Denso Haryana Private Limited vs Joint/Additional Commissioner Of Income Tax, Special Range-3, New Delhi

"Transfer Pricing Grounds

General Grounds

1.

that on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer("AO") is bad in law and void-ab-initio.

2.

that on the facts and in circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for the computation of the arm's length price ("ALP"), as is required under section 92CA(1) of the Act.

Economic Analysis

3.

That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Hon'ble CIT(A) erred in making an addition of INR 3,06,57,542 /- on account of transaction of CITA receipt of intra group services, to the returned income of the Appellant by re as under: the arm's length price of the above international transaction under section 92 of the Act as under:

3.1

erred by rejecting benchmarking approach adopted and methodology followed by the Appellant for determining ALP of the international transactions and not of the Appellant and erred in analyzing the transaction separately for the idolinath appreciating that payment made is closely linked to the primary business functions determination of ALP.

3.3

erred in facts and in law in holding that neither the Appellant has received any service and/ or benefit in lieu of the payment made by it for services availed nor there was any need for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard;

3.4

erred in holding that the Appellant has not furnished any documentary evidence to demonstrate the services received from the AES.

3.5

erred in facts and in law, in determining the ALP of the transaction at NIL, by applying comparable uncontrolled price ("CUP") method, merely based on presumptions and without furnishing and details of price charged in any comparable uncontrolled transaction which is in contravention of the provisions of Rule 10B of the Income Tax Rules, 1962 ("Rules").

3.6

erred in making a TP adjustment in contravention of the rule of consistency when in Appellant's own case for FY 2006-07, 2007-08 and 2008-09, Ld. TPO had accepted the arm's length nature of the payment for technical services availed.

3.7

erred in facts and in law by holding that the services availed by the Appellant are incidental and duplicative in nature.

4 That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Hon'ble CIT(A) erred in making an addition to the transaction of purchase of fixed assets by disallowing the mark-up of INR 3,93,99,009 charged by AE from Appellant and in doing so have grossly erred:

4.1

by not considering and thereby arbitrarily rejecting the detailed benchmarking analysis carried out by the Appellant in the TP Documentation;

4.2

by disallowing the mark-up without any data on comparables, to uphold his analysis

4.3

by disregarding the separate benchmarking analysis submitted by the Appellant during the course of proceedings

4.4

by incorrectly determining the mark-up charged by AE on the sale of fixed assets to the Appellant, wherein the Ld. TPO has erroneously considered the cost incurred by the AE, in supplying the fixed assets, as the markup

4.5

by disallowing the mark-up charged by the AEs on the sale of fixed assets to the Appellant without providing any supporting document/analysis to show that in an independent scenario such mark-up on the sale of fixed assets is not charged

4.6

in making a TP adjustment in contravention of the rule of consistency when in Appellant's own case for FY 2006-07 2007-08 and 2008-09. Ld TPO had accepted the arm's length nature of the purchase of similar fixed assets

4.7

in not following the rule of consistency and not restricting the amount of adjustment to depreciation on the markup even when the Hon'ble CIT (A) in Appellant's own cases for AY 2010-11, 2011-12, 2012-13, AY 2014-15 and AY 2015-16 had restricted the amount of adjustment to extent of depreciation on the markup

4.8

in not taking cognizance of the fact that 9% alleged markup out of 11% alleged markup charged by AEs of the Appellant is to be dis-allowed whereas the Hon'ble CIT (A) in his order directed to dis-allow 9.5% markup

4.9

in stating that the AEs of the Appellant charged 2% markup over and above 11% alleged markup whereas the AEs of the Appellant charged 2% markup over and above 9% costs

4.10

in not taking cognizance of the fact that 3% markup out of the alleged 5% markup charged by Denso Thailand Co., Ltd. and Denso Tool and Die Thailand Co. from the Appellant is to be dis-allowed whereas the Hon'ble CIT (A) in his order directed to dis-allow 5% markup on purchase of fixed assets from these AEs in Thailand and did not follow the orders of his predecessors thereby disregarding the rule of consistency

Corporate Tax Grounds

5.

That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the Appellant is not eligible to apply the beneficial provisions of applicable Double Taxation Avoidance Agreement between India and Japan ("DTAA") qua the rate of tax on payment of dividend to the shareholder (Denso Corporation Japan)

5.1

That the Ld. CIT(A) failed to appreciate that the dividend income was that of the non-resident recipient which is governed by the provisions of relevant DTAA

5.2

That the Ld. CIT(A) also failed to appreciate that in terms of section 90(2) of the Act read with section 10(34) of the Act, the income being taxable in the hands of non-resident could not be subjected to a tax rate in excess of the tax rate prescribed under the DTAA.

5.3

That the Ld. CIT(A) erred in not granting the refund of the excess Dividend Distribution Tax (DDT) paid by the Appellant, since as per the provisions of Section 237 of the Act read with Article 265 of the Constitution of India, only legitimate tax could have been retained.

5.4

That the Ld. CIT(A) ought to have restricted the levy of the DDT, on the dividend distributed/paid to Denso Corporation, Japan to 10% in terms of Article 10 of the DTAA between India and Japan instead of 16.22% charged in terms of section 115-0 of the Act

6.

That on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in not admitting the additional ground of appeal taken by the Appellant for refund claim of excess DDT paid

6.1

That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that there is no provision in the income-tax return form for claiming the refund of DDT.

Interest under section 234A, 234B, 234C and 234D of the Act

7.

erred in levying the interest under section 234A, 234B, 234C and 234D of the Act.

Initiation of penalty proceedings

8.

erred both in facts and in law in initiating penalty proceedings under section 271 (1) (c) of the Act. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal.”

“9 Ground no. 4 is against determination of the ALP of the payment of intra group services as NIL against the sum of Rs. 30,657,542/- paid by the appellant.

9.1

It is observed that this issue has been decided by CIT(A)-44, New Delhi in AY 2014-15 in Appeal No. 99/2018-19 dated 16.04.2019 where it was held as follows:-

7.5

The above issue was before the CIT(A)-44, New Delhi in AY 2011-12 in Appeal No 160/2015-16 dated 26.12.2017 where it was observed as follows:-

Findings:

8.4

I have examined the facts and circumstances of the case as well as the orders of the AO/TPO and the submissions of the appellant. The appellant has stated that receipt of services pertaining to training, planning, procurement, HR and information system allowed it to bring synergy in its overall operation, maintain high level of efficiency and quality, focused energy and vision towards core business operations and derived various benefits which have been tabulated above. The appellant has also stated that its operating expenses to sales is much lower than that compared to its comparables. The appellant has also submitted various documents which have also been tabulated above. It has also been argued that its entity level PLI using TNMM is 17.76% as compared to 3.63% of the comparables after making adjustments for differences in working capital.

8.5

I find that the issue has been adjudicated against the appellant by the CIT (A) in AY 20101-11 in ITA NO. 102/2015-16 CIT (A)-44 dated 13.12.2016 where it has been observed as follows:-

"During the appellate proceedings, Ld. AR has accepted vide order sheet entry dated 06/09/2016 that for intra group services there is no allocation key. I have considered all the arguments of the Ld. AR carefully which has been summarized in earlier paragraphs.

I do not agree with the arguments of the Ld. AR that payment for the provision of intra group services should be benchmarked on the aggregated approach of the TNMM. As per OECD guidelines and decision of various tribunal relied by the TPO, it would preferable to benchmark each international transactions separately. I approve the action of the TPO to compute arm's length price of intra group services is at Nil. During the appellate proceedings, Ld. AR has accepted that there is no allocation key applied by the AE in respect of intra group services. Further, during transfer pricing proceedings even after issuing show cause the appellant has not submitted the base and computation of expenditure entered by the AE with respect to available intra group services provided to the appellant. In absence of such data it is difficult/impossible to quantify the expense in the hands of AE and adding markup of 4% of such estimated expenses is only on ad hoc basis as these figure of the expenditure in the hands of the AE in respect of intra group services itself could not be proved.

These Even during the appellate proceedings Ld. AR has relied on the various documents/Information in respect of rendering of services. documents/Information are in from of minutes and agenda where the name of senior person of the appellant is appearing and correspondences for the implementation manufacture, environment performance, data server documents, training manufacture documents managements approach, premium scale model. I have considered these informations/documents. These informations/documents do not reveal actual services rendered by the AE specifically to the appellant. Findings of the TPO that at the most these documents/informations can be said to promote the group interest. These services can be said to protect the interest of the shareholders and accordingly, these services can be termed as shareholders activities. Ld. TPO has concluded that appellant has incurred huge cost of manpower and professional charges therefore, even if any services are rendered the same services are rendered are duplicative in nature. On the ground that findings of the assessing officer that the principle of res Judicata does not apply to income tax proceedings, each AY is a separate taxing unit. Therefore, assessment has to be made on the basis of facts available on the record during the relevant assessment years. As I have held that intra group services has to be benchmark separately and no independent party will make payment for such services. I approve CUP as the most appropriate method and its arm's length price is at NIL as taken by the TPO. Considering the entire facts, I approve the action of the TPO on making arm's length price adjustment for Rs. 72,27,543/-. All the grounds of appeal are accordingly dismissed."

'6.7 In accordance with the principle of consistency and respectfully following the order of the CIT, appeal in AYs 2010-11, 2011-12 and 2014-15, it is held that Intra Group Services have to be benchmarked separately as no independent party would make payment for such services. I approve CUP as the most appropriate method and its arm's length price is at NIL as taken by the TPO. Considering the entire facts, I approve the action of the TPO on making arm's length price adjustment for Rs. 84,741,696. 6.8 off. Ground of Appeal No. 4 (including 4.1 to 4.6) is accordingly disposed off"

'6.13 A perusal of the order of the CsIT(A) for AYs 2010-11, 2011-12, 2012-13 and 2014-15shows that the transfer pricing adjustment has been restricted to the mark-up on WDV. In view of the same, the transfer pricing mark-up is restricted to the mark-up of 9.5% on WDV for purchases made from AEs other than Denso Tool and Dye, Thailand and to 5% of the cost of such fixed assets in case of Denso Tool and Dye, Thailand. 6.14 Ground of appeal no. 5 (including 5.1 to 5.5) is accordingly disposed off."

'14. We have considered rival submissions and perused materials on record. As discussed earlier, the assessee has entered into various international transactions with its AE during the year. Except the transactions relating to cost recharges to group companies, the assessee has aggregated all other transactions and benchmarked them by applying TNMM. Undisputedly, the Assessing Officer has accepted assessee's benchmarking under TNMM in respect of all the transactions except two of the transactions, viz., import of raw materials and components and payment for receipt of services. In respect of these two transactions, the TPO has applied CUP method and determined the ALP at nil.

15.

The issue arising for consideration is, when assessee's aggregate approach under TNMM has been accepted by the TPO in respect of other transactions, such as, import of finished goods, import of capital goods, payment for royalty, payment for technical services, payment for application cost, payment of training fees, cost allocation from group companies, is there any necessity to segregate these two transactions including payment towards intra-group services ? In our view, the TPO was not justified in selectively picking of only a couple of transactions for different treatment. As discussed earlier, the assessee has entered into 12 transactions with AE. Except one transaction, rest eleven transactions have been benchmarked by the assessee under TNMM by adopting the aggregate approach. While the TPO has accepted assessee's approach in respect of nine transactions, he has segregated two transactions including the transaction relating to intra-group services. Thus, it is not a case where the TPO has entirely disbelieved assessee's claim that the transactions are closely linked transactions. Therefore, in our view, the approach adopted by the TPO to segregate this payment made towards intra-group services is unsustainable.

16.

Though, learned Departmental Representative has relied upon the decision of the coordinate Bench in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra) to emphasise that aggregate approach is not acceptable, however, in our view, the decision is factually distinguishable, as in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra), the assessee itself adopted different methods for different sets of transactions. Whereas, in the present case, the assessee has clubbed all the transactions together and adopted TNMM for benchmarking. Even otherwise also, assuming that the payment made towards intra-group services has to be benchmarked separately, it needs to be examined whether the approach of TPO in determining the ALP at nil by apply CUP method is acceptable.

17.

The main reasoning of the TPO to discard assessee's benchmarking under TNMM is, the assessee has failed to prove the need test and the benefit test. As could be seen from the materials placed on record, there is an agreement between the group entities for intra-group services. Further, in course of proceedings before the TPO, the assessee has furnished voluminous evidences, which demonstrate that the assessee has received various services such as planning services, safety and environment services, information system, procurement services, human resource services. Under the planning services, the assessee has received services relating to business planning so as to strengthen and improve regional management system and to organize and run meetings and try to resolve the common issue among group companies. In this context, the assessee has placed on record the minutes and agenda of the Asia Presidents conference containing the name of the senior personnel who had attended the planning meeting. Assessee has also placed on record quarterly reports sent by the AEs to the assessee mentioning the services provided, performance evaluated and suggested measures for improvement. The assessee has also demonstrated the benefits received by way of cash improvement and profit improvement, increase in turnover, effective execution of business and access to skill and expertise. Under safety and environment services, the assessee has received various services to develop serious disaster prevention activity, support to establish safety, health and environment management system, support function improvement. Necessary supporting evidence towards receipt of such services have been placed on record. Assessee has also demonstrated the benefits received from such services regarding compliance with industry safety norms, avoid any unfair legal cost/penalty, lesser health issues of employees enabling them to perform regular work throughout the year, lesser quality issues etc. It has also helped in reduction of compensation cost to employees. Under the information system services, the assessee was helped to develop and maintain a common system, upgrade and maintain server, upgrade IT environment, internet gateway management, internet web access control, anti-virus software updating and maintenance support and remote access gateway management etc. The receipt of such services was also supported by documentary evidences placed in the paper book. These services have benefited the assessee in reducing fixed cost and enhancement in quality, reducing man hours and inventory amount, clear IT issues and counter measure, centrally managed server, free of cost platforms/software, automated processes, economies of scale etc. In the procurement services, the assessee received services including assistance in selecting the materials and parts supplier to reduce purchase cost by order volume for the group companies, assistance in new material, help in negotiating the price of material centrally, assistance in standardizing cost calculation method etc. Such services have benefited the assessee to strengthen cost effectiveness, supplier basement and procurement function, management of KPI and progress of important activities resulting in cost saving in millions, material cost down and savings in material cost etc. Under human resource service, the assessee received help to establish system for local management, plan and run management training programs for expatriates and local management, promote global HR program, support on training at each group company regarding improvement facilities, preparation of training material, selection of internal instructor and selection of employees to attend each training and run globally common training etc. Such services have benefited the assessee in human resource development, recruitment of suitable candidates and cost saving by avoiding consultant, identify and implementing further improvements in compensation structure, human resource development and recruitment of suitable talent, effective compliance with labour laws, lesser rate of attrition thereby saving time and cost etc.

18.

Thus, as can be seen from the aforesaid facts, not only the assessee has received services from AE, the services have resulted in tangible benefit to the assessee. In fact, both the Assessing Officer and learned first appellate authority to some extent have agreed that the assessee had received certain services from AE. However, they have rejected assessee's claim by observing that such services are general in nature and may fall within shareholders activity. In our view, the conclusion drawn by the departmental authorities are not based on materials on record, but more on conjectures and surmises. When the assessee has furnished evidences to demonstrate that services indeed were received from AEs, the departmental authorities cannot ignore such evidences. In any case of the matter, the TPO could not have determined the ALP at nil under CUP method without bringing on record any comparable uncontrolled transaction.

19.

So far as the decisions relied upon by the learned Departmental Representative, on carefully going through them, we are of the view that they have been decided on their own facts, hence, not applicable to the present case. Both in case of International Flavours and Fragrances (India) Pvt. Ltd. (supra) as well as in case of Akzo Nobel India Ltd. (supra), the Bench has recorded a categorical finding of fact that the assessee failed to furnish substantive evidence to prove rendition of services. However, the facts are different in the present case, as the assessee has furnished cogent evidence to prove rendition of services by the AE. In view of the aforesaid, we hold that the transfer pricing adjustment suggested by the TPO and addition made by the Assessing Officer in pursuance thereof, is unsustainable."

“1.

The following substantial questions of law arise for consideration in the present special leave petition:

i.

Whether tax under Section 115-0 on any amount declared, distributed or paid by a company by way of dividend chargeable to additional income tax is in the nature of tax on distributed profits or tax on dividend?

ii.

Whether Dividend Distribution Tax (DDT) paid by the respondent company on amounts declared, distributed and paid as dividend [as defined under the India-UK Double Taxation Avoidance Agreement (DTAA) and the Income Tax] to a resident of UK can be levied at a rate higher than permitted under the treaty; and

iii.

Whether DDT being an income tax or an identical and/ or substantially similar tax is governed by UK DTAA.

2.

It has been brought to our notice that the correctness of the decision impugned in this special leave petition has been doubted by a coordinate bench of the Bombay High Court vide order dated 27.04.2026 passed in Income Tax Appeal No. 1123 of 2025 Foseco India Ltd. Company v. Asstt. CIT [2026] 185 taxmann.com 1015 (Bombay). A copy of the order dated 27.04.2026 has been placed before us. In paragraph 40 of the said order, the following questions have been referred to a larger bench of the High Court. The said paragraph is reproduced herein under:

40.

In our respectful opinion, in these circumstances, the following questions of law are required to be answered by the Larger Bench:

(i)

Whether the decision of the Division Bench in M/s. Colorcon Asia Pvt. Ltd. v. The Joint Commissioner of Income Tax, Panji Goa and Ors. (Tax Appeal No.5/2004 decided on 28 November, 2025) lays down the correct position in law when it holds that, Dividend Distribution Tax (DDT) is a tax paid by the Company, on dividend income of the shareholder, entitling the shareholder of the benefit of the provisions of Double Taxation Avoidance Agreement (DTAA) between India and UK?

(ii)

Considering the decision of the Supreme Court in Godrej and Boyce Pvt. Ltd. (supra), whether the decision of the Division Bench in M/s Colorcon Asia Pvt. Ltd. (supra) is per incuriam?

3.

Having regard to the ramifications of the aforesaid questions being answered either way, several intervention applications (IA No. 143674/2026, IA No.147312/2026, IA NO.146726/2026 and IA No.151478/2026) have been filed. To enable the parties to make their submissions before us, the intervention applications are allowed.

4.

Having regard to the fact that similar issue may have arisen before other High Courts also, we deem it appropriate to direct that the Registry of this Court shall circulate this order to all the High Courts. The Registry of the each High Court shall publish this order in the cause list of the High Court informing the parties about the matter being considered by us. Such exercise may be completed within a period of three weeks from today.

5.

If any intervention application needs to be made before us, the same may be made by 15.07.2026.

6.

List on 12.08.2026.”