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Judgment
PER VIMAL KUMAR, JM:
The appeal filed by the assessee are against final assessment order dated 29.07.2024 and 30.10.2024 passed by Ld. Assessing Officer/ Additional/Joint/Deputy Assistant Commissioner of Income Tax/Income Tax Officer, National Faceless Assessment Centre, Delhi (hereinafter referred to “ld. AO”) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as “The Act”) for assessment years 2020-21 and 2021-22 respectively.
Both appeals filed by the assessee involved similar facts, grounds and issues. So both the appeals were heard together.
Brief facts of the case ITA No. 3780/Del/2024 are that the assessee company furnished return of income on 12.02.2021 declaring total income Nil. The company offers various products and services related to the treatment of water, waste water, and process systems in industrial, commercial, and institutional facilities. The assessee is also engaged in manufacture and distribution of water treatment chemicals, membrane elements, cartridge filters, provides waste water treatment and process solutions globally and includes separation equipment, membranes and filtration technology, monitoring solutions, analytical instruments, specialty chemicals and in sourcing business. The case was selected for scrutiny assessment through CASS for the reasons:
High Creditors/liabilities
Refund Claim
International Related Party Transactions in Respect of Intengible Property
ICDS Compliance and Adjustment
Investment in Intangible Assets
International Transactions
Notice u/s 143(2) of the Act 29.06.2021, notices u/s 142(1) dated 25.11.2021, 15.09.2022, 24.11.2022, 11.08.2023, 17.08.2023 and 30.08.2023 were issued. The assessee submitted replies submissions etc.
The assessee entered into an International Transaction with its associated enterprises amounting to Rs. 231,09,29,139/-. With the prior approval of the Pr. CIT(AU), the transactions were referred to the Transfer Pricing Officer (TPO), u/s 92CA for determination of arm’s length price (ALP). In response to notice, the assessee furnished submissions to the TPO. The TPO vide order u/s 92CA(3) dated 31.07.2023 made the following adjustments as under:
| Sr. No. | Particulars of Upward Adjustments | Amount in Rs. |
| 1. | Adjustment on account of “Trading Operations and project Business Segment” | Rs. 2,30,42,690/- |
| 2. | Adjustment on account of “Service Segment” | Rs. 4,42,85,553/- |
| 3. | Adjustment on Account of “Intra Group Services”(IGS) | Rs. 45,79,35,469/- |
| Total | Rs. 52,52,63,712/- |
As per order dated 31.07.2023 of TPO Draft Assessment Order u/s 144C(1) of the Act dated 04.09.2023 was passed by ld. AO. The assessee filed objections before the Dispute Resolution Penal (“DRP”) on 03.10.2023. The DRP vide direction dated 28.06.2024 directed the TPO to verify the adjustment made in some of the objections raised by the assessee.
After considering directions of DRP, the TPO gave effect to directions u/s 144C(5) vide order dated 29.07.2024 and re-calculated the ALP adjustments and arrived at an adjustment of Rs. 36,60,62,568/- instead of Rs. 52,52,63,712/-.
The revised total adjustments are as under:
| Sr. No. | Particulars of Upward Adjustments | Amount in Rs. |
| 1. | Adjustment on account of “Trading Operations and Project Business Segment” | Rs. 1,12,04,924/- |
| 2. | Adjustment on account of “Service Segment” | Rs. Nil |
| 3. | Adjustment on Account of “Intra Group Services” (IGS) | Rs. 35,48,57,644/- |
| Total | Rs. 36,60,62,568/- |
Being aggrieved, appellant/assessee preferred present appeal on following grounds:
“1.On the facts and circumstances of the case & in law, the Ld. AU erred in determining the assessed income of the Appellant at INR 36,60,62,568 as against the returned income of NIL declared by the Appellant.
2.On the facts and circumstances of the case and in law, the Ld. AU/ Learned Dispute Resolution Panel ('Ld. DRP')/ Learned Transfer Pricing officer ('Ld. TPO') erred both on facts and in law in making/confirming the addition made to the Appellant's income.
3.On the facts and circumstances of the case and in law, the final assessment order dated 29 July 2024 passed by the Ld. AU under Section 143(3) read with Section 144C(13) of the Act having been passed beyond the limitation provided in terms of Section 153(1) r.w.s. 153(4) of the Act, is illegal, being barred by limitation, void-ab-initio and liable to be quashed.
4.On the facts and circumstances of the case and in law, the Directions issued by the Ld. DRP and actions by the Ld. TPO while passing its order dated is against the scheme of the Section 144C and therefore ultra vires the provisions of section 144C(5) read with section 144C(8) of the Act and liable to be quashed.
5.On the facts and circumstances of the case and in law, the order passed by the Ld. AU/Ld. ΤΡΟ is illegal for exceeding the jurisdiction conferred by the Section 144C(10) of the Act while passing the order in contravention to the binding Directions issued by Ld. DRP.
Transfer Pricing Adjustments
TP adjustment with respect to Project Business Segment
6.On the facts and circumstances of the case and in law, the Ld. AU/ Ld. TPO (in pursuance to the directions of the Ld. DRP], erred in enhancing the income of the Appellant by INR 1,12,04,924 in relation to the Appellant's international transactions with its AEs in respect of the Project Business segment, and in doing so have grossly erred in:
6.1.Rejecting Resale Price Method ('RPM') as the Most Appropriate Method ('MAM'), as applied by the Appellant in the Transfer Pricing documentation maintained by the Appellant as per section 92D of the Act read with the Rule of 10D of the Income Tax Rules, 1962 ('the Rules').
6.2.Selecting Transaction Net Margin Method ('TNMM') as the MAM without a cogent analysis, which is against the arm's length principles as per Indian TP regulations.
6.3.Not accepting the Functions, Assets and Risk analysis and arm's length analysis as conducted by the Appellant in its Transfer Pricing documentation.
6.4.Carrying out a fresh benchmarking search of comparable companies, which lacks scientific search process and approach and is in contravention of the provisions of Rule 100 of the Rules.
6.5.Not accepting the quantitative filters selected by the Appellant in its Transfer Pricing documentation and has instead applying modified/ additional quantitative filters which lacked valid and sufficient reasoning:
6.6.Not accepting comparable companies selected by the Appellant in its Transfer Pricing documentation even when such companies are comparable to the Appellant in term functions performed, assets employed and risks assumed;
6.7.Including certain companies in the final comparable set that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed and choosing ad hoc companies as comparable;
6.8.Denying the economic adjustment for the difference in working capital position of the Appellant vis-a-vis comparable companies.
TP adjustment with respect to Intra Group Services
7.On the facts and circumstances of the case and in law, the Ld. AU/Ld. TPO (in pursuance to the directions of the Ld. DRP), erred in determining the arm's length price ('ALP') of the Appellant's international transaction pertaining to availing of intra-group services as NIL against the sum of INR 35,48,57,644 incurred by the Appellant, and in doing so have grossly erred in:
7.1.Determining the ALP of the transaction at NIL, by applying Comparable Uncontrolled Price ('CUP') method as MAM, merely based on presumptions and without furnishing details of price charged in any comparable uncontrolled transaction, which is in contravention of the provisions of Rule 108 of the Rules.
7.2.Not passing a speaking order and completely disregarding the documentation furnished by the Appellant.
7.3.Alleging that the Appellant neither received any service and/ or benefit in lieu of the payment made by it for services availed nor demonstrated any need for such services/payments. This conclusion is drawn without appreciating the core and essential nature of the services for the business of the Appellant; 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.
7.4.Holding that the Appellant has not furnished relevant documentary evidence so as to demonstrate the receipt of services from the AEs and benefits derived thereof.
7.5.Adopting contradictory positions by stating in its order that documentation to substantiate receipt of services has not been furnished while alleging in its subsequent order that documentation furnished by the Appellant has been furnished previously as well.
7.6.Rejecting the benchmarking analysis conducted by the Appellant in the Transfer Pricing documentation.
7.7.Not adhering to the DRP's directions with reference to analysing each of the international transaction of receipt of services from the AEs as per the DRP's directions.
Levy of interest under section 234A and 234B of the Act:
8.On the facts and circumstances of the case & in law, the Ld. AU erred in charging interest under section 234A and 234B of the Act.
Initiation of penalty proceedings:
9.On the facts and circumstances of the case & in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act.
Other Grounds:
10.On the facts and circumstances of the case and in law, the Ld. AU has erred in law and on facts by committing an arithmetic totaling error in computation of the tax demand. The computation of tax demand raised in the FAO containing such computational error is apparent from record and has resulted in an inflated tax demand raised on the Appellant.”
Ld. Authorized Representative for appellant/assessee submitted that Grounds of Appeal Nos. 1 and 2 are general in nature, Ground No. 3 regarding limitation and ground No. 4 and 5 regarding jurisdictional issues are not pressed, Ground No. 6 pertains to Transfer Pricing Adjustment with respect to Core and non-Core segments. The Transfer Pricing Adjustment with respect to Core business segment was decided in favour of assessee and relief was given to the tune of 10 crores. In the subsequent year, assessee got relief. In the subsequent year as is evident from letter dated 08.05.2024 at page No. 554 and 555 of the paper book mentions direction to then appellant to submit detail on tax treatment and tax withholding on payment of various services from its group entities for its business operation. Therefore, the matter of TP adjustment with respect to Core business segment may be sent back for re-consideration for following decision in the subsequent year.
Ground of Appeal No. 7 regarding Transfer Pricing adjustment with respect to Intra Group Services. It was submitted that Ld. TPO vide order dated 29.01.2026 for assessment year 2023-24 page No. 76 to 146 of convenience compilation had accepted arm’s length price. So, the matter may be restored to the file of Ld. TPO.
As far as other critical services (non-core services) amounting to Rs. 29,76,19,309/- are concerned, the assessee submitted bifurcation of payments made and the basis of allocation as under:
| Impact | Nature of Services covered | Amount of transaction (INR) | Nature of documents | Convenience compilation Page No. | Paper Book page No. |
|---|---|---|---|---|---|
| Other Critical functions – using Group’s Synergy | Receipt of HQ services from: | ||||
| SWTS US | 24,18,80,482 | -Backup Workings -Copy of Invoice - Copy of Agreement | 1-3 4 5-18 | 378 379-391 | |
| Suez Water Technologies and Solutions S.A. (‘SWTS SA’) | 1,82,04,483 | -Copy of Invoice - Copy of Agreement | 18 19-34 | 475 476-491 | |
| Suez Groupe S.A.S. (alsoreferred to as ‘France HQ’) | 92,11,629 | -Copy of Invoice | 35 | 492 | |
| IT Fees Paid to Societe Lyonnaise D’ Organisation De Gestion Informatique ET Administrative (Also referred to as “SLOGIA”) | 2,83,22,715 | -Copy of Invoice - Copy of Agreement | 36 37-75 | 434 435-473 | |
Ld. Departmental Representative relied on impugned order. Ld. TPO had considered the comparables fairly.
From examination of record in light of aforesaid rival contention, it is crystal clear that Grounds of appeal No. 3 regarding limitation, Grounds of Appeal Nos. 4 and 5 regarding Jurisdictional issues are not pressed. So Grounds of Appeal No. 3 to 5 are rejected as not pressed.
Ground of Appeal No. 6 regarding transfer pricing adjustment with respect to project business segment requires to be analysed as per directions of DRP as is clear from letter dated 08.05.2024 page no. 554 and 555 of the paper book. Therefore, issues of transfer pricing adjustment with respect to project business segment is restored to the file of Ld. TPO for afresh reconsideration of the matter in accordance with law after affording a fair opportunity of hearing to the assessee. Accordingly, Ground of Appeal No. 6 is allowed in above terms.
Ground of Appeal No. 7 is regarding transfer pricing adjustment with respect to Intra Group Services. In view of order dated 29.01.2026 for A.Y. 2023-24 (page No. 76-146 of conveniences compilation), the matter is restored to the file of Ld. TPO for afresh decision in accordance with law after affording fair opportunity of hearing to assessee. Accordingly, Grounds of Appeal No. 7 is allowed in above terms.
Grounds of Appeal Nos. 8 to 10 being consequential are left open.
In the result, the appeal ITA No. 3780/Del/2024 filed by the assessee is allowed for statistical purposes.
ITA No. 5843/Del/2024, A.Y. 2021-22
Ground of Appeal No. 4 of ITA No. 5843/Del/2024 regarding Transfer pricing.
In view of the finding in ITA No. 5843/Del/2024 since, the facts and issues are identical, the findings in ITA No. 3780/Del./2024, (A.Y. 2020-21) shall mutatis mutandis apply to this appeal also. The appeal of the assessee is allowed in above terms in favour of the assessee.
Both appeals filed by the assessee are allowed for statistical purposes.