DCIT Vs Brady Company India Private Limited (ITAT Bangalore)
TP Adjustment Restricted to AE Transactions Upheld – ITAT Bangalore Dismisses Revenue Appeal
In this case, the ITAT Bangalore upheld the CIT(A)’s direction that transfer pricing (TP) adjustments must be restricted only to international transactions with Associated Enterprises (AEs) and not applied to the entire turnover.
The assessee, engaged in manufacturing, trading, and shared services, had a TP adjustment of ₹2.96 crore made by the TPO under TNMM. The CIT(A) directed multiple reliefs-restricting TP adjustment to AE transactions, allowing capacity utilization and working capital adjustments, and ensuring consistent treatment of forex and provisions. Post verification, the TPO accepted these directions, resulting in complete deletion of TP adjustment.
The Revenue argued that AE and non-AE transactions are interlinked and that adjustment should be made on the entire segment to reflect true margins. However, the Tribunal rejected this contention, relying on settled judicial precedents (including Bombay High Court rulings), holding that ALP adjustment cannot extend beyond AE transactions.
Further, since capacity utilization and working capital adjustments were granted after verification, and consistency in treatment of provisions/forex was justified, all Revenue grounds were dismissed.
Revenue’s appeal dismissed; CIT(A)’s order sustained.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
