NIPPON STEEL ENGINEERING INDIA PRIVATE LIMITED,NEW DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, DELHI

ITA 3682/DEL/2024

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Nippon Steel Engineering India Private Limited (NSEI) appealed against the final assessment order passed by the Assessing Officer (AO), which included adjustments made by the Transfer Pricing Officer (TPO) regarding the arm's length price of international transactions and disallowances related to gratuity and provident fund contributions. The Tribunal found that some comparables used by the TPO were not functionally similar to NSEI and directed their exclusion from the Transfer Pricing adjustments. Additionally, the Tribunal restored the issues of gratuity and provident fund contributions to the AO for re-assessment in light of the provisions of the Income-tax Act and relevant judicial pronouncements.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314395 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2020-2021
• Other Referred Cases: Checkmate Services P Ltd. Vs CIT (143 Taxmann.com 178) (SC)
• Laws Referred To: Income-tax Act, 1961, Income-tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JADHAV
• Assessee Lawyers: ROHIT TIWARI; INR
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘H’: NEW DELHI BEFORE SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.3682/DEL/2024 [Assessment Year: 2020-21] Nippon Steel Engineering India Private Limited, Unit No.211 To 215, 2nd Floor, Saket District Centre, Salcon Ras Vilas, Delhi-110017 Vs Assessment Unit, Income Tax Department, Delhi PAN-AAGCB3151N Appellant Respondent Appellant by Shri Rohit Tiwari, Adv. Respondent by Shri S K Jadhav, CIT-DR Date of Hearing 02.05.2025 Date of Pronouncement 07.05.2025 ORDER PER PRAKASH CHAND YADAV, JM The present appeal of the assessee as arising from the order of the Ld. Assessing Officer dated 19.07.2024 having DIN No. ITBA/AST/S/ 143(3)/2024-25/1066855818(1) and relates to Assessment year 2020-21. 2. Brief facts of the case as coming out of the orders of the authorities below are Nippon Steel Engineering India Private Limited (NSEI\" or \"the Company\" or \"the assessee\") is a private limited company and was incorporated on 20.04.2010. The Company is engaged in providing marketing and administrative /support services to Nippon Steel 2 ITA No.3682/Del/2024 Engineering Co. Limited. Japan (\"NSE\") and its subsidiary/group companies. The activities include information collation, inputs and services and co-ordination and communication between companies and NSE. (Refer pages 74-78 of Paper-book for detailed functional analysis captured in the TP documentation and page 1241 for intercompany agreement) The Company is also engaged in the business of execution of construction contracts which includes equipment supply and fabrication services to unrelated third-party customers in India. Assessee filed its ROI for the impugned year on 12.02.2021 declaring an Income of Rs 7,96,79,550/- the same was picked up for scrutiny, observing international transactions the AO referred the matter to the TPO. The Ld TPO then computed the ALP of the international transactions with the AE and made two adjustments one is with respect to the Marketing and Administrative Services for an amount of Rs.48,85,611/- the other is adjustment qua interest on trade receivables for amount of Rs.75,192/-. Thereafter, the AO passed the draft assessment order after making the addition of Rs.49,60,803/- as proposed by ld. TPO. 3. The assessee challenging the draft assessment order filed its objection to ld. DRP and the ld. DRP vide its order dated 11.06.2024 affirmed the additions made by learned TPO. Thereafter, the AO passed the final assessment order. 4. Challenging the assessment order, the assessee has come up in appeal before us by raising the following grounds of appeal:- 1. That on the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO under Section 143(3) read with section 144C(13) and 144B of the Act is bad in law and liable to be quashed. 3 ITA No.3682/Del/2024 2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in assessing the total income of the Appellant, assessed under Section 143(3) read with Section 144C of the Act for A Y 2020-21, at INR 8,63,16,713, as against the total income reported in the return of income (\"ROI\") amounting to INR 7,96, 79,550. Transfer Pricing 3. That the Ld. AO/ Learned Deputy/Assistant Commissioner of Income-tax, Transfer Pricing Officer- 2(3)(1) (\"Ld. TPO\") have erred in enhancing the income of the Appellant by INR 63,18,723 in relation to provision of marketing and administrative support services to its Associated Enterprise (\"AE\"). In doing so, Ld. AO/ Ld. TPO have grossly erred in: 3.1. not accepting the economic analysis undertaken by the Appellant in accordance with provisions of the Income-tax Act, 196l read with the Income-tax Rules, 1962, and modifying the same for determination of arm's length price of the said transactions to hold that the same is not at arm's length; 3.2. conducting an altered comparability analysis based on the application of erroneous additional / revised filters in determining the arm's length price (\"ALP\") for the Appellant; 3.3. not appreciating the functional, asset and risk profile of the Appellant with respect to impugned international transaction of provision of marketing and administrative support services wherein selecting comparables involved in the business of advertising & public relations; 3.4. rejecting additional comparables identified by the Appellant selected on a without prejudice basis, which are also engaged advertising & public relations. The same were selected by the appellant in line with the approach adopted by the Ld. TPO; 3.5. disregarding additional ground by stating that the Appellant had not spelt out the search methodology or the database over which the search was carried out to identify the additional comparables; 3.6. wrongfully rejecting certain companies and adding certain companies to the final set of comparable companies for the said transaction on an ad-hoe basis, thereby resorting to cherry picking of comparables for benchmarking the said transaction; 4 ITA No.3682/Del/2024 3.7. applying the SBI Prime Lending Rate interest rate instead of SBI Base Rate while allowing the working capital adjustment; and 3.8. disregarding various judicial pronouncements of appellate authorities applicable to the facts of the instant case. Corporate tax 4. That the Ld. AO have erred in facts and in law in denying the deduction claimed by the Appellant on account of Payment of Gratuity and Employer's Contribution to Provident Fund amounting to INR 3,18,440. Other Grounds 5. That on the facts and circumstances of the case and in law, the Ld. AO has erred in charging interest under Section 234A, 234B and 234C of the Act. 6. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 270A of the Act mechanically on the additions made. 5. In ground no.1, the ld. Counsel for the assessee has challenged the assessment order on the ground that the same is barred by limitation. However, at the time of hearing, the ld. Counsel for the assessee did not press the same and hence the same is dismissed as not pressed. 6. Ground no.2 is general in nature and hence does not require any specific adjudication. 7. In ground no.3, the assessee has challenged the addition of Rs.63,18,723/- lakhs in respect of adjustments made by the TPO qua Marketing and Administrative support services provided by the assessee to its Associated Enterprises (in short ‘AE’). The ld. Counsel for the assessee has pointed out that the ld. TPO has selected 14 comparables for benchmarking the international transactions of the assessee with its AE and finally computed the ALP. It is the contention of the learned counsel for 5 ITA No.3682/Del/2024 the assessee that six comparables chosen by the TPO are failed without testified on the touchstone of Function, Assets, and Risks Test (in short ‘FAR test’). Thereafter, the ld. Counsel for the assessee drawn the attention of the Bench towards functionality of each of six comparables and contended that these six comparables failed when test check in the light of FAR test. 8. In ground no.4, the ld. Counsel for the assessee has challenged the disallowance of an amount of Rs.3,18,440/- on account of delayed payment of employer’s contribution towards Gratuity and PF. In respect of this, the ld. Counsel for the assessee has pointed out that the assessee himself has disallowed an amount of Rs.8,90,977/- in its tax computation and hence no separate disallowance of Rs.1,59,577/- is required to be made. In nutshell, the ld. Counsel for the assessee pointed out that net provision vis- à-vis payment of gratuity, created during the year was already disallowed by the assessee while computing the taxable income. 9. Similarly, the assessee has made provision of employer contribution towards the payment of provident fund for an amount of Rs.1,58,863/-. It is the contention of the learned counsel for the assessee that contribution to Provident fund has been paid after end of the year but before the due date of filing of Income Tax Return and hence, the AO is not correct in disallowing this amount towards Provident Fund. 10. The Ld. CIT-DR appearing on behalf of the Revenue strongly relied upon the orders of the authorities below 6 ITA No.3682/Del/2024 11. We have heard the rival submission and perused the material available on record. We hereby observe that five comparables namely Pressman Advertising Limited, Ugam Solutions Private Limited, FCB Interface Communications Private Limited, FCB Ulka Advertising Private Limited and Adfactors PR Private Limited have been disputed by the assessee, which were selected by the TPO for computing the ALP. So far as one comparable namely Pressman Advertising Limited is concerned, we could not find force in the arguments of the assessee and hence the contentions with respect to the inclusion of this comparable are dismissed. So far as the inclusion of other comparables are concerned, i.e. remaining four comparables, we are of the view that they are not functionally similar to the functions of the assessee and hence these are required to be excluded from the TP adjustments made by the TPO. Therefore, the ld. TPO is directed to compute the ALP after excluding of these four comparables and compute the ALP afresh. Hence, this ground of the assessee is allowed for statistical purposes with specific direction i.e. exclusion of four comparables. 12. So far as the payment of gratuity is concerned of Rs.1,59,577/-, we restore this issue to the file of the AO with a direction if the assessee had already offered net provision for taxation, while computing the income then no separate addition is required to be made in this regard. 13. So far as the addition of Rs.1,58,863/- i.e. payment of provident fund/employer contribution is concerned, we restore this issue to the file of the AO for examining again in the light of decision of Hon’ble Supreme 7 ITA No.3682/Del/2024 Court in the case of Checkmate Services P Ltd. Vs CIT (143 Taxmann.com 178) (SC)) 14. In the result, the appeal of the assessee is allowed as indicated above. Order pronounced in the open court on 07th May, 2025. Sd/- Sd/- [BRAJESH KUMAR SINGH] [PRAKSAH CHAND YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 07.05.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "