ITAT Remands TP Adjustment Issue as RPT Filter Was Not Properly Verified

Hyundai Motor India Engineering Private Limited Vs DCIT (ITAT Hyderabad)

In this case, the assessee challenged the final assessment order dated 19 September 2024 passed under Sections 143(3), 144C(13), and 144B of the Income Tax Act for Assessment Year 2021-22. The assessee had originally filed its return declaring total income of ₹62.29 crore. After scrutiny and transfer pricing proceedings, the Transfer Pricing Officer (TPO) proposed a transfer pricing adjustment of ₹20.45 crore. Based on the TPO’s order, the Assessing Officer (AO) issued a draft assessment order, following which the Dispute Resolution Panel (DRP) issued directions. The AO subsequently passed the final assessment order assessing total income at ₹82.75 crore.

Before the Tribunal, the assessee did not press its additional grounds relating to limitation and validity of the assessment order, and those grounds were dismissed. The assessee primarily contested the exclusion of two comparable companies—I Services India Private Limited and Cheers Interactive India Private Limited—from the final set of comparables used for transfer pricing analysis.

Regarding I Services India Private Limited, the assessee argued that the TPO wrongly excluded the company on the ground that sufficient details were unavailable for computing the Related Party Transaction (RPT) filter. The Tribunal examined the TPO’s order and found that details relating to profit and loss items and balance sheet items had already been extracted in the order itself. It observed a contradiction in the TPO’s reasoning, since relevant details relating to related party transactions appeared to be available. As factual verification of the exact RPT percentage was still required, the Tribunal remanded the issue to the AO/TPO for verification, proper computation of the RPT filter, and reconsideration of the company’s inclusion in the comparable set after giving the assessee an opportunity of being heard.

With respect to Cheers Interactive India Private Limited, the assessee contended that the TPO had incorrectly computed the RPT filter by including payments made to key managerial personnel in India amounting to ₹13.28 crore. The Tribunal noted that the DRP had rejected the assessee’s objection on the basis that no bifurcation of RPT expenses was available. However, upon examining Note 30 of the audited financial statements, the Tribunal found that the details of RPT expenses were specifically available and included payments to key managerial personnel in India. The Tribunal observed that such payments could not prima facie be treated as international transactions for the purpose of computing the RPT filter. Consequently, it directed the TPO to exclude the amount of ₹13.28 crore while computing the RPT filter and thereafter reconsider the inclusion of the company in the final set of comparables after proper verification and hearing.

The assessee also challenged a corporate tax adjustment of ₹23,972 relating to interest on TDS. It was argued that the amount had already been disallowed by the assessee in its return of income, but was again added by the Central Processing Centre (CPC) while processing the return under Section 143(1). The Tribunal examined the records and found prima facie evidence suggesting a double addition of the same amount. Since factual verification was necessary, the issue was remanded to the AO with directions to verify whether the amount had indeed been added twice and, if so, to delete the duplicate addition in accordance with law after granting the assessee an opportunity of being heard.

Accordingly, the Tribunal set aside the disputed issues relating to the two comparables and the alleged double addition for fresh verification and reconsideration by the lower authorities. The appeal was allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal is filed by M/s. Hyundai Motor India Engineering Private Limited (“the assessee”), feeling aggrieved by the final assessment order passed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 19671 (“the Act”) by the Learned Assessing Officer (“Ld. AO”), dated 19.09.2024 for the A.Y. 2021-22.

2. The assessee has raised the following grounds of appeal:

That on the facts and circumstances of the ease, the final assessment order dated 19 September 2024 (and received by the Appellant on 19 September 2024) passed by the Assessment Unit. Income Tax Department Ilk 143(3) r.w.s 144C( 13) read with section 144B of the c tax Act, 1961 (^–he Act”) pursuant to the directions dated 13 September 2024 issued by the Dispute Resolution Panel, Bangalore tes 144C(5) of the Act read with order dated 13 September 2024 issued by Transfer Pricing Officer tits 92CA(3)of the Act, is bad in law and void ab-initio so far as it is prejudicial to the Appellant.

3. The assessee has raised the following Additional Grounds of appeal:

“1. The A.0 ought to have passed the final assessment order (without passing the draft order) within timeline e as provided in section 153 of the Act.

2. The final assessment order is barred by limitation and as such it deserves to be quashed.

4. The brief facts of the case are that the assessee is a company which filed its return of income for the assessment year 2021-22 on 14.03.2022, declaring total income of Rs.62,29,88,586/-. The return of income of the assessee was processed by CPC under section 143(1) of the Income Tax Act, 1961 (“the Act”) vide intimation dated 22.09.2022, wherein an adjustment of Rs.23,972/- was made on account of interest on TDS, and the total income of the assessee was determined by CPC at Rs.62,30,12,560/-. The case of the assessee was also selected for scrutiny and accordingly notice under section 143(2) of the Act was issued by the Ld. AO on 28.06.2022. Since there was involvement of international transactions, the case of the assessee was referred to the Ld. TPO for determination of the arm’s length price. The Ld. TPO, vide order passed under section 92CA(3) of the Act dated 18.10.2023, proposed a total transfer pricing adjustment of Rs.20,45,15,305/- in respect of the international transactions. Based on the said order of the Ld. TPO, the Ld. AO passed a draft assessment order under section 144C(1) of the Act dated 13.12.2023, proposing an addition of Rs.20,45,15,305/- on account of transfer pricing adjustment.

5. Aggrieved by the draft assessment order, the assessee filed objections before the Learned Dispute Resolution Panel (“Ld. DRP”). The Ld. DRP, after considering the submissions of the assessee, issued its directions under section 144C(5) of the Act on 13.09.2024. Pursuant to the directions of the Ld. DRP, the Ld. AO passed the final assessment order under section 143(3) read with sections 144C(13) and 144B of the Act dated 19.09.2024, wherein a total transfer pricing adjustment of Rs .20,45,15,305/ – was made to the income computed under section 143(1) of the Act, thereby assessing the total income of the assessee at Rs.82,75,27,865/-.

6. Aggrieved by the final assessment order passed by the Ld. AO, the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee is not pressing the additional ground filed before this Tribunal. Accordingly, additional ground raised by the assessee is dismissed, being not pressed.

7. The Ld. AR further submitted that out of the grounds raised in respect of the transfer pricing adjustment, if the contentions of the assessee regarding inclusion of I Services India Private Limited and Cheers Interactive India Private Limited are accepted by the Tribunal, then the remaining transfer pricing grounds raised by the assessee would become academic in nature. It was further submitted that, out of the corporate tax grounds, the assessee is pressing only the adjustment made by CPC amounting to Rs.23,972/- on account of interest on TDS.

8. With regard to exclusion of I Services India Private Limited, the Ld. AR submitted that the Ld. TPO has erred in excluding I Services India Private Limited from the set of comparables on the ground that the details relating to Profit & Loss items and balance sheet items were not available for computing the Related Party Transaction (“RPT”) filter. Inviting our attention to page nos. 49 and 50 of the order of Ld. TPO, the Ld. AR submitted that the details relating to Profit & Loss items as well as balance sheet items have already been specifically extracted by the Ld. TPO in the order itself. Therefore, according to the Ld. AR, the observation of the Ld. TPO that the relevant details were not available is factually incorrect. The Ld. AR further submitted that once the details of related party transactions are available on record, the Ld. TPO ought to have computed the RPT filter and thereafter decided the issue regarding inclusion or exclusion of the said company from the set of comparables. It was further submitted that the company was wrongly excluded without carrying out proper verification of the RPT percentage. Accordingly, the Ld. AR prayed before the Bench that the issue may be set aside to the file of Ld. TPO with a direction to compute the RPT filter and thereafter consider inclusion of I Services India Private Limited in the final set of comparables in accordance with law.

9. Per contra, the Learned Departmental Representative (“Ld. DR”) strongly relied upon the order of Ld. Ld. AO/TPO.

10. We have heard the rival submissions and perused the material available on record. With regard to the exclusion of I Services India Private Limited by the Ld.A0/TPO from the set of comparables, we have gone through page nos. 49 and 50 of the order of the Ld. TPO, which is to the following effect:

11. On perusal of the above, we find that the amounts relating to Profit & Loss items as well as balance sheet items have been specifically mentioned therein. However, the Ld. TPO excluded the said company from the set of comparables observing that in the absence of complete details of Profit & Loss items and balance sheet items, the RPT filter could not be worked out. On perusal of the observations made by the Ld. TPO, we find contradiction in the findings recorded by him, in as much as the relevant details relating to related party transactions have already been extracted in the order itself. Therefore, prima facie, the observation of the Ld. TPO that the details were not available does not appear to be factually correct. Since factual verification regarding the exact computation of the RPT percentage in respect of I Services India Private Limited is required, we deem it proper to set aside this issue to the file of Ld. AO/TPO with a direction to verify the details available on record, correctly compute the RPT filter in accordance with law and thereafter consider inclusion of I Services India Private Limited in the final set of comparables after providing adequate opportunity of being heard to the assessee.

12. As far as the exclusion of Cheers Interactive India Private Limited by the Ld. A.O/TPO from the set of comparables is concerned, the Ld. AR invited our attention to para nos. 2.30 to 2.30.3 of the order of the Ld. DRP, wherein the observations of the Ld. TPO have also been reproduced by the Ld. DRP. The Ld. AR submitted that the Ld. TPO has considered the RPT expenses at Rs.19,71,90,581/- and accordingly computed the RPT filter at 29.41%, which according to the Ld. AR is factually incorrect. The Ld. AR further submitted that the Ld. DRP rejected the objection of the assessee on the ground that no bifurcation of cost/details of RPT expenses were available. Inviting our attention to note no. 30 of the audited financial statements of Cheers Interactive India Private Limited relating to disclosure of related party transactions, the Ld. AR submitted that the complete details of total RPT expenses amounting to Rs.19,71,90,581/- are specifically available in the audited financial statements of the said company. The Ld. AR further submitted that out of the aforesaid RPT expenses, an amount of Rs.13,28,45,599/- pertains to payments made by the company to its key managerial personnel in India, which does not constitute an international transaction. Therefore, according to the Ld. AR, the said amount of Rs.13,28,45,599/-is required to be excluded while computing the RPT filter. It was submitted that if the said amount is excluded, then Cheers Interactive India Private Limited would satisfy the prescribed RPT filter and consequently become comparable to the assessee. Accordingly, the Ld. AR prayed before the Bench for inclusion of Cheers Interactive India Private Limited in the final set of comparables.

13. Per contra, the Ld. DR strongly relied upon the orders of the lower authorities.

14. We have heard the rival submissions and perused the material available on record. With regard to the exclusion of Cheers Interactive India Private Limited by the Ld.AO/TPO from the set of comparables, we have gone through para nos. 2.30 to 2.30.3 of the order of the Ld. DRP, which is to the following effect:

15. On perusal of the above, we find that the Ld. TPO has calculated the RPT filter by including the payment made by the company to its key managerial personnel in India. We further find that the Ld. DRP dismissed the contention of the assessee on the ground that no details/bifurcation of RPT expenses were available. However, we have gone through note no. 30 of the audited financial statements of Cheers Interactive India Private Limited, which is to the following effect:

16. On perusal of the above, we found that the details of RPT expenses have been specifically provided therein. We further found that the said amount includes payment made to key managerial personnel in India amounting to Rs.13,28,45,599/-. Prima facie, such payment made to key managerial personnel in India cannot be treated as an international transaction for the purpose of computing the RPT filter. Therefore, in our considered opinion, the amount of Rs.13,28,45,599/- requires exclusion while working out the RPT percentage of the said comparable company. Since proper factual verification and re-computation of the RPT filter are required, we deem it proper to set aside this issue to the file of Ld. TPO with a direction to exclude the amount of Rs.13,28,45,599/- paid to key managerial personnel in India while computing the RPT filter and thereafter reconsider inclusion of Cheers Interactive India Private Limited in the final set of comparables in accordance with law after providing adequate opportunity of being heard to the assessee.

17. With regard to the issue relating to corporate tax adjustment, the Ld. AR submitted that an amount of Rs.23,972/- on account of interest on TDS was already disallowed by the assessee while filing its return of income. However, while processing the return under section 143(1) of the Act, the CPC again added the very same amount. It was further submitted that while passing the final assessment order, the Ld. AO adopted the income computed under section 143(1) of the Act, as a result of which the amount of Rs.23,972/- stood added twice in the hands of the assessee. Inviting our attention to para no. 8(A)(e) of Annexure – Other Information forming part of the intimation issued under section 143(1) of the Act, the Ld. AR demonstrated that the assessee itself had already disallowed an amount of Rs.23,972/- under section 40(a)(ii) of the Act while filing the return of income. The Ld. AR further invited our attention to para no. 7(f) of Annexure – Other Information to the intimation issued under section 143(1) of the Act and demonstrated that CPC again made addition of Rs.23,972/- while processing the return. Therefore, according to the Ld. AR, there is double addition of the same amount in the hands of the assessee. Accordingly, the Ld. AR prayed before the Bench for deletion of the said addition.

18. Per contra, the Ld. DR submitted that the issue requires factual verification at the end of the Ld. AO with regard to whether the amount of Rs.23,972/- has actually been added twice in the hands of the assessee.

19. We have heard the rival submissions and perused the material available on record. We have gone through para no. 8(A)(e) of Annexure – Other Information forming part of the

20. On perusal of the above, we find that the assessee itself had made disallowance of Rs.23,972/- under section 40(a)(ii) of the Act in its return of income. We have also gone through para no. 7(f) of Annexure – Other Information to the intimation issued under section 143(1) of the Act, which is to the following effect:

21. On perusal of the above, we find that an amount of Rs.23,972/- has again been added by CPC while processing the return of income of the assessee. Prima facie, the same indicates double addition of Rs.23,972/- in the hands of the assessee. However, since the issue requires factual verification at the end of the Ld. AO, we deem it proper to set aside this issue to the file of Ld. AO with a direction to verify whether the amount of Rs.23,972/- has been added twice in the hands of the assessee and, if the same is found to be correct, then delete the duplicate addition in accordance with law after providing adequate opportunity of being heard to the assessee.

22. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 15th May, 2026.