YKK INDIA PVT. LTD.,GURGAON V. DCIT, NEW DELHI

ITA 1408/DEL/2016

AI Insights

The case involves YKK India P. Ltd., a wholly owned subsidiary of YKK Japan, engaged in the manufacture of slide fasteners, which appealed against the final assessment orders for the assessment years 2011-12 to 2014-15. The appeals were primarily concerned with the adjustments made by the TPO regarding the payment of technical fees, royalty payments, and provision of support services, which were contested on grounds of improper application of transfer pricing methods and lack of substantiation for the adjustments made. The Tribunal examined the applicability of TNMM and CUP methods in the context of the transactions and the functional analysis provided by the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474539 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Other Referred Cases: Li-Fung India (P) Ltd. vs. ITA 306/2012, M/s COIM India vs. ITA 269/2019, Magnetic Marelli Powerstrain India Pvt. Ltd vs. ITA 350/2014, Yokagowa India Ltd. vs. ITA 940/2017, Sony Ericson case 374 ITR 118, Knorr-Bremse India (P) Ltd. vs. ACIT, Bombardier Transportation India Pvt. Ltd. vs. ITA No.1626/Del/2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARAMVIR SINGH
• Assessee Lawyers: NAGESWAR RAO; PAYMENT; ANY SIGNIFICANT EVIDENCES; REASONING OR CONCLUSIONS
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Business expenditure; Question of law; Competent authority; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 142(1); 143(2); 64; 271(1)(c); 251; 92CA; 234B; 37; 92B; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.1408/Del/2016 Assessment Year : 2011-12 ITA No.539/Del/2017 Assessment Year : 2012-13 ITA No.5415/Del/2017 Assessment Year : 2013-14 ITA No.6466/Del/2018 Assessment Year: 2014-15 YKK India P. Ltd., Global Business Park, 3rd Floor, Tower-A, Mehrauli Gurgaon Road, Gurgaon, Haryana – 122 002. PAN: AAACY0201G Vs DCIT, Circle-27(2), New Delhi. (Appellant) (Respondent) Assessee by : Shri Nageswar Rao, Advocate, Revenue by : Shri Dharamvir Singh, CIT-DR Date of Hearing : 06.03.2025 Date of Pronouncement : .03.2025 ORDER PER ANUBHAV SHARMA, JM: These appeals are preferred by the assessee against the final assessment orders dated 21.12.2015 (for AY 2011-12), ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 2 25.11.2016 (for AY 2012-13), 22.06.2017 (for AY 2013-14) & 10.08.2018 (for AY 2014-15) passed u/s 143(3)/144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Circle-27(2), New Delhi (hereinafter referred to as the Ld. AO). 2. On hearing both the sides, it comes up that the appeals before us have common questions involved and the ld. representatives of both the sides have relied the facts and impugned orders of AY 2014-15 for making their submissions. Thus these appeals are adjudicated together and facts or impugned orders wherever relevant and relied shall be taken into consideration for AY 2014-15. 3. The relevant facts are that assessee/appellant YKK India is a wholly owned subsidiary of YKK Japan and is primarily engaged in the Manufacture of slide fasteners (zippers). YKK India manufactures metallic, viz. aluminum, golden brass and antique brass and non-metallic, viz. plastic, vislon and polyester zippers. YKK India has increasingly been incurring expenditure on anti-counterfeit action/protection of brand name, trademarks ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 3 etc. in addition, customer education is another area of focus of the Company. 4. The assessee’s return of income for AY 2014-15 was selected for scrutiny under compulsory category as the assessee’s international transaction with associated enterprise was above the threshold. Notices u/s 143(2) and u/s 142(1) of the Act were issued by the AO and, thereafter, the case was referred to TPO u/s 92CA with the approval of the competent authority. The TPO examined the transfer pricing documentation provided by the assessee and with regard to international transactions of nature of payment of royalty, provision of support services and payment of technical fee, transfer pricing adjustments. Further, the AO has made disallowance u/s 40A(7) of the Act. Against the TPO order dated 31.10.2017, the assessee had filed objection before the DRP and the same were dismissed by order dated 17.07.2018. Consequently, the final assessment order was passed on 10.08.2018 and against same the assessee is in appeal raising the following grounds:- “Based on the facts and circumstances of the case, the Appellant respectfully submits that: Transfer Pricing grounds 1. General Ground: ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 4 1.1. The Learned Deputy Commissioner of Income Tax, Circle 27(2), New Delhi (hereinafter referred to as 'Ld. AO') pursuant to directions of Dispute Resolution Panel (Hon'ble DRP') - II, has erred on facts and circumstances of the case and in law in completing the present assessment at an income of INR 1,05,79,27,320/- as against the returned income of INR 88,37,29,340/- declared by the Appellant and is liable to be quashed. 1.2. The Ld. TPO erred in making an adjustment of INR 8,69,41,250 in respect of technical fee, INR 8,50,55,674 in respect of royalty payments and INR 17,86,156 in respect of provision of support services under section 92CA(3) of the Act. The Hon'ble DRP erred in upholding the same. 2. Rejection of the economic analysis of the Appellant 2.1. That on the facts and circumstances of the case and in law, Ld. TPO/ Hon'ble DRP have erred in not accepting the economic analysis of the Appellant, for determination of the arm's length price ('ALP') in connection with the impugned international transactions. 2.2. The Ld. TPO/ Hon'ble DRP have grossly erred in rejecting the combined transaction approach of benchmarking adopted by the Appellant in its transfer pricing documentation analysis by selecting Transactional Net Margin Method ('TNMM') as the most appropriate method ('MAM') for determining the arms' length price ('ALP') of payment of technical know-how fee and royalty paid to its associated enterprises ('AEs') in accordance with the Act, Income Tax Rules, 1962 ('Rules') and the generally accepted OECD guidelines. 2.3. The Ld. TPO/Hon'ble DRP erred in not appreciating that the receipt of various services and technology are closely linked to the overall business activities of the Appellant and erred in analyzing the transaction separately for the determination of ALP. 3. Adoption of Comparable Uncontrolled Price method as the most appropriate method for determining ALP of payment of technical know-how fee and royalty paid to its AEs ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 5 3.1. That the Ld. TPO/ Hon'ble DRP erred in not conducting the analysis of selecting the Most Appropriate Method (MAM) as prescribed under Rule 10C of the Rules and accordingly not documented the same as prescribed under Rule 10D of the Rules. 3.2. The Ld. TPO/ Hon'ble DRP erred in law by upholding the determination of the ALP of the international transaction using Comparable Uncontrolled Price ('CUP') method without following the manner of applying the CUP method prescribed under Rule 10B(1)(a) of the Rules. 3.3. The Ld. TPO/ Hon'ble DRP have erred upholding the adoption of CUP method as the most appropriate method for determining the arm's length price in respect of payment of technical know-how fee and royalty paid to its AEs without identifying any comparable uncontrolled transaction(s) for the computation of the ALP as prescribed in Section 92F(ii) of the Act. 4. Transaction pertaining to Payment of Technical Fee 4.1. The Ld. TPO/ Hon'ble DRP erred in making an adjustment of INR 8,69,41,250/- to the ALP of the impugned transaction ignoring the true nature of the international transaction and based on a preoccupied mind reached at an inappropriate conclusion that the arm's length value of the impugned transactions should be adjusted. 4.2. The Ld. TPO/ Hon'ble DRP erred in placing reliance on the tangible benefit test, as the same is irrelevant for the computation of arm's length price. 4.3. The Ld. TPO/ Hon'ble DRP erred in questioning the commercial rationale of the legitimate business expenses incurred by the taxpayer and not restricting the scope of assessment under section 92CA to determine ALP of the international transaction. The same approach was adopted by the Hon'ble DRP while evaluating the documentary evidences provided by the Appellant. 4.4. The Ld. AO/Ld. TPO erred in not giving due consideration to the documentation provided by the Appellant to substantiate the receipt of services. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 6 4.5. The Ld. TPO has erroneously considered technical services as duplicate nature and already covered in payment of royalty. 5. Transaction pertaining to Payment of Royalty 5.1. The Ld. TPO/ Hon'ble DRP erred in making an adjustment of INR 8,50,55,674/- to the ALP of the impugned transaction ignoring the true nature of the international transaction and based on a preoccupied mind reached at an inappropriate conclusion that the arm's length value of the impugned transactions should be adjusted. 5.2. The Ld. TPO/ Hon'ble DRP has simply adopted pre- occupied mindset following previous years orders and erred in restricting the arm's length value of royalty payment to only 20 percent of the actual payment by stating that the Appellant does not operate in FMCG environment and without providing any analysis for the same. 5.3. The Ld. TPO/ Hon'ble DRP erred in questioning the compensation model for royalty payout and placing reliance on the tangible benefit test which is irrelevant for the computation of arm's length price. Further, the Ld. TPO concluded that no tangible benefit has been received by the appellant by payment of royalty. 5.4. The Ld. TPO/ Hon'ble DRP erred in questioning the commercial rationale of the legitimate business expenses incurred by the taxpayer and not restricting the scope of assessment under section 92CA to determining the arm's length price of the international transaction by adopting one of the prescribed methods only. 6. Transaction pertaining to provision of post-sales support services to customers of AES NP 6.1. The Ld. TPO/ Hon'ble DRP erred in making an adjustment of INR 17,86,156/- to the ALP of the impugned transaction on account of differences in the operating margin of the Appellant vis-à-vis comparable companies. In doing so, the Ld. TPO/Hon'ble DRP erred in law and on facts in :- a. Not providing details of the filters applied while conducting the independent search; ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 7 b. Wrongly rejecting 5 comparable companies out of 7 comparable companies, identified by the Assessee; and c. Considering 7 additional functionally dissimilar companies as comparable to the Assessee, which are not comparable in view of the functional profile i.e. provision of post-sales services. 7. Disallowance under section 37 of the Act 7.1. On the facts and circumstances of the case and in law, the Ld. AO has erred in disallowing an amount of Rs. 4,14,899/- towards club entrance fees paid during the subject assessment year. 7.2. The Ld. AO has erred in disallowing the club entrance fee by considering the same to be personal in nature. 8. Initiation of penalty proceedings under Section 271(1) (c) of the Act 8.1. On facts and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) read with section 274 of the Act against the Appellant for concealing the income through submission of inaccurate particulars in the tax return. 8.2. The Ld. AO has erred on the facts and the circumstances of the case and law in not appreciating the facts that the Appellant has never furnished inaccurate income and concealed its income with respect to the expenses claimed in the subject assessment year and hence should not be penalized under the Act for concealing of income. 9. Levying interest under section 234B and 234C of the Act 9.1. On facts and in law, the Ld. AO has erred in levying the interest amounting to INR 3,65,36,732/- under section 234B and INR 60,98,206/- under section 234C of the Act. 9.2. The Appellant denies its liability to such interest and prays that the Ld. AO be directed to delete the levy of aforesaid interest as it is entirely a result of additions/disallowance and consequential in nature. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 8 The above grounds are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under law in pursuance of the aforesaid grounds of appeal, or otherwise, may thus be granted.” 5. It was ground No.2 with sub-ground which was extensively argued and as they go to the root of other issues, we decide it first. In regard to the same, the foremost contention of ld. counsel for the assessee was that without rejecting the TP study report of assessee the TPO has intervened. It was submitted that Transfer pricing study (TPS) as submitted demonstrated that international transactions with AEs during these periods were at arm's length still TPO proceeded to substitute TPS approach without firstly rejecting TPS. Principles laid down by Hon’ble jurisdictional High Court in case of Li-Fung India (P) Ltd. (ITA 306/2012) [2013] 40 taxmann.com 300 (Delhi) was relied to contend that first TPS had to be rejected citing reasons. Reference was also made to decision of Hon'ble Jurisdictional High Court in case of M/s COIM India (ITA 269/2019 order dated 19.02.2024). Ld. Counsel has submitted that in present case this approach not having been followed so same results in ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 9 acceptance of TPS. Consequently, adjustments proposed in transfer pricing become arbitrary and ad hoc order. 6. In this regard we have gone through the order of TPO and are of view that while issuing notice the TPO has thread bare examined each of the three disputed international transactions and in the notice which was issued, the TPO has repeatedly referred to the licence agreement between the assessee and the AE, YKK, Japan and based upon the understanding of transactions affecting the business of the assessee and the FAR analysis, the TPO had questioned the disputed international transactions proposing to determine the payment of royalty to related parties and payment of technical fee and payment of expenses to related parties at Nil. As with regard to the provisions of post sales service to customers of AE also, the TPO had examined the comparables as selected or rejected by the assessee. Thus, although not mentioned in specific words that the TPO was not inclined to accept the transfer pricing study of the assessee and rejected the same, the manner in which the TPO had narrated his opinion with regard to the determination of ALP by the assessee, establishes that when the assessee was show caused by the TPO and the reply was filed by the assessee ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 10 on 10.10.2017, the whole intention of the ld. TPO was to determine the ALP of disputed transactions independently of the transfer pricing study and, therefore, on the basis of the non- rejection of TPS specifically, the assessee cannot succeed. 7. Next the ld. Counsel has submitted that at entity level TNNM deserves acceptance for objective evaluation. Ld. Counsel has submitted that appellant had established that tested party margin is at arm's length by applying TNNM method so same deserved to be accepted. However, artificially the TNMM has been ruled out for three disputed transactions. It was submitted that even if royalty and technical know-how payments are hyper- technically speaking separate international transactions, provisions of chapter X and Rules when read harmoniously lead one to the conclusion that in case of closely linked transactions an objective comparison is possible only by bundling these transactions under TNNM method. Not bundling such closely connected transactions and attempting to benchmark the same separately lends to needless subjectivity. Ld. Counsel has relied the decisions in Magnetic Marelli Powerstrain India Pvt. Ltd ITA 350/2014- in which SLP by department Respondents was also dismissed vide order dated 03.11.2017 SLP (Civil) Diary ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 11 15244/2017), Yokagowa India Ltd. (Hon'ble Karnataka High Court ITA 940/2017 2018 SCC online Lar 3476) was relied upon in support of this proposition. In above context, reliance is also placed on the principles laid down in case of Sony Ericson case 374 ITR 118. As for convenient reference we reproduce below the relevant conclusions set out in paragraph 193 and 194 of the said decision in Sony Ericson case (supra); “193. We would not like to go into several factual aspects for the first time, for the factual matrix has not been examined and ascertained by the Tribunal. Moreover, in terms with our legal finding, factual findings will have to be examined. An order of remand for de novo consideration to the Tribunal would be appropriate because the legal standards or ratio accepted and applied by the Tribunal was erroneous. On the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance, would try and dispose of the appeals, rather than passing an order of remand to the Assessing Officer/TPO. The endeavour should be to ascertain and satisfy whether the gross/net profit margin would duly account for AMP expenses. When figures and calculations as per the TNM or RP Method adopted and applied show that the net/gross margins are adequate and acceptable, the appeal of the assessed should be accepted. Where there is a doubt or the other view is plausible, an order of remand for re- examination by the Assessing Officer/TPO would be justified. A practical approach is required and the tribunal has sufficient discretion and flexibility to reach a fair and just conclusion on the arm's length price. Answers to Substantial Questions of Law 194. In view of the aforesaid discussion, substantial questions of law in the appeals filed by the assessee are answered as under: ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 12 “Q.1. Whether the additions suggested by the Transfer Pricing Officer on account of Advertising/Marketing and Promotion Expenses (AMP Expenses' for short) was beyond jurisdiction and bad in law as no specific reference was made by the Assessing Officer, having regard to retrospective amendment to Section 92CA of the Income Tax Act, 1961 by Finance Act, 2012” In terms of and subject to discussion under the heading C, paragraph Nos.41 to 50, the substantial question of law No.1 is answered in favour of the Revenue and against the assessee. “Q.2. Whether AMP Expenses incurred by the assessee in India can be treated and categorized as an international transaction under Section 92B of the Income Tax Act, 1961” In terms of and subject to discussion under the heading C, paragraph Nos.51 to 57, the substantial question of law No.2 is answered in favour of the Revenue and against the assessee. “Q.3. Whether under Chapter X of the Income Tax Act, 1961, a transfer pricing adjustment can be made by the Transfer Pricing Officer/ Assessing Officer in respect of expenditure treated as AMP Expenses and if so in which circumstances? Q.4. If answer to question Nos.2 and 3 is in favour of the Revenue, whether the Income Tax Appellate Tribunal was right in holding that transfer pricing adjustment in respect of AMP Expenses should be computed by applying Cost Plus Method. Q.5. Whether the Income Tax Appellate Tribunal was right in directing that fresh bench marking/comparability analysis should be undertaken by the Transfer Pricing Officer by applying the parameters specified in paragraph 17.4 of the order dated 23.01.2013 passed by the Special Bench in the case of LG Electronics India (P) Ltd.?. In terms of and subject to discussion under the headings D to P, we hold that the legal ratio accepted and applied by the Tribunal relying upon the majority decision in L.G. Electronics India Pvt. Ltd (supra) is erroneous and unacceptable. For reasons set out above, we have passed an order of remand to the Tribunal to examine and ascertain facts and apply the ratio enunciated in this decision. For the purpose of clarity, we would like to enlist our findings:- ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 13 (i) In case of a distributor and marketing AE, the first step in transfer pricing is to ascertain and conduct detailed functional analysis, which would include AMP function/expenses. (ii) The second step mandates ascertainment of comparables or comparable analysis. This would have reference to the method adopted which matches the functions and obligations performed by the tested party including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not materially affect the conditions being examined given the methodology being adopted for determining the price or the margin. When this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the price or margin. Thus, identification of the potential comparables is the key to the transfer pricing analysis. As a sequitur, it follows that the choice of the most appropriate method would be dependent upon availability of potential comparable keeping in mind the comparability analysis including befitting adjustments which may be required. As the degree of the comparability increases, extent of potential differences which would render the analysis inaccurate necessarily decreases. (iv) The assessed, i.e. the domestic AE must be compensated for the AMP expenses by the foreign AE. Such compensation may be included or subsumed in low purchase price or by not charging or charging lower royalty. Direct compensation can also be paid. The method selected and comparability analysis should be appropriated and reliable so as to include the AMP functions and costs. (v) Where the Assessing Officer/TPO accepts the comparables adopted by the assessed, with or without making adjustments, as a bundled transaction, it would be illogical and improper to treat AMP expenses as a separate international transaction, for the simple reason that if the functions performed by the tested parties and the comparables match, with or without adjustments, AMP expenses are ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 14 duly accounted for. It would be incongruous to accept the comparables and determine or accept the transfer price and still segregate AMP expenses as an international transaction. (vi) The Assessing Officer/TPO can reject a method selected by the assessed for several reasons including want of reliability in the factual matrix or lack / non-availability of comparables. (see Section 92C(3) of the Act). (vii) When the Assessing Officer/TPO rejects the method adopted by the assessed, he is entitled to select the most appropriate method, and undertake comparability analysis. Selection of the method and comparables should be as per the command and directive of the Act and Rules and justified by giving reasons. (viii) Distribution and marketing are inter-connected and intertwined functions. Bunching of inter-connected and continuous transactions is permissible, provided the said transactions can be evaluated and adequately compared on aggregate basis. This would depend on the method adopted and comparability analysis and the most reliable means of determining arm's length price. (ix) To assert and profess that brand building as equivalent or substantial attribute of advertisement and sale promotion would be largely incorrect. It represents a coordinated synergetic impact created by assortment largely representing reputation and quality. ―Brandϫ has reference to a name, trademark or trade name and like ‗goodwill' is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. (x) Parameters specified in paragraph 17.4 of the order dated 23 rd January, 2013 in the case of L.G. Electronics India Pvt Ltd (supra) are not binding on the assessed or the Revenue. The ‗bright line test' has no statutory mandate and a broad-brush approach is not mandated or prescribed. We disagree with the Revenue and do not ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 15 accept the overbearing and orotund submission that the exercise to separate ‗routine' and ‗non-routine' AMP or brand building exercise by applying ‗bright line test' of non-comparables should be sanctioned and in all cases, costs or compensation paid for AMP expenses would be ‗NIL', or at best would mean the amount or compensation expressly paid for AMP expenses. It would be conspicuously wrong and incorrect to treat the segregated transactional value as ‗NIL' when in fact the two AEs had treated the international transactions as a package or a single one and contribution is attributed to the aggregate package. Unhesitatingly, we add that in a specific case this criteria and even zero attribution could be possible, but facts should so reveal and require. To this extent, we would disagree with the majority decision in L.G. Electronics India Pvt. Ltd. (supra). This would be necessary when the arm's length price of the controlled transaction cannot be adequately or reliably determined without segmentation of AMP expenses. (xi) The Assessing Officer/TPO for good and sufficient reasons can de-bundle interconnected transactions, i.e. segregate distribution, marketing or AMP transactions. This may be necessary when bundled transactions cannot be adequately compared on aggregate basis. (xii) When segmentation or segregation of a bundled transaction is required, the question of set off and apportionment must be examined realistically and with a pragmatic approach. Transfer pricing is an income allocating exercise to prevent artificial shifting of net incomes of controlled taxpayers and to place them on parity with uncontrolled, unrelated taxpayers. The exercise undertaken should not result in over or double taxation. Thus, the Assessing Officer/TPO can segregate AMP expenses as an independent international transaction, but only after elucidating grounds and reasons for not accepting the bunching adopted by the assessed, and examining and giving benefit of set off. Section 92(3) does not bar or prohibit set off. (xiii) CP Method is a recognised and accepted method under Indian transfer pricing regulation. It can be applied by the Assessing Officer/TPO in case AMP expenses are treated as a separate international transaction, provided CP Method is the most appropriate and reliable method. Adoption of CP Method and computation of cost and gross profit margin comparable must be justified. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 16 (xiv) The object and purpose of Transfer Pricing adjustment is to ensure that the controlled taxpayers are given tax parity with uncontrolled taxpayers by determining their true taxable income. Costs or expenses incurred for services provided or in respect of property transferred, when made subject matter of arm's length price by applying CP Method, cannot be again factored or included as a part of inter- connected international transaction and subjected to arm's length pricing.” 8. We find that in Sony Ericsson (Supra), Hon'ble High Court was though dealing with question whether AMP expenditure is a separate international transaction and further on the methodology to be adopted to benchmark such transaction and the Hon’ble High Court upheld the tax department's proposal that AMP was a separate international transaction in the batch of cases under consideration. However, reference to paragraphs 193 and 194 would show that even where AMP is a separate international transaction, it is permissible under the Act to benchmark the same as a closely connected transaction with the core distribution business. Concept of set-off has also been dealt with in detail. Noting that the purpose of chapter X was to be construed harmoniously with the objective under the Act viz., assessment of income for the purpose of levying tax, Hon'ble Court concluded that the concept of set-off is embedded in the provisions of chapter X. These paras 193 and 194 show that once margins are found to be at arm's length by application of ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 17 TNNM then same deserves to be accepted as benchmarking all transactions including AMP transaction involved in that batch of case. 9. As we examine the issues involved in context to the facts of present case we find that major international transactions with AE's are import of raw materials of INR 221 crores and sale of semi-finished goods of INR 117 crores. Profit & loss account at page 349 of paper book would show that revenue from operations is INR 534 Crores, Margin reconciliation with audited profit & loss account is placed at page 305 of Paper book. It can be noticed that YKK Limited earned a margin of 16.99 % (PLI OP/OR) after considering all expenditure including royalty, technical knowhow including revenue from post-sales support services. Thus, all the 3 international transactions in relation to which TPO has proposed separate benchmarking and adjustment are considered in the margin analysis. Manufacturing is benchmarked in combined manner as can be seen from pages 47 to 64 of paper book. TPS concludes on page 64 of paper book at para 5.1.6 that margins of tested party are at arm's length, this is not disputed in TP order. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 18 10. In the backdrop of above legal position as enunciated by Hon'ble courts and there being no dispute that the margins of tested party are at arm's length for manufacturing segment, we find TPO rejected the TNMM at entity level by commenting in para 3.1 that aggregation of transactions of payment or royalty and technical fee is not ‘preferable approach’ when it is possible to bench mark each transaction separately. We are of considered view that on the contrary where number of transactions are closely linked, then the same should be treated as composite transaction and can be aggregated and construed as a single transaction for the purpose of determining the arm’s length price. 11. In the case in hand all the transactions emanate from common agreement and arrangement, between the assessee and AE, thus such transactions can be held to be closely linked as the nature, characteristic and terms of such transactions substantially flow from the said agreement, as a single transaction for purpose of determining arm’s length price. It is sufficiently established that these transactions were inextricably linked to each other in terms of nature and range of exclusivity of the product being manufactured by the assessee. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 19 12. Then we find that Ld. Tax authorities were not justified to question the use of technology by Assessee alleging assessee was not able to demonstrate that each year some new technology was transferred to it. In fact we find that during the year itself the assessee has entered into an international transaction of purchase of machinery and parts worth Rs.29.83 crores which has been found to be at arms’ length and not disturbed from TNMM. The allegation that the assessee is running a full- fledged business in India so there is no justification that personnel belonging to a company located in Singapore will need to travel to India to support on marketing procurement etc., is based on mere conjectures. Such reasoning also establishes that there was no reason to question the applicability of TNMM at entity level. 13. Then, we find that the TPO has not been able to substantiate the rejection of the transfer pricing study of the assessee by any significant evidences, reasoning or conclusions. The reasons may have been sufficient to show cause the assessee for rejecting the TPS but while reaching a different pricing the reasons should have been substantiated, on the basis of tests of comparability, which is not done. ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 20 14. In this context, though not relevant to the ground before us, if we take into consideration, for conclusiveness, how after rejecting the aggregation approach with regard to disputed transaction, the TPO went on to examine the margins, we find that the TPO has miserably failed to establish on the basis of comparability tests, that these transactions once removed from TNMM would in any way disturb the net martin determined in the TPS. TPO thus arbitrarily disturbed the same. A careful perusal of the TP order reveals that based on very general assumptions and relying case laws which over the years have evolved, the conclusion was drawn. The same, thus, cannot be sustained. 14. Coming to the case law relied by the ld. DR we find that the ld. DR has heavily relied the judgement in the case of Knorr- Bremse India (P) Ltd. vs. ACIT (2015) 63 taxmann.com 186 (P&H) to contend that aggregation of transactions can be questioned by department but we find that in that case, the assessee was into manufacturing functions and also substantially in distribution functions. Manufacturing of the assessee was primary activity, but it also imported certain products from group companies for distribution in India based on ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 21 firm orders from domestic customers and also procuring goods from unrelated parties in India and exported the same to its group entities. As these purchases were against the firm orders the assessee did not maintain any inventory of the same. Thus, the nature of business of the assessee was patently such that the disputed transactions in that case were questionable so far as if there were inextricable link to the manufacturing and distribution functions. To be specific, the authorities had valued separately the transactions of professional consultancy, SAP Development support charges, management fee for support services and SAP licence fee. However, in the case before us the assessee, although is into distribution functions also, but primarily it is manufacturer of zippers with plants located at Bawal, Haryana. The distribution activity is only restricted to its own manufactured products or one purchased from AE only. 15. In the case in hand before us, the TPO has not alleged as to on what basis the three disputed transactions were not connected to the rest so as to determine the arm’s length price separately from and independent of others. The three disputed transactions which the AO has examined independently in the ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 22 case of the present assessee were such that they were dependent upon and related to the pricing of other transactions and the same have been accordingly aggregated by the assessee while calculating the margins of 16.99%, which stands accepted. So the case relied is very distinguishable and rather helps the assessee before us, as here the assessee has combined transactions which are intrinsically related to manufacture of single line of product. 16. Then, the judgement in the case of Bombardier Transportation India Pvt. Ltd., ITA No.1626/Del/2015, order dated 04.11.2015 was in regard to a company engaged in manufacturing metro trains and supply of coaches under a consortium. The assessee in that case had preferred CUP as MAM method, but, tax authorities were of the view that TNMM is the most appropriate method. We are of the considered view that without establishing that the nature of transactions under scrutiny are similar in regard to similarly situated assessee, such the judicial pronouncements cannot come to the rescue of the Revenue. 17. As far as the contention of ld. DR is concerned that issue may be restored to the TPO for fresh determination of ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 23 comparability, ld. Counsel has invited our attention to the decision of Hon'ble Gujarat High Court in Rajesh Bhabhubhai Damania [2001] 251 ITR 54, that there cannot be multiple opportunities and second innings for completing assessment, and we are of considered view that where the impugned order is not having any apparent defect out of lack of opportunity with the ld. Tax authority below to complete the enquiry or determination of fiscal liability then for improving the case, the issue cannot be resorted to them again. 18. Thus we are inclined to allow the ground no. 2 with its sub grounds and hold that the ld. Tax authorities have fallen in error in rejecting the TNMM as MAM for determining the disputed international transactions and erred in segregating these three disputed transactions to determine their arm’s length separately. The findings arrived in for AY 2014-15 apply mutatis mutandis to appeals for other AY before us. 19. As with regard to the relevant ground questioning the disallowance u/s 37 of the Act towards entrance fee and subscription paid during the subject assessment years 2013-14 and 2014-15 and disallowance u/s 36(1(va) of the Act on account ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 24 of delayed deposit of employees contribution of PF, in AY 2012-13 no substantial contention was raised so as to interfere in findings of ld. Tax authorities below. In any case, as with regard to delayed deposit of the employee’s contribution, the issue now stands settled against the assessee by the judgement of the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. vs. CIT, 143 Taxmann.com 178 thus corresponding grounds are dismissed. 20. The remaining grounds on merits become academic or were consequential to ground No.2, so, need no separate adjudication. Consequently the appeal for AY 2011-12 is allowed and the appeals for the remaining AYs are partly allowed. Order pronounced in the open court on 19.03.2025. Sd/- Sd/- (NAVEEN CHANDRA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19th March, 2025. dk ITAs No. 1408/Del/2016, 539/Del/2017, 5415/Del/2017 & 6466/Del/2018 25 Copy forwarded to: 0 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "