Delval Flow Controls Private Limited Vs DCIT (ITAT Pune)
The appeal before the Income Tax Appellate Tribunal (ITAT), Pune, challenged the final assessment order dated 16 January 2017 passed under Sections 143(3) read with 144C(13) of the Income-tax Act, 1961 for Assessment Year 2012-13. The sole issue concerned the confirmation of a transfer pricing adjustment of ₹1,03,98,000.
The assessee was engaged in manufacturing butterfly valves, actuators, and ball valves used in the oil, gas, and petrochemical industries. It filed its return declaring total income of ₹4.06 crore and reported international transactions with associated enterprises (AEs), including sales of valves and actuators, purchases of raw materials, and sales of valves and accessories.
The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determination of the Arm’s Length Price (ALP). The assessee had adopted the Transactional Net Margin Method (TNMM) as the most appropriate method and used both internal and external comparables. The TPO rejected the internal TNMM and proceeded with external TNMM, selecting six comparable companies with an average Profit Level Indicator (PLI) of Operating Profit to Total Cost (OP/TC) of 16.64%. The assessee’s PLI was computed at 11.81%.
Based on this analysis, the TPO proposed a transfer pricing adjustment. Although the assessee challenged the determination before the Dispute Resolution Panel (DRP), it obtained only partial relief, resulting in a final transfer pricing addition of ₹1,03,98,000.
