VTS TF Air Systems Private Limited Vs ITO (ITAT Bangalore)
Summary: The Bangalore Bench of the Income Tax Appellate Tribunal partly allowed the appeal filed by VTS TF Air Systems Private Limited for AY 2022-23 against the final assessment order dated 23.12.2025 passed under sections 143(3) read with 144C(13) and 144B of the Income-tax Act, 1961, following the Dispute Resolution Panel’s directions dated 27.11.2025. The Transfer Pricing Officer had proposed a total adjustment of Rs. 4,59,72,570, comprising Rs. 4,55,15,196 for the manufacturing segment and Rs. 4,57,374 towards interest on delayed receivables.
The Tribunal first held that the transfer pricing adjustment could not be computed on transactions with unrelated parties. Relying on CIT vs. Thyssen Krupp Industries India Pvt. Ltd. and CIT vs. Keihin Panalfa Ltd., it directed that any adjustment be restricted to international transactions with associated enterprises. Ground No. 2 was accordingly allowed. On operating-margin computation, the Tribunal directed the TPO to give effect to the DRP’s directions concerning marketing and promotional expenditure, warranty provisions and bad debts written off. Ground No. 3 was allowed for statistical purposes. The Tribunal further held that liabilities/provisions no longer required and written back, amounting to Rs. 7,07,857, were operating in nature, following PCIT vs. Tetra Pak India Pvt. Ltd., and allowed Ground No. 4. Export incentives of Rs. 19,90,710 were held to constitute operating revenue because they were directly linked to the assessee’s export sales of Air Handling Units; relying on CIT vs. Welspun Zucchi Textiles Ltd., the Tribunal allowed Ground No. 5.
