SAMI-SABINSA GROUP LIMITED,BANGALORE V. DCIT, CENTRAL CIRCLE-3(2), BENGALURU

ITTPA 638/BANG/2025

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The case involves M/s Sami-Sabinsa Group Ltd, which appealed against the final assessment orders passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 for the assessment years 2013-14 and 2014-15. The primary contention was regarding the rejection of internal TNMM by the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP), which led to upward adjustments in the assessee's income. The assessee argued that the internal comparables were more appropriate than the external ones used by the TPO for benchmarking its international transactions. The Tribunal, after examining the detailed segmental financial information and the methodology of allocation of income and expenses between AE and non-AE segments, agreed with the assessee and directed the acceptance of internal TNMM.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 824947 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 25-03-2025
• Other Referred Cases: Sony Ericsson Communication India Pvt Ltd vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA K.J
• Assessee Lawyers: K P SRINIVAS; SUSAN MATHEW
• Keywords: Set aside; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER IT(TP)A Nos. 638 & 639/Bang/2025 Assessment Years: 2013-14 & 2014-15 M/s Sami-Sabinsa Group Ltd., 19(1) & (2), Peenya Industrial Area, II Phase, Chokkasandra Village, Bangalore – 560 058. PAN: AADCS2549E Vs. The Deputy Commissioner of Income Tax, Central Circle – 3(2), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri K P Srinivas, CA & Smt. Susan Mathew, CA Revenue by : Dr. Divya K.J, CIT-DR Date of Hearing : 17-12-2025 Date of Pronouncement : 31-12-2025 ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER These are two appeals by the assessee against the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereafter – the Act) for A.Ys. 2013-14 & 2014-15 dated 24th January 2025 & 28th January 2025 respectively. Printed from counselvise.com Page 2 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 First, we take up IT(TP)A No. 638/Bang/2025 for A.Y. 2013-14 as lead case. 2. The assessee has raised as many as 11 grounds of appeal which, we, for the sake of brevity and convenience are not inclined to reproduce the same here. 3. The first issue raised by the assessee through Ground Nos. 1 & 2 of its appeal is that the TPO/DRP erred in not considering the internal TNMM and not considering the segmental financials. 4. The relevant facts are that the assessee, a limited company, is engaged in the business of manufacturing and export of standardized herbal extract, fine chemical, nutraceuticals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics. The assessee carried it business from several units, including two units which are 100% export-oriented unit (EOU). Majority of its manufactured products are exported to AEs as well as to the third parties. The assessee claimed that its subsidiaries/AEs largely function as marketing or distribution centre for sale of its products. 5. The international transaction entered with the AEs during the year includes export of goods, purchases of materials and income on account of services rendered. The assessee originally benchmarked its international transaction being sale of herbal products to AE using Cost Plus Method (CPM). The case was selected for the assessment and TPO during the assessment proceeding rejected the assessee’s TP analysis. TPO adopting the TNMM as most appropriate method, benchmarked the assessee’s international transactions and accordingly made upward adjustment of Rs. 39,03,36,915/- to the manufacturing segment vide order dated 7th October 2016. The learned DRP vide direction dated 21st September 2017 also confirmed the order of the TPO. 6. Thereafter the assessee filed appeal before the Tribunal in IT(TP)A No. 2764/Bang/2017. The assessee before the Tribunal agreed to the benchmarking of Printed from counselvise.com Page 3 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 its international transaction using TNMM. However, the assessee argued that there are internal comparables available and sufficient data were filed before the DRP which were not considered for purpose of comparability analysis. It was prayed that as against the external comparables used by the Ld. AO/TPO, the internal comparables submitted by assessee may be considered to bench mark the international transaction for the year under consideration. 7. The Tribunal vide order dated 18th February 2022 accepted the assessee’s plea and remanded the issue back to the file of the TPO for de novo adjudication with the following directions: 4. We note that admittedly, the transactions in a controlled transaction with a related party and an uncontrolled transactions with unrelated parties will result into more appropriate bench marking of arm’s length price. Under the circumstances, if there is availability of sufficient data of internal comparables, the Ld.TPO first should have recourse to such internal compares before moving on to external comparables. Only on insufficiency of data in respect of internal comparables, support must be drawn from the external comparables. 4.1 We therefore, direct the Ld.TPO to carry out detailed analysis of the international transactions using TNMM as MAM, based on the materials filed by assessee related to internal comparables. In the event the details filed are satisfactory, the determination must be confined to the internal comparables so filed by assessee. In the event, the details filed by assessee is not verifiable or not in accordance with law, the Ld.AO/TPO is open to carry out analysis in accordance with law. 8. In the set aside proceedings, the assessee in support of internal comparable furnished the details of transactions carried out with the AEs and non-AEs. The assessee also provided a certificate certifying its financial segment being AEs and non-AEs segment from the CA Firm namely V.R. Sabins and Associates. The accountant in the certificate mentioned that the financial segments was prepared by the management of the assessee company, and they only certify the correctness of the figures and key allocations of the expenditures and incomes as per the generally accepted rational basis of allocation used in the industry. As per the assessee, the working of the PLI of AEs-segment stand at 12.22% and Non-AEs segment stand at 5.89%. 9. However, the TPO observed that the certificate issued by the Chartered Accountant only confirms the arithmetical accuracy of the figures. It does not certify the correctness of the segmental revenues, expenses, or margins. The breakup Printed from counselvise.com Page 4 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 between AE and non-AE segments has been prepared by the assessee using general allocation keys, without any independent verification or audit of the segmental data. Therefore, the segmental information is based only on figures provided by the assessee and the same cannot be relied upon. 10. It is further observed that the assessee has not maintained separate and regular books of accounts for AE and non-AE transactions. The segmental details have been prepared only for transfer pricing purposes and are not supported by audited segment-wise accounts. The assessee has also not produced proper supporting documents to justify the basis used for allocating of common costs and revenues between the two segments. 11. The assessee has failed to submit satisfactory evidence to prove that the income and expenses of AE and non-AE segments are correctly identified and free from adjustments. In the absence of audited and reliable segmental accounts, the internal comparables claimed by the assessee cannot be accepted. 12. It is also seen that there is a large difference between the margins of AE and non-AE transactions. The AE segment shows a much higher margin than the non-AE segment. Since the segmental figures are unaudited and only arithmetically checked, such a large difference raises serious doubts about the correctness of the allocation. This gives rise to a possibility that profits have been shifted from the non-AE segment to the AE segment to show higher margins for AE transactions. 13. In view of the above, it is held that the assessee has not provided sufficient and reliable data to support the use of internal comparables. The internal TNMM proposed by the assessee is therefore rejected. Accordingly, external TNMM is adopted as the Most Appropriate Method for benchmarking the international transactions, in line with the directions of the ITAT and the provisions of the Act. 14. Accordingly, the TPO, selected 2 comparable companies namely AVT Natural products and Synthite Industries Ltd whose average margin arrived at 31.24% Printed from counselvise.com Page 5 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 whereas assessee’s margin/PLI at entity level stand at 11.39%. Hence, the TPO in the set aside proceedings proposed the upward adjustment of Rs. 39,17,26,534/- which was the same as made in the original assessment proceedings. The aggrieved assessee preferred to file objection before the learned DRP. 15. The assessee before the learned DRP submitted that the TPO erred in rejecting the internal TNMM analysis without appreciating the factual and documentary evidence placed on record. The assessee had maintained segmental financials for AE and non-AE transactions on a reasonable and consistent basis. These segmental results were derived from the audited books of account, and the allocation of income and expenses was supported by working papers and explanations furnished during the course of proceedings. The rejection of internal comparables merely on the ground that the Chartered Accountant’s certificate certifies only arithmetical accuracy is incorrect, as the statutory audit already covers the correctness of the underlying financial records. 16. It was further submitted that there is no legal requirement under the Income- tax Act or the Companies Act for maintaining separate audited accounts for AE and non-AE segments. Once the statutory audit has been completed, there is no mandate for a separate segment-wise audit. The TPO ignored this settled position and proceeded on assumptions without pointing out any specific defect in the allocation methodology adopted by the assessee. 17. The assessee also explained in detail the basis of allocation of income and expenses between AE and non-AE segments. Sales were directly identified on an actual basis. Direct expenses were allocated based on material consumption and usage. Selling, marketing, and business promotion expenses were allocated only to the relevant segment to which they are related. Certain costs, such as warehousing and logistics, were incurred exclusively for non-AE sales and were therefore allocated entirely to the non-AE segment. These allocations were logical, consistent, and clearly documented, but the TPO failed to properly examine the same. Printed from counselvise.com Page 6 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 18. The allegation of profit shifting from the non-AE segment to the AE segment is without any factual basis. The TPO has not demonstrated how such profit shifting has occurred. Mere difference in margins between AE and non-AE segments cannot, by itself, lead to the conclusion that the segmental results are unreliable. The higher margin in the AE segment is explained by differences in functions performed, risks assumed, and the nature of expenses borne by each segment. 19. The assessee further submitted that internal comparables provide a more reliable benchmark, as they eliminate differences arising from market conditions, accounting practices, and business models. In the present case, the assessee’s own non-AE transactions are functionally comparable and represent uncontrolled transactions. Therefore, internal TNMM is the most appropriate method for benchmarking the international transactions. 20. Without properly rejecting the internal comparables by identifying concrete defects, the TPO proceeded to apply external TNMM and selected companies from the pharmaceutical and chemical industry, which are not comparable to the assessee in terms of functions, risks, and segmental profile. This approach is contrary to settled transfer pricing principles, which clearly prefer internal comparables over external comparables when reliable internal data is available. 21. In view of the above facts and submissions, the assessee respectfully submits that the rejection of internal comparables is unjustified and arbitrary. The internal TNMM analysis undertaken by the assessee should be accepted, and the selection of external comparables by the TPO deserves to be rejected. 22. However, the learned DRP rejected the assessee’s objection by holding that the TPO has rightly rejected the internal TNMM in the absence of audited segmental accounts and allocation keys. Being aggrieved by the direction of the learned DRP and consequent final assessment order, the assessee is in appeal before us. Printed from counselvise.com Page 7 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 23. The learned AR before us filed paper book running from pages 1 to 472, written submission, notes and compilation of case of laws. The learned AR submitted that the assessee is an Indian multinational company engaged in the research, manufacturing, and sale of nutraceutical products. The manufacturing facilities and major economic activities are located in India. However, a substantial portion of the finished products is sold outside India through the assessee’s overseas Associated Enterprises (AEs), which mainly function as marketing and distribution entities. During the year under consideration, the assessee sold nutraceutical products both to its AEs and to non-AE third-party customers, in India as well as outside India. 24. The learned AR explained that since the assessee is engaged in the same business activity of sale of nutraceutical products to both AE and non-AE customers, the transactions are closely comparable in terms of functions, assets, and risks. The assessee had therefore maintained detailed segmental financial information for AE and non-AE sales. These segmental details were supported by working papers and were also certified by an independent Chartered Accountant. Copies of the certified segmental analysis were duly filed before the TPO during the course of transfer pricing proceedings. 25. It was further submitted that, considering the close comparability between AE and non-AE transactions, the assessee had rightly adopted internal TNMM as the most appropriate method. Under this method, the operating margin earned from AE transactions was compared with the operating margin earned from similar non-AE transactions. The assessee demonstrated that the OP/OC margin earned from AE transactions was 12.33%, whereas the margin earned from non-AE transactions was only 5.87%. Since the margin from AE transactions was higher than that from non- AE transactions, the international transactions were clearly at arm’s length. 26. The learned AR strongly objected to the action of the TPO in rejecting the internal comparables and instead relying on entity-level margins or external comparables. It was submitted that the TPO ignored the specific segmental results furnished by the assessee and mechanically proceeded to benchmark the Printed from counselvise.com Page 8 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 transactions at the entity level. This approach, according to the learned AR, is contrary to settled transfer pricing principles and judicial precedents which consistently hold that internal comparables, when available and reliable, should be preferred over external comparables. 27. The learned AR further submitted that the rejection of segmental data by the TPO merely on the ground that the segmental accounts were not separately audited is legally unsustainable. There is no provision under the Act, the Transfer Pricing Rules, or the Companies Act which mandates that segmental profit and loss accounts prepared for transfer pricing purposes must be separately audited. The statutory audit requirement applies only to the overall financial statements of the company. Segmental information for transfer pricing is typically prepared as a management exercise and certification by an auditor is not a legal pre-condition for its acceptance. 28. It was also pointed out that the Chartered Accountant’s certificate furnished by the assessee was based on the audited books of account and audited financial statements. The certificate ensured the arithmetical accuracy and consistency of the segmental figures with the audited accounts. The TPO did not point out any specific defect, inconsistency, or arbitrariness in the allocation of income or expenses between AE and non-AE segments. In the absence of any such finding, the segmental data could not have been rejected on procedural grounds alone. 29. The learned AR elaborated on the basis of allocation of income and expenses between the AE and non-AE segments. Sales were allocated on an actual basis using invoice-level details. Direct costs were allocated based on actual consumption. Common expenses were allocated using reasonable and consistent allocation keys, such as revenue or cost ratios. Certain expenses like advertising, business promotion, and warehouse rent were incurred exclusively for non-AE sales and were therefore fully allocated to the non-AE segment. These allocation principles were clearly explained in the annexures and working papers submitted to the TPO. Printed from counselvise.com Page 9 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 30. The learned AR further submitted that even after excluding certain expenses fully allocated to the non-AE segment, the non-AE margin would increase to around 10%, which is still close to the AE margin of 12.33%. This further supports the assessee’s claim that the AE transactions are at arm’s length and no adjustment is warranted. 31. Reliance was placed on several judicial precedents, including decisions of the Hon’ble Delhi High Court in the case of Sony Ericsson communication India Pvt Ltd vs CIT reported in 55 taxmann.com 240 and various benches of the ITAT, which consistently hold that internal TNMM is the preferred method when reliable internal comparables are available. It was emphasized that tribunals have repeatedly held that segmental results cannot be rejected merely because they are unaudited, so long as they are reasonable, reconcilable with audited accounts, and supported by proper documentation. 32. The learned AR also submitted that the burden lies on the TPO to point out specific defects in the segmentation or allocation methodology. In the present case, the TPO failed to identify any substantive error or manipulation in the segmental data. The rejection was based solely on procedural objections, which is contrary to law. 33. In conclusion, the learned AR submitted that the assessee has fully discharged its obligation of demonstrating the arm’s length nature of its international transactions through reliable internal comparables and internal TNMM. There was no justification for the TPO to discard the segmental results and resort to external benchmarking. The learned AR therefore prayed that the segmental results furnished by the assessee be accepted, internal TNMM be upheld as the most appropriate method, and the transfer pricing adjustment made by the TPO be deleted. On the contrary, the learned DR relied on the orders of the lower authorities. Printed from counselvise.com Page 10 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 34. We have heard the considered the rival submissions, perused the orders of the lower authorities, and examined the materials placed on record, including the paper book filed by the assessee. The core issue before us is whether the learned TPO and the learned DRP were justified in rejecting the internal TNMM adopted by the assessee and the segmental financials furnished for benchmarking the international transactions with the AE. 35. At the outset, we note that the assessee is engaged in the manufacturing and sale of nutraceutical and allied products. The assessee sales identical products to its Associated Enterprises (AEs) as well as to non-AE customers. The overseas AEs primarily act as marketing and distribution entities. Thus, the nature of products, core manufacturing activity, and business model remain the same for both AE and non-AE transactions. In such a situation, internal comparables, if reliable, clearly provide a more direct and accurate benchmark than external comparables. 36. We find from the records that the assessee has maintained segmental financials for AE and non-AE transactions and has placed the same before the TPO. These segmental details are derived from the audited books of account. A Chartered Accountant has certified the segmental financials, confirming their arithmetical accuracy and linkage with the audited accounts. Merely because the certificate mentions arithmetical accuracy, the same cannot lead to an automatic rejection of the segmental results, especially when the underlying books of account are already subject to statutory audit. 37. On examination of the factual allocation of income and expenses, we note that the segmental computation of margins placed at page 68 of the paper book clearly explains the basis of allocation. The income from sales has been allocated to AE and non-AE segments on an actual basis using invoice-level data. This is the most reliable method of allocation and leaves no scope for arbitrariness. As regards expenses, we find that the majority of common expenses have been allocated on a net income basis, which is a reasonable and widely accepted allocation key. Printed from counselvise.com Page 11 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 38. It is also evident from the segmental workings that only two categories of expenses, namely rent and advertising/business promotion expenses, have been fully allocated to the non-AE segment. The assessee has explained that these expenses were incurred exclusively for non-AE sales, as marketing and warehousing activities were undertaken only for domestic and non-AE customers, whereas AE sales were largely export-oriented and did not require such expenditure. This explanation appears logical and consistent with the business model of the assessee. Importantly, neither the TPO nor the DRP has pointed out any factual error or contradiction in this explanation. 39. Even otherwise, we find merit in the alternative contention of the assessee. Even if one were to assume, for the sake of argument, that rent and advertising expenses should relate to AE transactions, the margin of the AE segment continues to remain higher than that of the non-AE segment. As per the segmental computation, the PLI of the AE segment is 12.22%, whereas the PLI of the non-AE segment is around 5.89%. Thus, even after making a conservative assumption against the assessee, the AE transactions still yield a higher margin than comparable non-AE transactions. This fact alone strongly supports the assessee’s claim that the international transactions are at arm’s length. 40. We also find that the rejection of internal TNMM by the TPO is largely based on procedural objections, such as non-maintenance of separately audited segmental accounts and alleged lack of verification. There is no finding by the TPO that the allocation of income or expenses is arbitrary, inconsistent, or contrary to the audited financial statements. There is also no material brought on record to demonstrate any actual profit shifting from the non-AE segment to the AE segment. Mere difference in margins, by itself, cannot be a ground to discard internal comparables, especially when such difference is adequately explained by the nature of expenses incurred for non-AE sales. 41. It is well settled by various judicial precedents that internal comparables, when available and reliable, must be preferred over external comparables. The law does not mandate that segmental financials prepared for transfer pricing purposes Printed from counselvise.com Page 12 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 must be separately audited. What is required is that such segmental data should be reasonable, consistent, and capable of reconciliation with the audited accounts. In the present case, these conditions are clearly satisfied. 42. In view of the above factual and legal position, we are of the considered opinion that the learned TPO and the learned DRP were not justified in rejecting the internal TNMM and the segmental results furnished by the assessee. The internal comparables adopted by the assessee are reliable and demonstrate that the margin earned from AE transactions is higher than that earned from non-AE transactions. Accordingly, the international transactions are at arm’s length. We therefore direct the learned TPO/AO to accept the internal TNMM adopted by the assessee and delete the transfer pricing adjustment made on this account. The grounds raised by the assessee on this issue are allowed. 43. Coming the other issued raised through ground No. 3 to 12 of the assessee’s appeal. At the outset, we note that the issues raised in these grounds are in the nature of alternative claim to the main issue i.e. adoption of internal TNMM raised in the ground Nos. 1 & 2. As we have allowed the assessee ground for adoption of internal TNMM and accordingly we hold that that assessee’s international transaction is at ALP, we do not find necessary to adjudicate these ground as they become infructuous in the light of outcome of Ground 1 & 2. Hence, we hereby dismiss the Ground Nos. 3 to 12 of the assessee’s appeal as infructuous. 44. In the result, the appeal of the assessee is partly allowed. Coming to IT(TP)A No. 639/Bang/2025, an appeal by the assessee for the A.Y. 2014-15. 45. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2014-15 are identical to the issue raised by the assessee in IT(TP)A No. 638/Bang/2025 for the assessment year 2013-14. Therefore, the findings given in IT(TP)A No. 638/Bang/2025 shall also be applicable for the assessment year 2014-15. The appeal of the assessee for the A.Y. 2013-14 has been Printed from counselvise.com Page 13 of 13 IT(TP)A Nos. 638 & 639/Bang/2025 decided by us vide paragraph No. 34 to 44 of this order where we have allowed the assessee ground of appeal for adoption of internal TNMM for benchmarking the international transaction and dismissed the other grounds as infructuous. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2013-14 shall also be applied for the assessment years 2014-15. Hence, the appeal filed by the assessee is hereby partly allowed. 46. In the result, the appeal of the assessee is partly allowed. 47. In the combined result, both the appeals of the assessee are partly allowed. Order pronounced in the open court on 31st December, 2025. Sd/- Sd/- (SOUNDARARAJAN K.) (WASEEM AHMED) Judicial Member Accountant member Bangalore, Dated, the 31st December, 2025. /Vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "