YUSHIRO INDIA COMPANY PRIVATE LIMITED ,GURGOAN V. DEPUTY COMMISSIONER OF INCOME TAX , GURGAON

ITA 3580/DEL/2025

AI Insights

The case involves Yushiro India Company Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2012-13. The primary contention was regarding the adjustment made by the Transfer Pricing Officer (TPO) on account of the Arm's Length Price (ALP) of international transactions related to the import of traded goods. The TPO included import duty in the total cost, which the assessee argued should be excluded as it significantly affected the comparability with other companies. The Tribunal agreed with the assessee's position, citing various rules and precedents that support the exclusion of such costs to achieve a fair comparison in transfer pricing.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848344 (ITAT-NEW DELHI)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Delhi
• Assessment Year: 2012-2013
• Appeal Filed On: 29-05-2025
• Other Referred Cases: Swatch Group (India) Pvt. Ltd. vs ACIT, Sony India (P.) Ltd. vs CBDT, Coca Cola Pvt. Ltd. vs DCIT, Philips Software Centre Pvt. Ltd. vs ACIT, Aztec Software & Technology Services Ltd. vs ACIT, NVH India Auto parts (P) Ltd. vs DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JADHAV
• Assessee Lawyers: NIKHIL TIWARI
• Keywords: Transfer pricing; International transaction; Business expenditure; Question of law; Cost of acquisition; TDS; Initiation of penalty proceedings; Arm length price; Working capital adjustments
• Section: 271(1)(c)

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL DELHI “H” BENCH: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3580/Del/2025 [Assessment Year : 2012-13] Yushiro India Company Pvt.Ltd., 401, 4th Floor, MGF Metropolis, MG Road, Sector-25, Gurugram, Haryana- 122002. PAN-AAACY3514A vs DCIT Phase-V, Udyog Vihar, Sectro-109, Gurgugram, Haryana APPELLANT RESPONDENT Assessee by Shri Nikhil Tiwari, CA [Through VC] Revenue by Shri S.K.Jadhav, CIT DR Date of Hearing 08.01.2026 Date of Pronouncement 25.03.2026 ORDER PER MANISH AGARWAL, AM : The present appeal is filed by the assessee against the order dated 22.03.2025 by Ld. Commissioner of Income Tax (A), Delhi-44 Delhi [“Ld.CIT(A)”] in Appeal No. CIT(A), Gurgaon-1/10102/2016-17 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 23.03.2016 passed u/s 143(3)/144C of the Act pertaining to Assessment Year 2012-13. 2. Brief facts of the case are that the assessee is a company, engaged in the business of trading of metal working oils and fluids, crude and refined petroleum oils and lubricants. The return of income for the year under appeal was filed on 29.10.2012, declaring Printed from counselvise.com ITA No.3580/Del/2025 Page | 2 loss of INR 1,78,20,758/-. The assessee has imported the above stated items from its Associated Enterprises (AEs) and sold in Indian market. The assessee has entered into following international transactions with its AEs:- No. Type of international transaction Method selected Total value of transaction (Rs.) MAM PLI i. Purchase of traded goods RPM GP/Sales 8,28,37,833 ii. Reimbursement of TDS on salary on overseas salary (received) CUP - 41,10,480 iii. Reimbursement of expenses CUP - 1,21,362 iv. Share capital money received No separate benchmarking - 12,00,00,000 3. Since the assessee has entered into international transactions with its AE, a reference was made for determination of Arm Length Price (ALP) of international transactions u/s 92CA of the Act. The assessee in its Transfer Pricing Study Report (“TPSR”) worked out G.P./sales at 11.02% wherein the assessee has excluded the Import duty payment of INR 65,43,447/- being extraordinary item however, AO/TPO has included the same in the total cost and worked out the GP/sales at 3.42%. The assessee selected Resale Price Method (RPM) as Most Appropriate Method (“MAM”) for working of the PLI and after taking Four comparable, has worked out the mean margin at 7.76% which according to assessee is lower than the G.P percentage declared by it therefore, no adjustment was made. The TPO by using current years data has worked out the mean margin of all the four comparable taken by the assessee at 9.21% and by comparing the Printed from counselvise.com ITA No.3580/Del/2025 Page | 3 PLI of 3.42% of the assessee computed after the inclusion of Import duty payment in the total cost, made the ALP adjustment of INR 49,85,462/- of the international transaction of import of traded goods. Thereafter, AO passed the draft assessment order proposing the adjustment made by TPO on account of ALP adjustment on international transaction of INR 49,85,462/-. Since the assessee has not filed any objection before Ld. DRP, therefore, the final assessment order was passed on 23.03.2016 at a total loss of INR 1,28,35,300/- by making addition of INR 49,85,462/-towards adjustment in ALP of international transactions. 4. Against the said order, assessee preferred appeal before Ld. CIT(A) before whom assessee made three claims:- (i) Using of multiple year data instead of current year data; (ii) making appropriate comparability adjustment towards import duty payment; and (iii) Working capital adjustments. 5. Ld.CIT(A) had not accepted any of the claim of the assessee and dismissed the appeal filed by the assessee. 6. Aggrieved by the said order, assessee is in appeal before Tribunal by taking following grounds of appeal:- “Based on the facts and circumstances of the case and in law, Yushiro India Company Private Limited(hereinafter referred to as \"Yushiro India\" or the \"Company\" or the \"Appellant\"), respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax Appeal, Delhi-44 ['CIT(A)-44' or Ld. CIT(A)] dated 23 March Printed from counselvise.com ITA No.3580/Del/2025 Page | 4 2025, on the following grounds, each of which are without prejudice to one another On the facts and in the circumstances of the case and in law, the Ld. CIT(A)/the Ld. AO/ Ld TΡΟ has General Ground: 1. erred in determining the total loss of the Appellant at Rs. 1,28,35,300 as against loss of Rs 1,78,20,758 claimed by the Appellant in the Return of Income on account of Transfer Pricing adjustment amounting to Rs. 49,85,462; Transfer Pricing Adjustment of Rs. 49,85,462 in relation to purchase of traded goods 2. erred in determining the arm's length adjustment to the Appellant's international transactions with Associated Enterprises (\"AEs\") by making a TP Adjustment of INR 49,85,462 in relating to purchase of traded goods; Import duty Adjustment 3. erred in ignoring the fact that the Appellant is engaged in importing and reselling the goods from AE in India, whereas the Comparable companies are procuring the goods locally. thereby Appellant ought to have been granted comparability adjustments on account of additional import duty borne by the Appellant vis-à-vis the comparable companies. Rejecting the benchmarking using Internal Comparable Uncontrolled Price (CUP) 4. erred in arbitrarily rejecting the alternate bench marking applying Internal CUP data submitted by the Appellant without providing any cogent reasons for the same; 5. erred in not granting comparability adjustments on account of for differences in working capital employed by the Appellant vis-à-vis the comparable companies, Initiation of penalty proceedings under Section 271(1)(c) of the Act 6. erred in initiating penalty proceedings under Section 271(1)(c) of the Act. The above grounds are without prejudice to each other. The Appellant craves to leave to add, withdraw, alter, modify, amend or vary the above grounds of appeal before or at the time of hearing.” 7. Before us, Ld.AR submits that Ground of appeal Nos.1 & 2 are general in nature, needs no separate adjudication. 8. Grounds of appeal No.3 & 4 raised by the assessee are with respect to the claim of import duty payment adjustment. Printed from counselvise.com ITA No.3580/Del/2025 Page | 5 9. Ld. AR for the assessee submits that assessee has benchmarked the transactions by following RPM which is not in dispute. Ld.AR submits that TPO has included Import duty as part of operating cost against the claim of the that its 99% purchases are of import from outside India and therefore, major component is payment of import duty which deserves to be adjusted/excluded from the operating cost since the comparables selected are having negligible import component. Therefore, to improve the comparability and iron out the difference of Import duty payment existed between the assessee and comparable companies, it should be excluded from the total operating cost for working out gross profit margin. Ld.AR drew our attention to Rule 10B(iii) of Income Tax Rules, 1962 according to which uncontrolled transactions shall be comparable to an international transaction if reasonably accurate adjustment can be made to eliminate material effect of such difference, if any, between them. Ld. AR also submits that as per Rule 10B(1)(b)(iv) of Income Tax Rules, 1962 wherein it is provided that gross profit should be adjusted to iron out between the international transaction and comparable uncontrolled transactions. Ld.AR placed reliance on the judgement of the Co-ordinate Bench of Delhi Tribunal in the case of Swatch Group (India) Pvt. Ltd. in ITA No.2264/Del/2009 vide order dated 30.01.2020 which order stood confirmed by Hon’ble Jurisdictional High Court in ITA No.398/2024 vide order dated 30.07.2024. Ld.AR further placed reliance on following judgments:- (i) Sony India (P.) Ltd. vs CBDT [2006] 157 taxman 125 (Delhi); (ii) Coca Cola Pvt. Ltd. reported in 209 ITR 194 (P&H); Printed from counselvise.com ITA No.3580/Del/2025 Page | 6 (iii) Philips Software Centre Pvt. Ltd. vs ACIT in ITA No.218/Bng/2008; (iv) Aztec Software & Technology Services Ltd. vs ACIT 107 ITD 141 (Bang.) (SB); (v) DCIT vs Indo American Jewellery Pvt. Ltd. [2010] 41 SOT 1 (Mum.); and (vi) NVH India Auto parts (P) Ltd. vs DCIT [2023] 156 taxmann.com 330 (Chennai-Trib.) 10. On the other hand, Ld.CIT DR for the Revenue vehemently supported the orders of lower authorities and submits that TPO has discussed this issue at length and observed that the Import duty is part and parcel of the cost of goods sold and cannot be considered as non-operating expenses. Ld. CIT DR submits that once the assessee has taken total cost which includes purchase cost, cost of conversion and other cost incurred to bring the inventory at current location it should include payment of Import duty. Ld. CIT DR submits that assessee is dealing in the products which are available in India and the assessee has taken conscious decision of import such goods from its AEs, therefore, the assessee has always kept the issue of payment of Import Duty in mind which effect its cost. He, therefore, prayed for the confirmation of the order of the lower authorities. Regarding the judgement of Swatch Group relied upon by assessee, ld. CIT DR submits that Swatch is a branded product and there cannot be difference between rate charged from the customers vis-à-vis rates charged from non-related parties and thus, the ratio laid down in this case cannot be applied to the facts of the case of the assessee. Printed from counselvise.com ITA No.3580/Del/2025 Page | 7 11. Heard the contentions of both the parties at length and perused the material available on record. The main objects clearly shown between the parties are with respect to the inclusion of the Import duty payment in total operating cost. The claim of the assessee is that comparable companies have very insignificant import component and therefore, their profits are not affected from the payment of Import duty whereas in the case of assessee more than 99% of its purchase are imported from outside India and had suffered Import duty element. Thus, to make them comparable, such element of Import duty payment should be excluded. The Rule 10B(3) of I.T. Rules, 1962 provides as under:- (3) “An uncontrolled transactions hall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprise entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences” 12. The Rule 10B(1)(b)(iv) reads as under:- “(iv) “the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market.” 13. As could be seen from the perusal of the aforesaid Rules, that where uncontrolled transaction is compared to an international transaction and there should not be any difference between the Printed from counselvise.com ITA No.3580/Del/2025 Page | 8 comparables and the material effect, if any, same should be eliminated and reasonably accurate adjustment should be made to eliminate the material effects. Accordingly, gross profit should be adjusted to iron out the difference between international transaction and comparable uncontrolled transactions. In the present case, 04 comparables were selected by the assessee which are having very insignificant import component and thus, the payment of import duty was having very material impact between these comparables and the assessee. Therefore, necessary adjustment should be made with regard to the Import duty payment involved in the international transactions carried out by the assessee to make it comparable with the uncontrolled transactions. 14. The Co-ordinate Bench of Tribunal in the case of ACIT vs Swatch Group (India) Pvt. Ltd. in ITA No.2264/Del/2009 vide order dated 30.01.2020 as uphold the order of Ld.CIT(A) wherein Ld.CIT(A) has allowed the adjustment with respect to the custom duty paid which had material effect on the comparability. The relevant observations of the Co-ordinate Bench of Tribunal in para 27 to 30 are as under:- 27. “We have given thoughtful consideration to the orders of the authorities below. There is no dispute in so far as the application of the most appropriate method is concerned. The assessee has used Resale Price Method as the most appropriate method in bench marking its international transactions and the TPO has accepted the same. In our considered view, the entire quarrel revolves around the adjustment of custom duty given by the ld. CIT(A) in the hands of the appellant. Reliability and accuracy of adjustment would largely depend upon the availability of reliable and accurate data. Printed from counselvise.com ITA No.3580/Del/2025 Page | 9 28. In our considered opinion, for certain types of adjustments, relevant data for comparables may either not be available in public domain or may not be reliably determinable based on information available in public domain, whereas, it may be possible to make equally reliable and accurate adjustments on the tested party whose data would generally be easily accessible. 29. Rule 10B(3)(ii) provides for making \"reasonably accurate adjustments\" for eliminating any material differences between the two transactions being compared. It is an undisputed fact that import of watches carry heavy customs duty which may not be there in so far as Italian companies are concerned. The purpose or intent of the comparability analysis is to examine as to whether or not, the values stated for the international transactions are at ALP. We are of the view that the regulations do not restrict or provide that adjustments cannot be made on the results of the tested party. We are also of the view that net profit margin of the tested party drawn from its financial accounts can be suitably adjusted to facilitate its comparison with other uncontrolled entities/transactions as per sub-clause (i) of Rule 10B(1)(e) of the Rules. There is no specific provision in Rule 10B(1)(e)(iii) of the Rules, which would impede the adjustment of the profit margin of the tested party. 30. As far as rate of custom duty is concerned, it can be easily taken from the official website of the European Union and we find that the rate at the relevant point of time was 4.5% whereas the custom duty paid by the assessee accounts for more than 75% of the purchase value and 50% of the total cost of goods sold. In our considered opinion, such difference on account of custom duty paid by the assessee and that existing in the location where comparable companies operate, cannot be ignored. Considering all these facts in totality, we decline to interfere with the findings of the ld. CIT(A). Ground No. 1 is, accordingly, dismissed.” 15. It is also relevant to state that this order stood confirmed by the Hon’ble Jurisdictional High Court by not admitting any substantial question of law in Revenue’s appeal in ITA No.398/Del/2004 vide order dated 30.07.2024. Printed from counselvise.com ITA No.3580/Del/2025 Page | 10 16. Similar view is expressed by the Co-ordinate Bench of Delhi Tribunal in the case of Imsofer Manufacturing India (P.) Ltd. [2020] 121 taxmann.com 209 (Delhi-Trib.) wherein Co-ordinate Bench has held that provision of impairment of assets being not regular business expenditure should be excluded for the calculation of PLI. As observed above, in the instant case, the import duty payment is an item which has material impact between the comparable uncontrolled transactions and international transactions carried out by the assessee and thus, to make it comparable with the uncontrolled comparable transactions, necessary adjustment with respect to payment of import duty is inevitable and has to be made in accordance with Rule 10B(3) of I.T. Rules. In view of above facts and discussion, we direct AO/TPO to exclude the import duty payment from the total operating cost of the assessee and work out the PLI for computing the ALP, if any. Grounds of appeal No.3 & 4 raised by the assessee are thus, allowed. 17. Ground of appeal No.5 raised by the assessee is with respect to the allowability of working capital adjustment. 18. Heard the contentions of both the parties at length and perused the material available on record. Ld. CIT(A) has rejected the claim of the assessee by observing that assessee has made the claim of working capital adjustment before TPO as well as before him however, the working capital alongwith necessary evidences have not been filed. As against which, the assessee stated that it had filed all the necessary details regarding working adjustment which are Printed from counselvise.com ITA No.3580/Del/2025 Page | 11 available at page 165 to 166 as filed before the TPO. Ld.CIT(A) has denied the claim of the assessee by placing reliance of the judgment of Co-ordinate Bench of Chennai Tribunal in the case of NVH India Auto parts (P) Ltd. vs DCIT [2023] 156 taxmann.com 330 (Chennai-Trib.). It is observed that in the aforesaid judgment of coordinate bench of Chennai Tribunal, working capital adjustment was denied in absence of necessary details being failure on the part of assessee to provide such details of working capital adjustment. However, in the instant case, as observed above, the assessee has filed all the necessary details before TPO and also before Ld. CIT(A), thus on facts the case relied upon by the ld. CIT(A) is distinguishable. 19. Under these circumstances, in our considered opinion, working capital adjustment should be allowed to the assessee and this proposition is supported by the Co-ordinate Bench of Bangalore Tribunal in Huawei Technology (P) Ltd. vs JCIT (OSD) reported in [2019] 101 taxmann.com 303. Thus, by respectfully following the judgement of Co-ordinate Bench of Bangalore Tribunal, we direct the TPO to allow the working capital adjustment and also direct the assessee to again provide all the necessary details for claiming such adjustments before TPO. With this direction, Ground of appeal No.5 raised by the assessee is allowed for statistical purposes. 20. Ground of appeal No.6 raised by the assessee is regarding initiation of penalty u/s 271(1) which is premature hence, dismissed. Printed from counselvise.com ITA No.3580/Del/2025 Page | 12 21. The remaining Grounds of appeal raised by the assessee being not pressed hence, are dismissed. 22. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 25.03.2026. Sd/- Sd/- (YOGESH KUMAR U.S) JUDICIAL MEMBER Date:- 25.03.2026 *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 6. Guard File ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "