accepted by the Revenue in the earlier assessment years on the basis of RPM. Therefore, we are inclined to remit this issue back to the file of AO/TPO to redo the ALP adjustment on the basis of RPM and at the same time, we direct the assessee to file audited segment report before the AO/TPO and bring on record FAR analysis and also submit the relevant documents in support of its submissions to the AO/TPO. It is needless to say that TPO may provide opportunity of being heard to the assessee. Accordingly, grounds no.3 to 7 are allowed for statistical purposes.” 6. Further, Ld. AR has pointed out that segmental data was provided and details were also furnished to ld. Tax authorities below, however, to avoid any ITA No.4434/Del/2024 6 prejudice to the case of ld. AO, for AYs AY 2017-19 and 2018-19 (supra), we consider it appropriate to restore the issues back to the file of AO/TPO, and to follow the directions as made for AYs AY 2017-19 and 2018-19 (supra). The ground no. 3 to 5 are allowed for statistical purposes. 7. Grounds No.6 to 8: In regard to these grounds, the ld. AR has submitted that ld. AO/TPO has erred in determining the ALP for the transaction pertaining to availing of engineering support services and professional services at nil by applying Comparable Uncontrolled Price Method (CUP Method) without appreciating the nature of services being engineering and professional services and re-characterising them to be in the nature of routine intra group services. It was submitted that ld.AO/TPO resorted to application of CUP method without demonstrating its applicability or citing a comparable uncontrolled transaction and arbitrarily rejecting the credibility of the services without considering the evidences which were filed. The ld. AR specifically relied the judgement of the Hon’ble Delhi High Court in CIT vs. EKL Appliances Ltd. (2012) 245 ITR 241 (Del) submitting that the TPO cannot go into the benefit test analysis for determining the ALP of intra group charges. It was also submitted that the assessee had undertaken the same transaction in preceding assessment years. The ld. DR has supported the orders of the tax authorities below. 8. We find that the TPO had called for certain information by way of show cause notice to examine the payments to AE on account of engineering support ITA No.4434/Del/2024 7 services and professional services. The assessee had responded to the same, but, the TPO was not satisfied and concluded as follows:- “2. Reply of the assessee:- In this regard, the assessee has filed its reply on The assessee filed a reply vide letter dated 30.06.2023 and 10.07.2023. The reply furnished by the assessee has been carefully considered. The gist of assessee's contentions are as follows: 1. The assessee stated that- \"During FY 2019-20, Knauf India has availed professional services from USG Boral Building Products Sdn Bhd. This expense was in the nature of internal audit fee paid by USG Boral India to its AE. The payment made by USG Boral India represents the fee for such services and related travel and accommodation expenses of the auditors incurred while rendering these services.\" Further, the assessee has submitted that- “ The Assessee submits that it reimbursed the costs (salary costs, related travel and other costs) incurred by AEs while rendering these services. Hence, the Assessee selected the Other Method specified under Rule 10AB of the Rules as the most appropriate method to test the arm's length nature of the said transaction.\" The contention of the assessee has been examined carefully but not found to be tenable. The assessee has claimed professional expenses in its P&L account of Rs. 20.8 million, yet it is claiming the same in IGS as professional services expenses of Rs. 2,119,194/- also. Further, the assessee has stated that it reimbursed the costs which include salary costs, related travel and other costs incurred by AEs while rendering these services. A perusal of P&L account reveals that the assessee has claimed salary of Rs. 275 million, Traveling and conveyance of Rs. 31.3 million, Net loss of foreign currency transaction and translation of Rs. 222.7 million, payment to auditors of Rs. 5.5 million and Misc. expenses of Rs. 6.6 million. These total expenses amounting to Rs. 541.1 million have been claimed in P&L account by the assessee. Besides these, the assessee is claiming expenses of Rs. 5,17,52,471/- as IGS in the name of engineering support services. The assessee further submitted that- \"During the year, Knauf India has received engineering services and professional services... At the outset, the Assessee would like to submit that it is not practical for the Assessee to keep documentary evidence for each of the services received by it as the services are received in the form of directions, site visit, recommendations through e-mails, Calis, reports etc.\" Further, the assessee has submitted that- \"...the Assessee would like to submit that need benefit documentation is not required to substantiate the need of a transaction.\" ITA No.4434/Del/2024 8 It is pertinent of mention here that on one hand, the assessee was not able to provide documentary evidence properly to support its claim and on the other hand, the above services which include similar expenses as one already claimed under the head engineering support services and also in its P&L Account thus, clearly duplicate in nature. Therefore, in view of the above and for want of evidence, these payments are determined to be not at arm's length. The assessee further stated that- \"The engineers from the aforesaid Knauf group entities visited India during February 2018 to November 2019 to review the design of plant and machinery, instrumentation & automation and identifying and evaluating global supplier technology for the new plant. In view of the above services received, Knauf India was able to finalize the best option for equipment which was economical and within the budget for the upcoming new plant. Further, AEs provided services related to review of project schedules, review of ELS systems, Finalizing shut down schedule, meetings with local suppliers for installation works etc. We have enclosed relevant email communications as well as internal travel requestions for logistics purpose from Knauf group entities to India on a sample basis to substantiate the travel of employees to India.\" Again, the assessee has submitted that- “... the Assessee wishes to submit details depicting the travel of AE's employees to India for providing services mentioned in the Inter- company agreements (Attached as Annexure 4). as well as the inter- company invoices raised by the Associated Enterprises on the Assessee on a sample basis. Your office would appreciate the point that services are intangible in nature and there exists no units to date in which the services could be measured\" The assessee further submitted that- \"...Over the period of time, the Assessee has received support and guidance from its AEs. It is submitted that the nature of services provided by AE to the Assessee are neither shareholder services nor duplicative in nature as neither the Assessee the similar expertise available in house nor it is availing similar services from third party service provider. The services provided are very specific to the business of the Assessee and cannot be provided by any other third party service provider.\" The contention of the assessee in this regard is not tenable. It is clear that, the assessee failed to substantiate actual delivery of services, its mode of delivery, and its actual utilization also. Further, when we examine the P & L A/c of the assessee, it is difficult to accept the computation of the assessee. The P & L A/C of the assessee shows that it has regularly incurring expenditure on the sales and marketing under the head business promotion. Further the entire establishment in India is also generating substantial business to the intra group. In that process, it ITA No.4434/Del/2024 9 would also be a contributing member of additional client to the other constituents of the group. Thus, the process of adding clients is a mutual process and on a quid quo basis. It cannot be one way that assessee is being charges for engineering support services but what it does for sales and marketing is not being acknowledged by the group or by holding company. Thus, this international transaction of the assessee does not at arm's length. Beside the above, the assessee has also failed to establish the process of requisitioning of services from AE starting from placing an order with the AE to making final payment in most of the services like administrative, legal, finance services claimed by the assessee. The E- mails etc. filed without any supporting evidence don't inspire confidence to accept the contention of the assessee in this regard. There are various anomalies in the submissions of the assessee like according to annexure 4 of the agreement, the markup is to be decided based on TP study of any independent third party. The assessee has not provided any transfer pricing study of Independent third party for the relevant year to substantiate its claims. TP study report provided for a different year, cannot be taken to be a suitable comparison, as each year is different for the business. Further, the mails provided are insufficient as they try to establish one way flow of work from the group entity to the Indian entity for provision of services but failed to acknowledge the work done of similar nature by the Indian entity in case of administration services, legal services, financial services etc. Also, the assessee couldn't justify the basis for the allocation key for intra group services. The assessee has failed to provide complete and satisfactory evidence for rendition for services. Further, the assessee was not able to fully justify the cost allocated. One to one mapping of the services based only on the emails without supporting evidence in respect of delivery and case of services cannot be done. Hence, the material brought on records are not sufficient to justify the cost allocated. I, therefore propose to disallow cost allocated as management fee due to various anomalies in the reply of the assessee. The assessee has further submitted that - \"The above provision precisely states that for application of CUP method, the first step requires the price of comparable uncontrolled transaction is to be identified to arrive at the arm's length price. However, your office has proposed to apply the CUP method to determine the ALP at NIL but without demonstrating any comparable uncontrolled transaction and rather the ALP is based on an assumption of your office that no third party would have agreed to pay for these services, which clearly lacks the validity of the application of the CUP method by your office. The Assessee would like to reiterate before your office that the Assessee is not engaged in availing of similar services from third parties. Further, the Assessee has not entered into similar ITA No.4434/Del/2024 10 service arrangement with any third party. Therefore. the option of adopting CUP method for benchmarking analysis is being ruled out.\" The contention of the assessee in this regard is not tenable. It is discussed in above para that the assessee was not able to provide documentary evidence properly to support its claim and on the other hand, the above services which include similar expenses as one already claimed under the head engineering support services and also in its P&L Account thus, clearly duplicate in nature. Further, the assessee has not provided any transfer pricing study of independent third party for the relevant year to substantiate its claims. TP study report provided for a different year, cannot be taken to be a suitable comparison, as each year is different for the business. Therefore, in view of the above and for want of evidence, these payments are determined to be not at arm's length. Therefore, by the application of CUP, the arm's length price of this transaction of payment of services are determined at Rs. NIL as against Rs. 5,38,71,665/- determined by the assessee.” 9. After taking into consideration the material on record, we find that on pages No. 5 to 101 of the paper book, the assessee has filed copy of submission dated 10th July, 2023 in response to the show cause notice dated 8th June, 2023 in respect of transaction pertaining to intra group services along with supporting documents which include the agreement dated 01.11.2016 available at pages 48 to 53 of the paper book being with one of the AEs and pages No.55 to 64, 65-77 with two other AEs. Then the invoices which have been raised by the AEs are also part of the evidences. There are also e-mail communications with regard to calling for services. It is established by virtue of these agreements that the payments were made on hourly basis for the services rendered. 10. The case of the assessee is that during the year a new plant was being established at Chennai for which advice and assistance on capital expenditure project was received. The ld. AR has pointed out on the basis of page 203 of the paper book as a part of the auditor’s report that the company has set up a new ITA No.4434/Del/2024 11 manufacturing plant in Sricity near Chennai and commercial production was started on November 15, 2019. The invoices pertained to the same. The case of the assessee is that skills required for establishing new plant was not available in India and, therefore, services were availed from AEs. Thus, it was from project specific perspective the service were availed. The assessee has used ‘other method’ as the most appropriate method for ascertaining the ALP, however, the TPO adopted CUP Method as the most appropriate method without there being any comparability tests. We are of the considered view that need benefit test as applied by the ld. TPO was over stretched in the case of the assessee where the claim was that it was project specific services which were availed. The nature of services were specific to the nature of business of the assessee and there is nothing to suggest with the AO that otherwise the third parties could have provided these services on lesser compensation as while applying CUP, no external or internal CUP was available with the assessee nor with the TPO. 11. Furthermore, when the same transactions have taken place in AY 2016-17, 2017-18, 2018-19 and 2019-20 and accepted the service charges paid to its AE and not made any addition to the arm’s length price for the subject transaction, the principles of consistency and uniformity need to be followed as there was nothing substantial or grossly based on evidences to hold that the case of the assessee in previous year and present year is any way different. Rather, in the present year, the assessee has expanded its operations at Chennai plant. Thus, ITA No.4434/Del/2024 12 we are inclined to decide these grounds in favour of the assessee. The adjustment done by the AO deserves to be quashed. 12. Grounds No.9 to 13: As with regard to these grounds, the ld. AR has submitted that the ld. AO has erred in invoking section 269P of the Act by holding that the assessee has made repayment of loans/deposits amounting to INR 3010000 in violation of provisions of section 269T of the Act without appreciating the fact that the assessee had merely adjusted security deposits received from customers through book adjustments and no amount was paid by the assessee for repayment. It was submitted that detailed evidences were filed before the AO which have been left out of consideration. 13. Although the ld. DR has relied the order of the ld. tax authorities below, what we find is important is that it was specifically pleaded before the AO vide submissions dated 08.09.2023 that the adjustments were through book entries, therefore, section 269D could not be invoked. We are of the considered view that the assessee has taken security deposits from its customers in earlier years, the said security deposits were adjusted through the outstanding receivable balance of the respective customers. That cannot be considered to be a case of repayment of loans or deposits so as to apply penal provisions of section 269D of the Act. The ld. DRP has directed the AO/TPO to take action as per the provisions of section 40A(3) r.w.s. Rule 6DD(d) of the Income-tax Rules. However, the AO has sustained the addition at the time of final assessment ITA No.4434/Del/2024 13 observing that the assessee did not furnish any details whatsoever with respect to security deposits from customers or with respect to payments made to third parties. The assessee has also not furnished any documentary evidences regarding source of such amount. The amount used for repayment by mode other than banking channel being disallowable u/s 40A(3) of the Act have been added back to the total income of the assessee. We are of the considered view that without establishing anything from the financials of the assessee that the repayments have been made otherwise than banking channel the dislloance is made and same is not sustainable. Thus, we sustain these grounds in favour of the assessee. 14. Grounds No.14 and 15; The ld. AR has submitted that an additional claim was filed vide submissions dated 4th September, 2023 in respect of disallowance of interest expenditure which was inadvertently disallowed by the assessee in his return of income u/s 94B of the Act. The issue arises out of the fact that during the year under consideration the assessee had paid interest for external commercial borrowings obtained from its non-resident associated enterprises, namely, USG Boral Building Products (India) Ltd. The same has been raised at the stage of DRP proceedings. However, the ld. DRP had not given the assessee the benefit of the same and relying Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) judgement observed that this claim does not lie within the meaning of variation contemplated u/s 144C(1) of the Act. ITA No.4434/Del/2024 14 15. However, it is now the settled proposition of law that powers of the DRP are akin to that of CIT(A) and reliance in this regard can be placed on the decision of coordinate bench in Tri Riceland Pvt Ltd ,New Delhi vs Acit, Circle 25(1), New Delhi on 2 April, 2025, on which one of us, the judicial member was also on quorum, and the bench has held as follows; “The powers of DRP are co-terminous with the CIT(A), including the power to confirm, reduce or enhance the variation proposed and to consider the issues not agitated by the Assessee in the objections. In fact, under Section 144C, the Dispute Resolution Panel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and the Dispute Resolution Panel can confirm, reduce or enhance the variations proposed in the draft order. It is specifically stipulated in Section 144C that every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. This is akin to the Assessing Officer giving effect to an order passed by the Appellate Authority or the Courts. Reliance for this can be placed on the decision of Hon'ble Delhi High Court in PCIT v. Headstrong Services India Pvt. Ltd. (2021) 197 DTR 329 /318 CTR 369 (Delhi) (HC). Thus we are of the view that though DRP should have taken cognizance of the same, but, at this stage, remitting the issue back to DRP will not be justified as this Tribunal is quite competent to determine this issue finally.” 15.1 In the light of the aforesaid, this issue is restored to the files of AO/TPO to take into consideration the additional claim of the assessee and pass a fresh order on this issue. ITA No.4434/Del/2024 15 16. Grounds No. 16 and 18; The issue arising from these gorunds is duly appreciated by the DRP and relevant part is extracted below; “8.1 in ground number 7, the assessee has raised objections that the Ld. AO has erred in considering the loss of INR 43,68,70,471/-computed under section 143(1)(a) of the Income-tax Act, 1961 ('the Act') as a starting point for computing total income in the draft assessment order passed under section 144C(1) read with section 144B of the Act instead of returned loss of INR 43,95,87,272. It is submitted that the CPC has made additions/disallowances under section 143(1)(a) of the Act, without affording any opportunity of hearing to the assessee and without providing any reasons for the above disallowances. 8.2 The Panel has considered the submissions. The Panel notes that while giving effect to the order of the TPO u/s 92CA(3) of the Act, the AO has proposed variation on account of TP adjustment u/s 92CA(3) and addition u/s 40A(3) of the Act taking the income determined u/s 143(1)(a) by CPC as the base figure. The Panel notes that there is no discussion on the issue in the Draft Assessment Order. It is not clear whether this ground of erroneous adjustment u/s 143(1)(a) of the Act by CPC was raised by the assessee during assessment proceedings or whether any rectification application against the said disallowances/additions were filed by the assessee during Assessment proceedings. As per section 144C(1) of the Act, in the case of an eligible assessee, the AO is first required to pass a draft order if he proposes to make any variation prejudicial to the interest of the assessee. In the instant case, the only variation proposed by the AO in the DAO is the variation as per order u/s 144C(1) dated 27.09.2023, which comprises of the TP adjustment u/s 92CA(3) and addition u/s 40A(3) of the Act. Therefore, in the considered view of the Panel, the adjustment made u/s 143(1)(a) by the CPC does not lie within the scope of the variation proposed in the DAO as mentioned in section 144C(1) of the Act, especially in view of the fact that this issue has not been agitated by the assessee before the AO during assessment proceedings. It is also pertinent to observe that despite such adjustment u/s 143(1)(a) by CPC, had the case not been selected for scrutiny or reference made to the TPO, and consequently, had no TP adjustment been made in the case, the assessee would not qualify to be an eligible assessee u/s 144C of the Act, and there would have been no DAO u/s 144C(1) enabling the assessee to file objections against adjustment u/s 143(1)(a) by the CPC. In view of the above, the upward revision made by the CPC u/s 143(1)(a) cannot be construed to be a variation u/s 144C(1) of the Act requiring the AO to first pass a Draft Order. Consequently, objections raised on this count are not sustainable and hence rejected.” ITA No.4434/Del/2024 16 16. Admittedly the assessee had not challenged the intimation u/s 143(1) of the Act. Thus the findings of DRP cannot be interfered. The grounds have no substance. 17. As a sequel to above determination of the grounds the appeal is partly allowed with consequences to follow as per the determination of grounds in favour of the assessee Order pronounced in the open court on 23.04.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23rd April, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "