Haworth India Pvt. Ltd. Vs DCIT (ITAT Chennai)
Summary: The Chennai Bench of the Income Tax Appellate Tribunal, in Haworth India Pvt. Ltd. v. Deputy Commissioner of Income Tax, IT(TP)A No.23/Chny/2024, decided on 20 August 2025 for Assessment Year 2020-21, allowed the assessee’s appeal and directed deletion of a transfer pricing adjustment of ₹5,08,36,826 relating to Global Account Management (GAM) charges paid to its associated enterprises. The principal question was whether the Transfer Pricing Officer (TPO), after accepting the Transactional Net Margin Method (TNMM) as the most appropriate method for the assessee’s international transactions, could separately benchmark the GAM expenditure under the Other Method and effectively determine its arm’s length value at nil.
The assessee, a subsidiary of Haworth Inc., USA, was engaged in manufacturing and selling office furniture and modular workspaces. It obtained Global Account Management and IT support services under a common management services arrangement. Although the TPO accepted the IT services and the overall TNMM analysis, he rejected the GAM expenditure on the ground that the supporting evidence was vague and the activities were in the nature of stewardship services. The Dispute Resolution Panel upheld the adjustment. The assessee submitted that its associated enterprises identified international customers, assisted in securing orders and supported business development. It demonstrated that approximately ₹113.52 crore of revenue arose from customers identified globally through 206 transactions, against GAM charges of approximately ₹5.08 crore, without any separate marketing commission.
The Tribunal examined the agreements, invoices, email correspondence, cost allocations and revenue details placed on record. It concluded that the services were genuine, commercially beneficial and intrinsically connected with the assessee’s manufacturing and trading operations. The evidence did not support the TPO’s characterization of the services as vague or merely stewardship activities. The Tribunal also observed that the 5% markup was reasonable and that the TPO had previously accepted the same markup for earlier assessment years. Applying the principle of consistency recognised in Radhasoami Satsang v. CIT, the Tribunal held that the Revenue could not depart from the earlier accepted treatment without a relevant change in the underlying facts.
Relying on judicial precedents, including AVO Carbon India Pvt. Ltd., Bonfiglioli Transmissions Pvt. Ltd., Siemens Gamesa Renewable Power Pvt. Ltd. and Magneti Marelli Powertrain India Pvt. Ltd., the Tribunal held that GAM services were inseparable from the assessee’s core business activities and were properly aggregated under TNMM. Once the overall TNMM analysis was accepted, the TPO was not justified in isolating the GAM charges for independent benchmarking. Accordingly, the Tribunal set aside the orders of the lower authorities, directed deletion of the entire adjustment of ₹5,08,36,826 and allowed the assessee’s appeal.
Cases Discussed
1. AVO Carbon India Private Limited, IT(TP)A No.82/Chny/2024 (ITAT Chennai) — Relied upon for the principle of consistency in transfer pricing treatment. The Tribunal referred to the deletion of a management-fee adjustment where materially identical facts had already been considered in earlier assessment years.
2. Siemens Gamesa Renewable Power (P.) Ltd. v. DCIT, 155 taxmann.com 406 (ITAT Chennai) — Relied upon to support aggregation of corporate services that were intrinsically connected with manufacturing, marketing and trading operations.
3. Bonfiglioli Transmissions Private Limited v. DCIT, ITA No.2977/Chny/2017, AY 2013-14 (ITAT Chennai) — Relied upon for the proposition that corporate services integrally connected with manufacturing and sales activities could not be separately demarcated for the purposes considered in that decision.
4. Magneti Marelli Powertrain India Pvt. Ltd. v. DCIT, ITA No.350/2014, [2016] 389 ITR 469 (Delhi High Court) — Relied upon for the principle that, after accepting TNMM as the most appropriate method, the TPO could not separately subject an integrated component of the transaction to a different method of determining the arm’s length price.
5. CIT v. EKL Appliances Ltd., [2012] 345 ITR 241 (Delhi High Court) — Referred to through the Tribunal precedents dealing with integrated corporate services and transfer pricing treatment.
6. Radhasoami Satsang v. CIT, [1992] 193 ITR 321 (Supreme Court) — Followed for the principle that, although res judicata does not strictly apply to income tax proceedings, a fundamental factual position consistently accepted in earlier years should ordinarily not be changed without relevant justification.
7. AB Mauri India Pvt. Ltd., IT(TP)A Nos.84 to 86 of 2018 (ITAT Chennai) — Cited by the Revenue against aggregation. The assessee submitted that the decision had been recalled and therefore could not be relied upon.
8. International Flavours and Fragrance Pvt. Ltd., IT(TP)A No.58 of 2018 (ITAT Chennai) — Cited by the Revenue against aggregation. The assessee distinguished the decision because the requisite close nexus between the transactions had not been established in that case.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / AST / S / 143(3) / 2024-25 / 1064182327(1) dated 18.04.2024 of the Learned Assessing Officer, for the assessment year 2020-21 passed in compliance to directions vide F.No.95/DRP-2/Bang/2023-24 dated 12.04.2024 of the Ld.DRP. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time.
2.0 The only issue raised in the present appeal through its grounds of appeal are regarding the action of the Ld.AO in making an addition by relying upon recommendation of the Ld.TPO in proposing a downward adjustment of Rs. 5,08,36,826/- towards payment of Global Account Management Charges (GAM). The learned counsel for the assessee submitted that the impugned downward adjustment made by the ld.TPO has been erroneously confirmed by the Ld.DRP, arbitrarily and without any basis.
3.0 At this stage we deem it appropriate to briefly examine the brief factual matrix of this case. The assessee company is a subsidiary of Haworth Inc, USA and is engaged in manufacture and sale of office furniture and modular workspaces. The Ld.TPO accepted assessee’s adoption of TNMM method as the most appropriate method for determination of the ALP. All the international transactions were accepted as at arm’s length save the payment of GAM. The TPO separately benchmarked the payment of GAM holding other method as the most appropriate method. The learned counsel for the assessee informed that out of the total management charges of Rs. 8,01,57,656, the Ld.TPO disallowed only the payment of GAM. In response to queries of Ld.TPO, as to why the ALP for the impugned management charges service charges be not treated as Nil, the appellant had provided detailed submissions along with evidences deemed necessary for the purpose. However, the Ld.TPO rejected the assessee’s contentions and held that furnished evidence was vague and, in any event, the same can at the most be considered as stewardship activity. It was held that the same does not warrant a separate payment and made the impugned additions. The Ld.DRP confirmed the findings of the Ld.TPO. In para 2.7 of its order it was concluded that the Ld.TPO has rightly rejected the TP analysis of the Assessee and proceeded to determine “Other method” as most appropriate method.
3.1 The learned counsel for the assessee invited our attention to the fact that, the Appellant avails management support services under a single agreement wherein the Assessee obtains Global Account Management services as well as IT services from its Associate Enterprises (AEs). It was argued that the Ld.TPO has considered and allowed IT services but has not allowed Global Account Management services. The Ld AR also submitted that under Global Account Management Service, the AE uses its global reputation and customer vendor relationship to identify new customers and provide the Group’s knowledge and expertise in securing orders from customers. Further it was argued that a mark-up of 5% has been placed qua, these services and that the same is applicable to all group entities as per the service agreement and the cost allocation. The Ld.AR argued that significantly the impugned support services i.e. GAM services helps assessee to augment higher sales and efficient running of the business. The Ld AR also submitted that these services are totally integrated to the business operations of the appellant and hence, only group company, in know of true business needs, would be in a position to support on the same. It was urged that any third party service provider would not be in the position to provide said services as efficiently, professionally and productively as the AE, given its institutional knowledge. The Ld.AR also submitted that the company earned around Rs. 113.52 crores revenue through the customers identified globally by submitting a detailed listing of revenue earned from 206 transactions with the support of its AE. The AR placed on record that for the benefit of revenue of Rs. 113.52 crores (revenue generated from GAM accounts) received by the appellant during the year, it has made only a payment of Rs. 5.01 crores as management service charges. The Ld.Counsel for the appellant assessee confirmed that it had not paid any marketing commission separately in relation to these support services. The Ld AR argued that even if the assessee had engaged the services of a third party, they would have paid a minimum commission of 5% which translates to Rs.5.67 crores when compared with the total revenue but instead the assessee has paid only Rs.5.08 crores which is lesser.
3.2 The Counsel for the appellant assessee placed reliance on the Judicial Precedents including those of this tribunal in the case of AVO Carbon India Private Limited (IT(TP)A No.82/Chny/2024), Bonfigioli Transmissions Private Limited ITA No.2977 / Chny / 2017 to argue that the GAM charges are justified payments to its AEs.
4.0 Per contra, the Ld.DR submitted that the Appellant has not undertaken consistent approach as they have used search under ORBIS database for Ay 2016-17 & 2017-18 and for AY 2020-21 they undertaken aggregation method. It was argued that there was lack of consistency in the approach of the assessee. Further, the Ld DR relied on the jurisdictional Tribunal decision in the case of AB Mauri India Pvt Ltd in IT(TP)A.No.84 to 86 of 2018 and International Flavours and Fragrance Pvt Ltd in IT(TP)A.No.58 of 2018 to buttress her contention that aggregation method is not appropriate. The Ld AR countered AB Mauri (supra) decision has been recalled and therefore reliance cannot be placed on the same. Further in respect of International Flavours (supra) the Ld AR argued that there is specific finding that the Assessee therein did not establish the close nexus for the purpose of aggregation method and it was only in that context it was held that aggregation method cannot be applied and therefore the said decision is distinguishable on facts and it will not apply to facts of the subject case. As regards different methods between earlier AY’s and the present AY, the Ld AR submitted that in principle the cost of the transaction has been accepted by the TPO in AY 2016-17 & 2017-18 based on evidence and when similar evidence is given for subject AY, the cost of the transaction should have been accepted. It was urged that the mark-up of 5% is constant in AY 2016-17 & 2017-18 and AY 2020-21 therefore when the TPO has accepted the mark-up of 5% by relying on OECD Guidelines in AY 2016-17 & 2017-18, applying the principle of consistency the same should be accepted.
5.0 We have heard rival submissions in the light of materials available on records. We have noted that disallowance of GAM charges which is seminal to the controversy are integrally related to conduct of any business activity of the type undertaken by the assessee. It is not a case of any service or activity devised by the assessee which is one of its type, over which any doubts can be caste. It is, in realty, a routine activity which comprises every business activity of the type pursued by the assessee. We have noted that the Assessee, through its voluminuous paper book, has brought on record agreement, invoices, various email communications establishing the receipt of services, break-up of cost incurred by AE, detailed break-up of revenue earned through AE’s support. All these evidences are substantial and do not confirm the Ld.TPO’s allegation of the same being vague. We also find sufficient force in the argument of the Ld AR that the present service cannot be classified as stewardship services as the services has actually benefitted the appellant assessee. Therefore, when the AE has performed active service, the assessee is duty bound to compensate its AE. The assessee has reasonably quantified the benefit derived by demonstrating that around 50% of its total revenue was derived from the support received from the AE. Further, the mark up of 5% placed by assessee and its group companies also appears to be more or less reasonable and in fact the TPO in AY 2016-17 has undertaken a benchmarking analysis and concluded that the mark-up of 5% is at arms length. It has also been noted that the assessee has not paid any commission separately. It appears that the Assessee instead of paying marketing commission it is paying GAM Charges. We note that the substance over form of the transaction merits consideration. The very fact that the revenue has allowed the charges in the past, their disallowance and that too on identical facts would not be a fair exercise
6.0 This tribunal in the case of AVO Carbon India Private Limited (IT(TP)A No.82/Chny/2024), had held that
“… We have noted that rival parties have concurred that there has been no distinguishment of facts of the present case viz a viz those available in AY 2012-13 and AY 2015-16 for which this Tribunal has accorded relief to the assessee. Accordingly, in adherence to the principles of consistency as well as in respectful compliance to the decision of Hon’ble co-ordinate Benches of this Tribunal in assessee’s own case discussed supra, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned addition of Rs.7,25,09,110/- on account of downward adjustment of payment of management fees. All the grounds of appeal raised by the assessee on this issue are therefore allowed.
Further, in the case of “Bonfigioli transmissions Private Limited Vs. DCIT, ITAT Chennai for AY 2013-14– [ITA No. 2977/CHNY/2017] it was held that “Admittedly the business of the assessee is a consolidated one. The services referred under ‘Corporate Services” are intrinsically linked to its manufacturing and sales activity. These two services cannot be separately demarcated. Corporate services are the services rendered, which has helped the assessee in generating the business in respect of marketing and trading. This being so, in view of the decision of Hon’ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd., referred to supra, the ld. Assessing Officer is directed to allow the assessee’s claim of the Corporate Services expenditure incurred by assessee”.
7.0 We have also noted that Principles of Consistency demand that same treatment is to be given, over the years to a set of transaction if substance transaction are same though different methods may be adopted to justify the same. The Ld. A.R submitted that as a rule of consistency the same should be followed in AY 2020-21 also. The Hon’ble Apex Court in the case of Radhasoami Satsang 193 ITR 321 has held:
“13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but a fundamental aspect premeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”
Therefore, as a matter of consistency the TPO having considered and accepted these charges in AY 2016-17 & 2017-18 cannot be allowed to take a different view in AY 2020-21.
8.0 We find sufficient force in the argument of the assessee that since the appellant is dependent on the Global Account Management support for manufacturing/trading, the said transaction is inextricably connected with core business operation and as such it cannot be segregated and benchmarked independently. We have noted the decision of this Tribunal in the case of Siemens Gamesa Renewable Power (P.) Ltd v. DCIT 155 taxmann.com 406 holding as under:
“Admittedly the business of the assessee is a consolidated one. The services referred under ‘Corporate Services” are intrinsically linked to its manufacturing and sales activity. These two services cannot be separately demarcated. Corporate services are the services rendered, which has helped the assessee in generating the business in respect of marketing and trading. This being so, in view of the decision of Hon’ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd., referred to supra, the ld. Assessing Officer is directed to allow the assessee’s claim of the Corporate Services expenditure incurred by assessee”
9.0 Again, we have noted that in the case of Magneti Marelli Powertrain India Pvt. Ltd. Vs. DCIT, Delhi High court for AY 2008-09 – [ITA No. 350/2014] the Hon’ble Delhi High Court had held that
“Here this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e payment of technical assistance fee, to an entirely different (CUP) method…. If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue …. therefore, answered in favour of the assessee; the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too.”
10.0 We have noted the facts of the present case are akin to those available in judicial precedence discussed herein above. Thus, as the assessee’s core business activity and sale is inextricably linked/dependent on the Global Account Management service from its AEs, the payment of these charges cannot be segregated and benchmarked separately. The judicial precedence discussed hereinabove also support this line of thinking. Accordingly, in respectful compliance to the same, we hold that the Assessee has rightly aggregated and benchmarked this transaction under TNMM. Accordingly, we hold that the TPO having accepted the overall TNMM analysis, was not right in excluding Global Account Management charges for separate benchmarking analysis. Accordingly, we set aside the order of lower authorities and direct the Ld.AO to delete the impugned addition of Rs.5,08,36,826/- on account of downward adjustment of payment of management fees towards global account management charges. All the grounds of appeal raised by the assessee on this issue are therefore allowed.
11.0 In the result, the appeal of the assessee is allowed.
Order pronounced on 20th, Aug-2025 at Chennai.
