MIRZA INTERNATIONAL LIMITED,KANPUR V. DCIT CIRCLE 2(1)(1), KANPUR

ITA 35/LKW/2022

AI Insights

Mirza International Limited, a company engaged in the manufacturing of leather shoes, faced scrutiny under the Income Tax Act for the assessment years 2017-18 and 2018-19. The company's transactions between its eligible and non-eligible units were referred to the TPO, who proposed adjustments based on an external TNMM, rejecting the internal TNMM used by the company. The Dispute Resolution Panel (DRP) upheld the TPO's adjustments, leading the company to appeal to the Tribunal. The Tribunal found that the TPO and DRP did not provide sufficient reasons for rejecting the internal TNMM and that the external comparables were not functionally similar to the assessee. Consequently, the Tribunal set aside the TPO's adjustments and directed the deletion of the Transfer Pricing adjustments for both assessment years.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705758 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: CIT-III, Hyderabad vs. Alumeco India Extrusion Ltd., M/s Radhasoami Satsang Saomi Bagh v. CIT, CIT v. Neo Poly Pack (P) Ltd., Van Oord Dredging and Marine Contractor BV v. DCIT, Airport Retail P Ltd v. DCIT, Philips India Ltd. v. ACIT, Siemens Industry Software (India) Pvt Ltd v. DCIT, DCIT v. Bridal Jewellery Mfg. Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR RAJWANSHI
• Assessee Lawyers: AKSHAY GUPTA
• Keywords: Set aside; Transfer pricing; Rule of consistency
• Section: 143(3); 92

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos. 35 & 158 /LKW/2022 Assessment Years: 2017-18 & 2018-19 Mirza International limited 14/6, Civil Lines Kanpur v. The DCIT Circle 2(1)(1) Kanpur TAN/PAN:AAECM3626M (Appellant) (Respondent) Appellant by: Shri Akshay Gupta, C.A. Respondent by: Shri Sunil Kumar Rajwanshi, D.R. O R D E R PER BENCH: Both these appeals have been preferred by the assessee. ITA No.35/LKW/2022 is against the assessment order dated 27.01.2022 passed by the Assessing Officer, National Faceless Assessment Centre, Delhi for assessment year 2017-18 and ITA No.158/LKW/2022 is against the order dated 29.06.2022 passed by the Assistant Commissioner of Income Tax, Circle 2(1)(a), Kanpur for assessment year 2018-19. Both these appeals filed by the assessee are having identical issues. Therefore, they were taken up for hearing together and are being disposed of by this common order for the sake of convenience. ITA Nos. 35 & 158 /LKW/2022 Page 2 of 25 2.0 The brief facts for assessment year 2017-18 in ITA No.35/LKW/2022 are that the assessee is a listed company which was incorporated in 1979 and is the owner of ‘Red Tape’ brand of shoes. During the year, the assessee had two business units. One unit was eligible for deduction under section 80-IC of the Income Tax Act, 1961 (hereinafter called “the Act’) and the other unit was the non-eligible unit. It had its own tannery along with effluent treatment plant and also had around 140 retail outlets which had Pan India presence. The return of income for assessment year 2017-18 was filed declaring a total income of Rs.94,32,14,140/- under the normal provisions of the Income Tax Act. The case of the assessee was selected for complete scrutiny assessment and, thereafter, during the course of assessment proceedings, reference under section 92CA(1) of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO). Thereafter the TPO issued show cause notice to the assessee on the issue of Specified Domestic Transactions (SDTs) entered into between the eligible and non- eligible units of the assessee. The assessee had adopted Internal Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The assessee was asked to show cause as to why transfer pricing adjustment should not be made to the total income of the assessee by recasting the Operating ITA Nos. 35 & 158 /LKW/2022 Page 3 of 25 Margin/Operating Cost (OP/OC). The assessee furnished before the TPO a detailed explanation justifying the adoption of the internal TNMM as the Most Appropriate Method. However, the TPO was not satisfied with the explanation submitted by the assessee and he proposed an adjustment of Rs.3,14,89,283/- in respect of transfer of leather shoes by applying external TNMM. Thereafter, a draft assessment order was passed in which following adjustments/disallowances were proposed: 1 Adjustment in respect of Arm’s Length Price (ALP)) by the TPO Rs.3,14,89,283/- 2 Addition in respect of delayed payment of employees’ contribution to EPF/ESI. Rs.55,79,597/- 3 Disallowance u/s. 40A(7) of the Act in respect of difference in provision for payment of gratuity. Rs.1,78,33,990/- 4. Unexplained cash deposits during the demonetization period Rs.7,59,42,681/- 2.1 The assessee approached the Hon'ble Dispute Resolution Panel (DRP) agitating the adjustments proposed in the draft assessment order. The Hon'ble DRP did not accept assessee’s objection regarding use of external TNMM by the TPO and upheld ITA Nos. 35 & 158 /LKW/2022 Page 4 of 25 the proposed adjustment. Similarly, the addition in respect of late deposit of employees’ contribution to ESI/EPF was also upheld. The Hon'ble DRP, however, accepted the assessee’s objection regarding addition on account of cash deposit during the demonetization period and directed that such addition be deleted. 2.2 Accordingly, in view of the directions of the Hon'ble DRP, the assessment was completed by the AO in terms of section 143(3) of the Act read with sections 144C(13) and 144B of the Act at a total income of Rs.99,81,17,010/- after making the following additions/adjustments: 1 Adjustment in respect of Arm’s Length Price (ALP)) by the TPO Rs.3,14,89,283/- 2 Addition in respect of delayed payment of employees’ contribution to EPF/ESI. Rs.55,79,597/- 3 Disallowance u/s. 40A(7) of the Act in respect of difference in provision for payment of gratuity. Rs.1,78,33,990/- 2.3 Aggrieved by the final assessment order, the assessee has now approached this Tribunal challenging the assessment by raising the following grounds of appeal: ITA Nos. 35 & 158 /LKW/2022 Page 5 of 25 1. The learned Assessing Officer and Transfer Pricing Officer have erred in law and on facts in making an adjustment under section 92 CA of the Act of Rs.3,14,89,283/- for computing the profit and gains of Eligible Business under section 80 IC of the Act and in making addition of Rs.3,14,89,283/- to the income of the assessee company. 2. The learned Assessing Officer has erred in law and on facts in making addition of the total adjustment in arm's length price of Rs.3,14,89,283/- to the total income of the assessee company instead of proportionate reducing the amount of deduction claimed by the assessee u/s 80IC of the Act which has been claimed at 30% of the profits of the eligible business as computed by the assessee. 3. The learned Assessing Officer has erred in law and on facts in making disallowance of Rs.55,79,597/- in respect of late deposit of employee's contribution to provident fund although the contribution was paid before the due date of filing of return of income u/s 139(1) of the Act. 4. The appellant reserves the right to add to, alter or modify the above grounds before or during the hearing before the Hon'ble Tribunal so as to enable the Hon'ble Tribunal to decide on the grounds raised by the appellant as per law. 5. Any other relief which Hon'ble Tribunal may deem fit in the case. 2.4 In assessment year 2018-19, the return of income was filed, declaring a total income of Rs.11,66,29,130/-. Subsequently, on reference being made to the TPO, as in assessment year 2017-18, the TPO proposed an addition of ITA Nos. 35 & 158 /LKW/2022 Page 6 of 25 Rs.3,20,71,405/- in respect of Arm’s Length Price towards domestic transactions. A further addition of Rs.1,65,586/- was also proposed in the draft assessment order in respect of delayed payments of employees’ contribution towards EPF/ESI. The assessee filed its objections before the Hon'ble DRP wherein both the objections of the assessee were dismissed and the assessment was completed after making disallowance of Rs.96,21,421/- on account of reduction of profit in the eligible business for the purposes of claim under section 80-IC of the Act in view of the adjustments made by the TPO and a further addition of Rs.1,65,586/- in respect of delayed payment to EPF/ESI. The assessment was completed at a total income of Rs.1,12,64,16,140/- in the final assessment order. 2.5 Now the assessee has approached this Tribunal challenging the addition/disallowance by raising the following grounds of appeal: 1. The learned Assessing Officer and Transfer Pricing Officer have erred in law and on facts in making an adjustment under section 92 CA(3) of the Act of Rs.3,20,71,405/- for computing the profit and gains of Eligible Business under section 80 IC of the Act and in making addition of Rs.96,21,421/- to the income of the assessee company. 2. The learned Assessing Officer has erred in law and on facts in making disallowance of Rs.1,65,586/- in respect of ITA Nos. 35 & 158 /LKW/2022 Page 7 of 25 late deposit of employee's contribution to provident fund although the contribution was paid before the due date of filing of return of income u/s 139(1) of the Act. 3. The appellant reserves the right to add to, alter or modify the above grounds before or during the hearing before the Hon'ble Tribunal so as to enable the Hon'ble Tribunal to decide on the grounds raised by the appellant as per law. 4. Any other relief which Hon'ble Tribunal may deem fit in the case. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee was into the manufacturing of shoes only and that it had two manufacturing units in Kashipur in the State of Uttarakhand and that the assessee had been regularly claiming benefit of deduction under section 80-IC of the Act in respect of the eligible unit and that assessment year 2017- 18 was the 9th year for claiming the deduction and assessment year 2018-19 was the 10th year for claiming such deduction. It was submitted that on manufacture being completed, the stocks are transferred to another unit in Noida which was Central Warehouse for the assessee and for such transfer, the assessee regularly employs internal TNMM for the purpose of determining the Arm’s Length Price (ALP). The Ld. A.R. further submitted that the Department had been regularly accepting such internal TNMM and our attention was drawn to the orders of the TPO for assessment years 2014-15 and 2015-16 (placed in the paper ITA Nos. 35 & 158 /LKW/2022 Page 8 of 25 book) and it was submitted that in these two assessment years no adjustments had been proposed by the TPO and that all the assessments till date had been completed under section 143(3) of the Act. The Ld. A.R. also drew our attention to the fact that operating margin was always within ± 3% as per the Domestic Transfer Pricing Report (which has been placed at page 87 of the paper book) and, therefore, the transactions were undoubtedly at Arm’s Length. 3.1 The Ld. A.R. further submitted that the TPO had applied external TNMM in an arbitrary manner without assigning any specific reason for such switch over and for this purpose our attention was drawn to pages 1 to 5 of the paper book wherein a copy of the show cause notice issued by the TPO has been placed. It was submitted that the TPO had rejected the internal TNMM by simply mentioning that the methodology given by the assessee was being rejected. It was further submitted that the filters adopted by the TPO were filters prescribed for external TNMM only, but while switching over, the reason for not accepting the assessee’s Transfer Pricing Report and internal TNMM as the MAM has not been given. 3.2 Thereafter, our attention was drawn to the report of the TPO wherein the TPO had specified Ten Companies as being functionally similar to the assessee, namely Kangaroo Leather ITA Nos. 35 & 158 /LKW/2022 Page 9 of 25 Private Limited, Ace Exports Limited, Hidesign India Private Limited, Venus Footarts Limited, Leayan Global Private Limited, Liberty Shoes Limited, Lehar Footwears Limited, Finewear Leathers Private Limited, Relaxo Footwears Limited and Condor Footwears (India) Limited. The Ld. A.R. submitted that the TPO has not been able to demonstrate as to how these above Ten Companies were functionally similar to the assessee-company. It was submitted that the functional dissimilarity between the assessee company and the aforesaid Ten Companies as selected by the TPO would be demonstrated by means of a chart to be submitted during the course of arguments. 3.3 Our attention was further drawn to paragraph 11 of the order of the TPO and it was submitted that the TPO has used data from these 10 Companies for the purpose of determining the Arm’s Length Price of the transaction relating to transfer of semi- finished goods from Unit II to Unit I, whereas the fact of the matter was that the assessee was transferring only finished goods from its manufacturing unit to the Warehouse Unit and was not transferring any semi-finished goods, as has been stated in the Report of the TPO and, therefore, the exercise carried out by the TPO for determining the Arm’s Length Price for the purpose of transfer of goods was factually as well as legally incorrect. ITA Nos. 35 & 158 /LKW/2022 Page 10 of 25 3.4 The Ld. A.R. submitted that the TPO has alleged in paragraph 6 of his order that non-eligible unit of the assessee had majority of export sales while eligible unit was selling solely to the domestic non-eligible unit. The Ld. A.R. submitted that this allegation by the TPO was not correct and the same was evident from the Segment Reporting forming part of Annual Report of the assessee placed at page 126 of the paper book and it was submitted that more than 33% of the sales of the non- eligible unit was in domestic market. 3.5 Thereafter, the Ld. A.R. drew our attention to a chart submitted with regard to the comparables selected by the TPO and submitted that the comparables selected by the TPO as external comparables were not applicable to the case of the assessee for the following reasons: 1 Kangaroo Leather Private Limited It was submitted that this Company was manufacturing on physical inputs owned by others and was mostly providing Leather Tanning and Dressing services, fur dressing and dyeing services, whereas the assessee was manufacturing for its own units and was not manufacturing any other products except Leather Shoes and, therefore, this Company could not be used as a comparable to the assessee- ITA Nos. 35 & 158 /LKW/2022 Page 11 of 25 company. 2 Ace Exports Limited It was submitted that this Company was manufacturing waterproof footwear with outer soles and uppers of rubber/plastics and was not into manufacturing of Leather Shoes. 3 Hidesign India Private Limited It was submitted that this Company was mainly manufacturing Leather Trunks, Suitcases, Vanity Cases, Executive Cases, Briefcases, School Satchels, Spectacle Cases, Binocular Cases, etc. and was not manufacturing Leather Shoes and was, therefore, again not a comparable Company. 4 Venus Footarts Limited It was submitted that just like Ace Exports Limited, this Company was also into manufacturing of waterproof footwear with outer soles and uppers of rubber/plastics and was thus not into manufacturing of Leather Shoes and hence again not a good comparable. 5 Leayan Global Private Limited It was submitted that this Company again was identical to Venus Footarts Limited and Ace Exports Limited and, therefore, not comparable to the assessee-company. ITA Nos. 35 & 158 /LKW/2022 Page 12 of 25 6 Liberty Shoes Limited The Ld. A.R. submitted that Liberty Shoes Limited manufactured footwear with outer soles of rubber, plastics and leather and not only Leather Shoes and, therefore, was again not a good comparable. 7 Lehar Footwears Limited The Ld. A.R. submitted that this Company was into manufacturing of Hawai Chappals, Canvas Shoes, PVC Shoes, Synthetic Leather Chappals, Fancy Chappals and EVA injected footwear and, therefore, not comparable to assessee-company again. 8 Finewear Leathers Private Limited It was submitted that this Company was providing wholesale trade services in respect of Tanned or Dressed Leather and was into manufacturing of Shoes and was not a good comparable. 9 Relaxo Footwears Limited It was submitted that this Company was also not a manufacturer of Leather Shoes but rather footwear other than Shoes with outer soles and uppers of rubber or plastic and was again, therefore, not comparable. 10 Condor Footwears It was submitted that this Company again was manufacturing other ITA Nos. 35 & 158 /LKW/2022 Page 13 of 25 (India) Limited footwear (no Leather footwear) with outer soles and upper of rubber and plastic and was, therefore, not a good comparable. 3.6 The Ld. A.R. submitted that the above chart had been compiled from the Annual Reports of the above 10 Companies which have been placed in the compilation and could be verified from the same. It was argued vehemently that for the reasons stated above, none of the above 10 comparables adopted by the TPO could be used as a proper comparable for the purpose of determining the Arm’s Length Price and, therefore, these comparables were liable to be rejected and the internal TNMM adopted by the assessee-company should be accepted. The Ld. A.R. also placed reliance on a number of judicial precedents (placed in the paper book) to buttress his point as to why internal TNMM should not be rejected without specifying any concrete reason and why the same should be accepted in absence of any material change. 3.7 The Ld. A.R. submitted that likewise, in assessment year 2018-19 also an adjustment of Rs.96,21,421/- was proposed by the TPO by adopting the same set of external comparables and the objections of the assessee were dismissed by the Hon'ble DRP ITA Nos. 35 & 158 /LKW/2022 Page 14 of 25 on identical set of facts and, therefore, the arguments advanced by the Ld. A.R. in respect of assessment year 2017-18 above would apply equally in appeal for assessment year 2018-19 also. 3.8 With respect to the other addition under challenge that being the addition on account of late deposit of Employees’ Contribution to ESI/EPF, being ground No.3 in assessment year 2017-18 and ground No.2 in assessment year 2018-19 were not being pressed. 4.0 In response, the Ld. Sr. D.R. submitted that the Hon'ble DRP had given very detailed reasons for rejecting the objections of the assessee with respect to the use of external TNMM by the TPO. Referring to paragraphs 4.6, 4.7, 4.8 and 4.9 of the directions of the Hon'ble DRP in assessment year 2017-18, the Ld. Sr. D.R. submitted that the principle of res judicata does not apply in Income Tax proceedings. It was submitted that although the TPO might have accepted the assessee’s Transfer Pricing Report in assessment years 2014-15 and 2015-16, but the same does not preclude the TPO from changing the most appropriate method if the situation so warrants. The Ld. Sr. D.R. placed reliance on the Transfer Pricing Order and the directions of the Hon'ble DRP in both the years under appeal and submitted that the assessee’s appeals deserved to be dismissed in view of the detailed observations of the TPO as well as the Hon'ble DRP. ITA Nos. 35 & 158 /LKW/2022 Page 15 of 25 5.0 We have heard the rival submissions and have also perused the material on record. It is an undisputed fact that in the instant case, the assessee had selected internal TNMM as the Most Appropriate Method for the purposes of determining the Arm's Length Price of the specified domestic transactions entered between the eligible and non-eligible units of the Assessee. On the contrary, in the SCN the internal TNMM selected by the assessee has been rejected and it was proposed to apply external TNMM as the Most Appropriate Method. However, no reason whatsoever has been assigned by the TPO either for the purposes of rejecting internal TNMM as the Most Appropriate Method or for applying external TNMM as the Most Appropriate Method. 5.1 It is a settled position of law that the method selected by a taxpayer as the Most Appropriate Method cannot be rejected without assigning cogent reason. This view is supported by the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT-III, Hyderabad vs. Alumeco India Extrusion Ltd., wherein vide order dated 06.11.2014 in ITA Nos. 532 and 563 of 2014, the Hon'ble High Court of Judicature at Hyderabad held as under: “It appears that the leamed Tribunal has recorded the fact that when the assessee has chosen a Most Appropriate Method and substantiated the choice in its Transfer Pricing ITA Nos. 35 & 158 /LKW/2022 Page 16 of 25 study it is upto the Transfer Pricing Officer to record and substantiate the reasons as to why the assessee's Most Appropriate Method was incorrect and why some other Transfer Pricing Method need to be the Most Appropriate Method. The Tribunal did not find any substance in any of the Transfer Pricing Officer's multiple arguments for rejection of assessee's intermal Cost Plus Method and adoption of external Transaction Net Margin Method. In other words, it was found by the Tribunal that the decision of the Transfer Pricing Officer was absolutely arbitrary and irrational and hence it set aside the order of the Transfer Pricing Officer. We do not find any element of law for consideration in these appeals.” 5.2 In view of the above, we are of the considered view that the internal TNMM adopted by the assessee cannot be rejected as the Most Appropriate Method without assigning any reason. The SCN as well the order of the TPO are completely silent on the reason behind rejecting assessee’s internal TNMM as MAM and applying external TNMM by selecting Ten Companies as comparables. 5.3 It is also to be noted that in the instant case, the two eligible units at Uttarakhand, in relation to which deduction under Section 80-IC of the Act has been claimed, were also in operation during past financial years and identical transactions had been undertaken during those past financial years also. Undisputedly, identical transaction between these two eligible ITA Nos. 35 & 158 /LKW/2022 Page 17 of 25 units and the other units of the assessee were a subject matter of detailed Transfer Pricing Assessment during assessment year 2014-15 and assessment year 2015-16 and no Transfer Pricing adjustments had been made. 5.4 It is also an admitted fact that the operating margin earned by the non-eligible units of the assessee is more than the operating margin earned by comparable third parties. Therefore, as the non-eligible units themselves have earned more operating margin, it cannot be inferred that there has been any shifting of profit from the non-eligible unit to the eligible unit. Moreover, there is no allegation of shifting of profit by the Department. Therefore, there was no reason to change the methodology being applied by the assessee from year to year. It is settled position of law that the Rule of Consistency can be applied in Income Tax proceedings where there is no material/reason justifying a change. This view is supported by the judgment of the Hon'ble Supreme Court in the case of M/s Radhasoami Satsang Saomi Bagh v. CIT, [1992] 193 ITR 321 (SC) wherein the Hon'ble Court held that \"On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter-and if there was not change it was in support of the assessee we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of ITA Nos. 35 & 158 /LKW/2022 Page 18 of 25 Income Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhaswami Satsang was entitled to exemption under Sections 11 and 12 of the Income Tax Act of 1961.\" 5.5 Similarly, in the case of CIT v. Neo Poly Pack (P) Ltd., [2000] 12 Taxman 363 (Del), the Hon'ble Delhi High Court held that \"It is true that each assessment year being independent of each other, the doctrine of res judicata does not strictly apply to the income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in the subsequent years unless there is some material change in facts.\" 5.6 The above view has been followed in the following orders of the Co-ordinate Benches of the Tribunal also: (1) Van Oord Dredging and Marine Contractor BV v. DCIT, Order dated 31.05.2019 passed in ITA No. 2029/Mum/2016. (2) Airport Retail P Ltd v. DCIT, Order dated 09.01.2019 passed in ITA No. 4816/Mum/2015. ITA Nos. 35 & 158 /LKW/2022 Page 19 of 25 (3) Philips India Ltd. v. ACIT, Order dated 15.05.2019 passed in ITA No. 2600/Kol/2018. (4) Siemens Industry Software (India) Pvt Ltd v. DCIT, Order dated 28.01.2019 passed in ITA No. 318/Del/2015. (5) DCIT v. Bridal Jewellery Mfg. Co., Order dated 28.02.2019 passed in ITA No. 873/Del/2016. 5.7 In the present case, the assessee has compared the operating margin earned by the eligible unit and non-eligible unit of the assessee by applying internal TNMM. The said methodology adopted by the assessee has been summarily rejected by the TPO without assigning any reason. It may be noted that internal TNMM is a well-recognised methodology widely applied for the purposes of computing the Arm's Length Price. In the following judicial precedents, the Co-ordinate Benches of the Tribunal have accepted the adoption of internal TNMM as the Most Appropriate Method over any other method: (1) ACIT v. Schlafhorst Marketing Co. Ltd., Order dated 21.08.2011 passed in ITA No. 1960/Mum/2007. (2) ACIT v. Birla Soft India Ltd, Order dated 26.04.2013 passed in ITA No. 284/Del/2013. (3) Lummus Technology Heat Transfer BV v. Addl. CIT (Order dated 23.03.2018 passed in ITA No. 1047/Del/2014) 5.8 It is also to be noted that in a large number of judicial precedents, it has been held that wherever internal TNMM is available, then the same must be preferred over external TNMM. ITA Nos. 35 & 158 /LKW/2022 Page 20 of 25 This view is supported by the following judicial precedents of the Co-ordinate Benches of the Tribunal: (i) Genesis Integrating System (India) Private Limited v. DCIT, Order dated 29-01-2013 passed in ITA No. 908/Bang/2011. (ii) Destination of the World (Subcontinent) (P.) Ltd. v. ACIT, Order dated 08.07.2011 passed in ITA No. 5534/Del/2010. (iii) Brillio Technologies Pvt. Ltd. v. DCIT, Order dated 31.05.2018 passed in ITA No. 1897/Bang/2017 5.9 We agree with the arguments of the Ld. A.R. that the Companies selected as Comparables in the SCN are not comparable to the assessee for the following reasons: 1. M/s Kangaroo Leather Private Limited As per the details made available by this company on its official website, this company was engaged in the business of manufacture of leather belts, wallets, desktop accessories, holders, bags, etc., and was not engaged in the business of manufacture of leather footwear at all. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee which was only engaged in manufacture of leather footwear. 2. M/s Hidesign India Private Limited As per the details made available by this company on its official website, this company was primarily engaged in the ITA Nos. 35 & 158 /LKW/2022 Page 21 of 25 business of manufacture of leather bags and other fashion accessories. In fact, this company was renowned and was known for leather bags. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 3. M/s Venus Footarts Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of synthetic chappals, sandels and footwear. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 4. M/s Lehar Footwears Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of synthetic chappals, sandels and footwear. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 5. M/s Relaxo As per the details made available by ITA Nos. 35 & 158 /LKW/2022 Page 22 of 25 Footwears Limited this company on its official website, this company was primarily engaged in the business of manufacture of hawai chappals. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 6. M/s Condor Footwear (India) Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of synthetic sandels and slippers. Therefore, this company cannot be adopted as comparable to the eligible unit of the assessee, which was only engaged in manufacture of leather footwear (shoes). 7. M/s Finewear Leathers Private Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of leather and leather garments. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 8. Ace Exports Limited This Company was manufacturing ITA Nos. 35 & 158 /LKW/2022 Page 23 of 25 waterproof footwear with outer soles and uppers of rubber/plastics and was not into manufacturing of Leather Shoes. 9. Liberty Shoes Limited This Company was manufacturing footwear with outer soles of rubber, plastics and leather and not only Leather Shoes and, therefore, was again not a good comparable. 10. Leayan Global Private Limited This Company was identical to Venus Footarts Limited and Ace Exports Limited and, therefore, not comparable to the assessee-company. 5.10 In view of the above facts, all Ten out of Ten Companies are held as totally incomparable to the assessee-company and thus, the entire basis for making the Transfer Pricing adjustment is rendered redundant and is liable to be struck down. Accordingly, we are of the considered view that the external TNMM applied by the TPO is to be rejected for two reasons viz.; (i) No specific reason has been assigned for not accepting the internal TNMM of the assessee even though in assessment years 2014-15 and 2015-16, the internal TNMM of the assessee was accepted and no Transfer Pricing adjustment was made. There is ITA Nos. 35 & 158 /LKW/2022 Page 24 of 25 not cogent reason given by the TPO to have disregarded the methodology of the assessee and have introduced external TNMM; and (ii) The Ten comparables selected by the TPO are not good comparables as has been stated by us in the preceding paragraphs for the simple reason that all the Ten comparables are functionally different from the assessee-company and, therefore, they cannot be used for determining the assessee’s Arm’s Length Price. 5.11 Therefore, in view of our observations in the preceding paragraphs, we hold that the TPO was not justified in not accepting the internal TNMM of the assessee and was also not justified in applying the external TNMM and make the impugned Transfer Pricing adjustment. Accordingly, for assessment year 2017-18, we set aside the Transfer Pricing adjustment as upheld by the Hon'ble DRP and direct the AO to delete the Transfer Pricing adjustment. 5.12 On identical set of facts and similar reasoning, the Transfer Pricing adjustment for assessment year 2018-19 is also directed to be deleted. ITA Nos. 35 & 158 /LKW/2022 Page 25 of 25 5.13 The assessee has not pressed its challenge to addition on account of late deposits of Employees’ Contribution to EPF/ESI and, therefore, ground No.3 in assessment year 2017- 18 and ground No.2 in assessment year 2018-19 are dismissed as not pressed. 6.0 In the final result, both the appeals of the assessee stand partly allowed. . Order pronounced in the open Court on 30/06/2025. Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:30/06/2025 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar/DDO "