Kodak India Private Limited Vs DCIT (ITAT Mumbai)
Summary: The ITAT Mumbai partly allowed Kodak India Private Limited’s appeal for Assessment Year 2020-21 against the final assessment order dated 23 July 2024, passed pursuant to DRP directions dated 12 June 2024. The assessee traded in printing plates, printing equipment, chemicals, film rolls and spare parts and had returned a loss of Rs.8,09,93,181. The TPO’s order dated 28 June 2023 proposed aggregate adjustments of Rs.20,91,07,641: Rs.12,95,09,659 for purchases of finished/traded goods from associated enterprises and Rs.7,95,97,982 for sale of the Flexographic Packaging Division. The Tribunal separately considered limitation, loss set-off, the appropriate benchmarking method and comparables, valuation of the transferred division, and a refund claim for additional tax under section 92CE(2A).
The additional grounds filed on 4 May 2026 concerned exclusion of Power2SME Pvt. Ltd. from the RPM comparables. As these grounds were connected with the existing trading-adjustment grounds and arose from transfer pricing material already on record, the Tribunal admitted them following National Thermal Power Co. Ltd. v. CIT, 229 ITR 383 (SC). The supplied order expressly describes its statement of the additional grounds as a formulation of their substance from the synopsis, rather than a verbatim reproduction of the separately filed memorandum.
On limitation, the assessee argued that section 153(1), read with section 153(4), imposed an outer deadline of 30 September 2023 for the final assessment. Although the draft order was passed on 29 September 2023, the final order followed only on 23 July 2024. It also disputed the effect of the retrospective Finance Act, 2026 amendments. The Tribunal applied the amended sections 153(10) and 144C, including section 144C(13A), under which a draft order forwarded within the section 153 period leaves finalisation pursuant to DRP directions governed by sections 144C(12) and (13). Following UCB India (P.) Ltd. v. Dy. CIT, ITA No.905/Mum/2021, order dated 31 August 2026, it dismissed Ground No.1. It added that the Tribunal could not adjudicate the constitutional validity of the retrospective provisions.
The final assessment order recognised unabsorbed depreciation of Rs.14,91,88,193 and brought forward business losses of Rs.70,05,90,892 and determined income at Nil after set-off against income of Rs.12,81,14,460. However, its accompanying computation ignored that set-off and raised a demand of Rs.4,27,53,529, including interest. The Tribunal held that the computation could not contradict the assessed income determined in the order. It directed consequential set-off against the income finally determined after giving effect to its decision and recomputation of tax and demand, subject to arithmetic verification of year-wise availability and utilisation to prevent double allowance. Ground Nos.2, 7 and 8 were allowed.
For trading purchases, the TPO had replaced the Resale Price Method (RPM) with TNMM, citing difficulties in determining comparable gross margins, earlier use of TNMM, settlement of earlier disputes under the Direct Tax Vivad se Vishwas Act, 2020, and the assessee’s distribution risks. The DRP also relied on after-sales and warranty services. The assessee maintained that it resold the products without material processing or value addition, supplied updated comparable gross margins, and explained that warranty services substantially concerned a limited equipment category, while films, plates, chemicals and spares were consumables. The Revenue argued that marketing functions, significant risks and after-sales activities made TNMM more reliable.
Applying Rule 10B(1)(b) and the principles in CIT v. L’Oreal India (P.) Ltd. and Pr. CIT v. Burberry India (P.) Ltd., the Tribunal held RPM to be the most appropriate method. Ordinary selling, distribution, inventory, market and credit functions alone did not justify rejecting RPM; the relevant question was material processing or substantial value addition affecting gross-profit comparability. No such alteration of the traded products as a class, or specific unverifiable defect in the furnished gross margins, had been demonstrated. Earlier use of TNMM created no statutory bar, and settlement under the 2020 Act did not constitute an admission on the current year’s merits.
The Tribunal nevertheless made clear that accepting RPM did not delete every possible trading adjustment. Including Power2SME, the assessee’s workings showed a comparable median GP/Sales ratio of 9.02%, a 35th percentile of 6.49% and a 65th percentile of 12.77%, against its segmental ratio of 5.81%; its own estimated surviving adjustment was approximately Rs.4.59 crores. An operating-profit/loss filter relevant to TNMM could not alone exclude a company with reliable gross margins under RPM. The TPO/AO was directed to recompute ALP under section 92C and Rules 10B and 10CA, including Power2SME if its gross-profit data was verifiable and no independent functional infirmity existed, after giving the assessee a hearing. The existing TNMM adjustment would be substituted by the resulting RPM adjustment, if any. Ground Nos.3 and 4 and the additional grounds were allowed for statistical purposes.
The division sale arose from Eastman Kodak Co., USA’s global arrangement with MIR Bidco SA. Kodak India transferred specified FPD assets of Rs.14,57,28,997 and liabilities of Rs.1,24,48,597 to Miraclon India Pvt. Ltd. for net contractual consideration of Rs.13,32,80,400. SMC Capitals Ltd., a SEBI registered merchant banker, valued the business at Rs.13,49,54,933 under NAV and Rs.25,43,51,906 under DCF. Giving NAV twice the weight of DCF, it arrived at Rs.17,47,53,924. The assessee voluntarily adjusted Rs.4,14,73,524, but the TPO adopted the entire DCF value and added a further Rs.7,95,97,982. The assessee primarily sought acceptance of contractual NAV alone and, alternatively, defended the weighted valuation under section 92C(1)(f) and Rule 10AB. The Revenue stressed the profitable undertaking’s intangibles, established customers and future earnings, and the valuer’s statement under section 131 concerning weighted methods.
The Tribunal rejected NAV alone because an operating business’s future earning capacity could not invariably be ignored, particularly when the assessee’s own valuation included DCF. Equally, no fundamental NAV computation error justified assigning it zero weight. Relying on Tata Sons (P.) Ltd. v. CIT, IT Appeal No.1093 (Mum) of 2019, dated 15 March 2024, it held that a commercially justified combination of recognised approaches was not inherently impermissible; the valuer’s statement did not determine legal permissibility. It distinguished the earlier Kodak India decision on its facts while recognising the requirement to remain within statutory ALP methods. On the available material, the weighted valuation more appropriately balanced assets and earnings. The further Rs.7,95,97,982 adjustment was deleted, but the voluntary Rs.4,14,73,524 adjustment remained. Ground Nos.5 and 6 were allowed to that extent.
Finally, the assessee sought refund of Rs.86,95,505 paid under section 92CE(2A), arguing that Miraclon was independent and the sale was a deemed international transaction only under section 92B(2). The Tribunal distinguished that deeming fiction from the express associated-enterprise definition imported by section 92CE(3)(i) from section 92A. Since the lower authorities had not identified a specific section 92A relationship, it restored this limited factual question to the AO for verification from Form No.3CEB, agreements and ownership/control particulars. If no such relationship existed and Chapter X applied only through section 92B(2), the AO was to consider non-applicability of section 92CE(2)/(2A) and grant consequential refund in accordance with law. Any contrary finding must identify the precise section 92A clause and supporting material in a speaking order after a hearing. Ground No.9 was allowed for statistical purposes; the refund was not granted unconditionally. The appeal, ITA No.4815/Mum/2024, was partly allowed by the order pronounced on 30 September 2026.
Cases Discussed
- UCB India (P.) Ltd. v. Dy. CIT — ITA No.905/Mum/2021; 31 August 2026 (ITAT Mumbai) — Followed on the effect of the retrospective assessment-limitation amendments.
- Pr. CIT v. Burberry India (P.) Ltd. (Delhi High Court) — Relied upon for RPM where goods are resold without material processing or value addition.
- Tata Sons (P.) Ltd. v. CIT — IT Appeal No.1093 (Mum) of 2019; 15 March 2024 (ITAT Mumbai) — Applied for the permissibility of a justified combination of recognised valuation approaches; its acceptance of DCF on its own facts was expressly noted.
- CIT v. Kodak India (P.) Ltd. (Bombay High Court) — Cited as affirming the earlier Tribunal decision and the requirement to determine ALP through prescribed statutory methods; the earlier transaction did not mechanically determine the present valuation.
- CIT v. L’Oreal India (P.) Ltd. (Bombay High Court) — Relied upon for RPM in distribution transactions involving resale without further processing.
- Kodak India (P.) Ltd. v. Addl. CIT — Assessment Year 2008-09 (ITAT Mumbai) — The assessee relied on its earlier-year decision; the Tribunal recognised the statutory-method principle while distinguishing the factual valuation exercise.
- National Thermal Power Co. Ltd. v. CIT — 229 ITR 383 (Supreme Court) — Followed to admit connected additional grounds arising from material already on record.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee is directed against the final assessment order dated 23/07/2024 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 (“the Act”), order passed by the Assessment Unit Income Tax Department [for brevity, the “Ld. AO”] pursuant to the directions dated 12/06/2024 issued by the Ld. Dispute Resolution Panel-1, Mumbai (“Ld. DRP”), for Assessment Year 2020-21.
2. The assessee has raised the following grounds of appeal:—
“1) On the facts and in the circumstances of the case and in law, the Learned Assessing Officer (‘AO’) erred in not appreciating that the time limit prescribed under section 153 of the Income Tax Act, 1961 is the outer time limit for passing the Final Assessment Order and hence, the Final Ahhhssessment Order dated 23rd July, 2024 is barred by limitation and needs to be quashed.
2) On the facts and in the circumstances of the case and in law, the learned TPO, the learned AO and the Hon’ble DRP erred in assessing the total income of the Appellant at Rs.12,81,14,460, before set-off of brought forward losses.
3) On the facts and in the circumstances of the case and in law, the learned AO and the learned TPO erred in concluding and the Hon’ble DRP erred in confirming the Transfer Pricing adjustment of Rs.12,95,09,659 to the international transaction of purchase of finished / traded goods by the Appellant from its associated enterprises (‘AEs’) by determining its arm’s length price at Rs.112,25,32,173 instead of Rs.125,20,41,833.
4) On the facts and in the circumstances of the case and in law, the learned TPO, the learned AO in rejecting and the Hon’ble DRP erred in confirming the rejection of the Resale Price Method (RPM) adopted by the Appellant as the Most Appropriate Method for benchmarking the international transactions of purchase of finished / traded goods by the Appellant from its AEs.
5) On the facts and in the circumstances of the case and in law, the learned TPO, the learned AO erred in making and the Hon’ble DRP erred in confirming the transfer pricing adjustment of Rs. 7,95,97,982 in respect of the sale of Flexographic Packaging Division (FPD) by the Appellant.
6) The learned TPO, learned AO and the Hon’ble DRP failed to appreciate that the international transaction of sale of FPD is at arm’s length as per the method of valuation approved by the Income-tax Appellate Tribunal and Bombay High Court in the Appellant’s own case for the Assessment Year 2008-2009.
7) The learned AO erred in not setting-off the brought forward losses in the tax computation sheet attached to the Final Assessment Order, when brought forward losses were set-off against the assessed income in the Final Assessment Order, resulting in assessed income of Rs.12,81,14,460 being determined as per the tax computation sheet vis-a-vis assessed income of Rs.Nil determined as per the Final Assessment Order.
8) The learned AO erred in raising a demand payable of Rs.4,27,53,529 in the tax computation sheet attached to the Final Assessment Order due to not setting-off of brought forward losses against the assessed income, when there is no demand payable as per the Final Assessment Order and the Notice of Demand under section 156 of the Income-tax Act.
9) On the facts and circumstances of the case and in law, the Appellant submits that it is entitled to a refund of the additional Income-tax of Rs.86,95,505 paid by it under section 92CE(2A) of the Income-tax Act.
The Appellant craves leave to add to, alter or amend the above Grounds of Appeal at the time of or before the hearing of appeal, as it may be advised from time to time.”
3. During the course of appellate proceedings, the assessee also filed Additional Ground Nos. 1 and 2 on 04/05/2026 relating to exclusion of Power2SME Pvt. Ltd. from the comparables while applying RPM. The substance of the additional grounds, are as under:—
Additional Ground No. 1: The Ld. TPO/AO and the Hon’ble DRP erred in excluding Power2SME Pvt. Ltd. from the set of comparable companies while benchmarking the trading transactions under RPM, notwithstanding that the said company had earned positive gross profit on sale of traded goods.
Additional Ground No. 2: The Ld. TPO/AO and the Hon’ble DRP erred in not considering Power2SME Pvt. Ltd. while determining the arm’s length range/median of the comparable companies under RPM.
These additional grounds concern inclusion of Power2SME Pvt. Ltd. and that upon its inclusion, the median GP/Sales margin is stated at 9.02%, with the 35th percentile at 6.49% and the 65th percentile at 12.77%, resulting, according to the assessee, in an adjustment of approximately Rs.4.59 crores under RPM. The above formulation of the additional grounds is therefore based on their substance as recorded in the synopsis and not represented as verbatim reproduction of the separately filed additional-ground memorandum.
4. The additional grounds are integrally connected with Ground Nos. 3 and 4 and arise out of the transfer pricing material already available before the authorities below. No fresh investigation into primary facts is required for their admission. Accordingly, respectfully following the ratio of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC, the additional grounds are admitted for adjudication.
5. Briefly stated, the assessee is engaged, inter alia, in trading of printing plates, printing equipment, chemicals, film rolls and spare parts required by the printing industry and other commercial customers. The assessee filed its return declaring loss of Rs.8,09,93,181/-. The case was selected for scrutiny and the international transactions were referred to the Ld. Transfer Pricing Officer (“Ld. TPO”) u/s. 92CA(1). The Ld. TPO, vide order dated 28/06/2023, proposed aggregate transfer pricing adjustment of Rs.20,91,07,641/-, comprising Rs.12,95,09,659/- in respect of purchase of traded goods and Rs.7,95,97,982/-in respect of sale of the Flexographic Packaging Division (“FPD”). The draft assessment order was passed on 29/09/2023. The objections of the assessee were disposed of by the Ld. DRP vide directions dated 12/06/2024 and the impugned final assessment order was thereafter passed on 23/07/2024.
6. The Ld. AR relied upon the detailed synopsis, paper book, transfer pricing documentation, valuation report and the judicial precedents filed during the hearing. Per contra, the Ld. DR relied upon the order of the Ld. TPO, directions of the Ld. DRP and the final assessment order and submitted that the adjustments had been made after considering the functional profile, risks undertaken and material furnished by the assessee. We have heard the rival submissions and perused the material available on record. The grounds are adjudicated issue-wise hereunder.
7. Ground No. 1 relates to the assessee’s challenge to the final assessment order dated 23/07/2024 on the ground that the same is barred by limitation prescribed u/s. 153 of the Act. The Ld. AR submitted that the order u/s. 92CA(3) was passed on 28/06/2023; the draft assessment order was passed on 29/09/2023; and the outer limitation u/s. 153(1) r.w.s. 153(4), according to the assessee, expired on 30/09/2023. It was contended that the subsequent directions dated 12/06/2024 and the final assessment order dated 23/07/2024 could not revive a limitation which had already expired. The Ld. AR further submitted that the retrospective amendments by the Finance Act, 2026 do not remove the foundation of the earlier judicial interpretation and cannot revive completed limitation. The relevant chronology relied upon by the assessee is also recorded in its written synopsis.
7.1. The Ld. DR submitted that the Finance Act, 2026 has retrospectively clarified the operation of sections 144C and 153 and that once the draft assessment order had been forwarded within the time permitted u/s. 153, the period thereafter was governed by the specific time limits prescribed u/s. 144C. We find that the Finance Act, 2026 has inserted sub-section (10) in section 153 and sub-sections (4A), (4B), (13A) and (13B) in section 144C with retrospective effect. Section 144C(13A) specifically clarifies that where the draft assessment order is forwarded within the period allowed u/s. 153, the period available thereafter for passing the final order pursuant to the DRP directions shall be governed by section 144C(12) and (13). Section 153(10) correspondingly clarifies that the draft assessment order may be made up to the time limit prescribed under section 153.
7.2. The Co-ordinate Bench in UCB India (P.) Ltd. v. Dy. CIT (Mumbai – Trib.)/ITA No.905/Mum/2021, order dated 31/08/2026, after considering the amendments introduced by the Finance Act, 2026 retrospectively, held that the additional ground challenging the limitation for passing the final assessment order stood rendered infructuous. The factual sequence before us shows that the draft assessment order dated 29/09/2023 was passed within the period which, even according to the assessee, expired on 30/09/2023. We are bound to apply the statutory provisions as they presently stand. The constitutional validity of the retrospective provisions cannot be adjudicated by this Tribunal. Accordingly, following the amended statutory position and the aforesaid Co-ordinate Bench decision, Ground No. 1 is dismissed.
8. Ground Nos. 2, 7 and 8 relate to non-grant of set-off of brought forward losses in the tax computation sheet and the consequential demand of Rs.4,27,53,529/-.
8.1. The Ld. AR submitted that the final assessment order itself records unabsorbed depreciation of Rs.14,91,88,193/- and brought forward business losses of Rs.70,05,90,892/- available for set-off. After determining total income before set-off at Rs.12,81,14,460/-, the order ultimately determines the total income at Rs. Nil after set-off of the brought forward losses. However, the tax computation sheet annexed to the same order proceeds on total income of Rs.12,81,14,460/- and raises demand of Rs.4,27,53,529/- including interest.
8.2. The Ld. DR relied upon the assessment record and submitted that appropriate consequential relief may be granted subject to verification.
9. We find merit in the contention of the assessee. The tax computation sheet is consequential to and forms part of the assessment proceedings; it cannot proceed on an assessed income contrary to the income determined in the assessment order itself. Once the Ld. AO has recognised the brought forward losses and allowed their set-off, consequential effect thereof has necessarily to be reflected in the computation. However, the year-wise availability and utilisation of such losses/unabsorbed depreciation shall be verified arithmetically so as to ensure that no amount is allowed twice. The Ld. AO is accordingly directed to give consequential set-off against the income finally determined pursuant to this order and recompute the tax liability and demand, if any, in accordance with law. Accordingly, Ground Nos. 2, 7 and 8 are allowed.
10. Ground Nos. 3 and 4 along with Additional Ground Nos. 1 and 2 relate to the transfer pricing adjustment of Rs.12,95,09,659/- in respect of purchase of finished/traded goods from AEs, rejection of RPM as the Most Appropriate Method (“MAM”) and exclusion of Power2SME Pvt. Ltd. from the comparables. The assessee had applied RPM for benchmarking the trading transactions. The Ld. TPO rejected RPM and applied TNMM, inter alia, on the ground that grossprofit margins of comparable companies were difficult to determine; the assessee had followed TNMM up to Assessment Year 2010-11; certain earlier disputes relating to rejection of RPM had been settled under the Direct Tax Vivad se Vishwas Act, 2020; and the assessee assumed market, credit, inventory and product-liability risks. The Ld. DRP further referred to after-sales and warranty services as constituting value addition. The assessee, however, furnished updated gross-profit margins of the comparables and contended that no specific defect in such data was identified by the authorities below.
10.1. The Ld. AR submitted that the assessee is essentially a distributor insofar as the impugned segment is concerned; the products purchased from the AEs are resold to independent customers without any material processing, alteration or value addition. It was contended that Rule 10B(1)(b) itself recognises RPM as an appropriate methodology for purchase and resale transactions. According to the assessee, market, inventory and credit risks are normal incidents of a trading business and after-sales/warranty services relate substantially to a limited category of equipment, whereas films, plates, chemicals and spare parts are consumables. Reliance was placed, inter alia, on CIT v. L’Oreal India (P.) Ltd. (Bombay) and Pr. CIT v. Burberry India (P.) Ltd. (Delhi).
10.2. The Ld. DR relied upon the findings of the Ld. TPO/Ld. DRP and submitted that the assessee performs substantial marketing and distribution functions, assumes significant risks and also undertakes after-sales/warranty activity and, therefore, TNMM gives a more reliable result.
11. We have considered the rival submissions. Rule 10B(1)(b) specifically contemplates RPM where property purchased from an AE is resold to an unrelated enterprise. The relevant enquiry is whether the reseller has carried out material processing or substantial value addition rendering comparison at the gross-profit level unreliable. Ordinary selling, distribution, inventory, market and credit functions cannot, by themselves, lead to rejection of RPM because the gross margin under RPM itself compensates a distributor for the functions performed and risks ordinarily assumed. The Hon’ble jurisdictional High Court in L’Oreal India (P.) Ltd. (supra) has upheld RPM in respect of distribution activity where goods purchased from AEs were sold to unrelated parties without further processing. The Delhi High Court in Burberry India (P.) Ltd. (supra) has reiterated the same principle; reiterates that RPM loses reliability where the reseller materially adds value or further processes the product, rather than merely because normal distribution functions exist.
11.1. In the present case, no material has been demonstrated before us to establish that the imported/traded products, as a class, were subjected to any manufacturing activity or material physical alteration before resale. Further, the assessee furnished gross-margin workings of the comparables and the Revenue has not demonstrated any specific infirmity which makes the gross margins incapable of verification. The fact that TNMM was followed prior to Assessment Year 2011-12 also cannot operate as a statutory bar against application of a method which is otherwise found to be the most appropriate for the transaction under consideration. Similarly, settlement of disputes for certain earlier years under the DTVSV Act cannot be treated as an admission by either party on the merits for the year under consideration. We accordingly hold that RPM is the Most Appropriate Method for benchmarking the international transactions of purchase of finished/traded goods from the AEs.
11.2. As regards Power2SME Pvt. Ltd., the written submissions record that the said company has positive gross profit on sale of traded goods and, upon its inclusion, the median GP/Sales ratio of the comparables is stated to be 9.02%, with the 35th percentile at 6.49% and the 65th percentile at 12.77%, whereas the assessee’s segmental GP/Sales ratio considered by the Ld. TPO is stated at 5.81%. According to the assessee’s working, the adjustment surviving under RPM would be approximately Rs.4.59 crores. Therefore, even on the assessee’s own case, acceptance of RPM does not ipso facto result in deletion of the entire adjustment.
11.3. Once RPM is held to be the MAM, Power2SME Pvt. Ltd. cannot be excluded merely on the basis of an operating-profit/loss criterion relevant to TNMM if reliable gross-margin data is available. Nevertheless, functional comparability and reliability of gross margins remain mandatory requirements under Rule 10B. We accordingly direct the Ld. TPO/AO to recompute the ALP by applying RPM and to include Power2SME Pvt. Ltd. if its gross-profit data is verifiable and no independent functional infirmity is demonstrated. The computation shall be made strictly in accordance with section 92C read with Rules 10B and 10CA after affording reasonable opportunity to the assessee. The existing adjustment of Rs.12,95,09,659/- made by applying TNMM shall consequently not survive and shall stand substituted by the adjustment, if any, resulting from the aforesaid RPM analysis. Accordingly, Ground Nos. 3 and 4 along with Additional Ground Nos. 1 and 2 are allowed for statistical purposes.
12. Ground Nos. 5 and 6 relate to the transfer pricing adjustment of Rs.7,95,97,982/- made in respect of sale of the Flexographic Packaging Division (“FPD”). Eastman Kodak Co., USA, the ultimate holding company, had entered into a Stock and Asset Purchase Agreement with MIR Bidco SA for transfer of the Flexographic Packaging Business globally. Pursuant thereto, the assessee entered into an agreement with Miraclon India Pvt. Ltd. for transfer of specified assets and liabilities pertaining to the FPD in India. The transferred assets aggregated to Rs.14,57,28,997/- and liabilities to Rs.1,24,48,597/-, resulting in net assets of Rs.13,32,80,400/-, which was also the contractual consideration. The assessee obtained a valuation report from SMC Capitals Ltd., a SEBI registered Merchant Banker, which valued the business at Rs.13,49,54,933/- under the NAV approach and Rs.25,43,51,906/- under the DCF approach and, by assigning weight of 2 to NAV and 1 to DCF, arrived at a weighted value of Rs.17,47,53,924/-. The assessee offered a suomotu transfer pricing adjustment of Rs.4,14,73,524/- being the difference between the weighted value and the contractual consideration. The Ld. TPO rejected the weighted valuation, adopted the DCF value of Rs.25,43,51,906/- in entirety and made a further adjustment of Rs.7,95,97,982/-, which was sustained by the Ld. DRP.
12.1. The Ld. AR submitted, primarily, that the transaction represented transfer of identified assets and liabilities and, therefore, NAV was a recognised and appropriate method; consequently, the consideration of Rs.13,32,80,400/-itself ought to be accepted and the suomotu adjustment should also not survive. Without prejudice, it was submitted that the independent valuer was entitled to use a combination of NAV and DCF under the “other method” prescribed u/s. 92C(1)(f) r.w. Rule 10AB, and that no provision prohibited the weighted valuation of Rs.17,47,53,924/-. Reliance was placed on the decision in the assessee’s own case for Assessment Year 2008-09 reported in Kodak India (P.) Ltd. v. Addl. CIT (Mumbai).
12.2. The Ld. DR, supporting the revenue authorities, submitted that FPD was an operating and profitable undertaking with business intangibles and an established customer base and, therefore, DCF appropriately captured its future earning potential. It was further submitted that the valuer himself had accepted during the statement recorded u/s. 131 that use of weighted methods was not prescribed for income-tax purposes.
12.3. We have carefully considered the rival contentions. Section 92C(1)(f) r.w. Rule 10AB recognises an “other method” which takes into consideration a price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, having regard to all relevant facts. In Tata Sons (P.) Ltd. v. CIT [IT Appeal No. 1093 (Mum) of 2019, dated 15-3-2024], the Co-ordinate Bench held that objection merely to the application of a hybrid method is devoid of merit; a single method or combination of accepted methods can be applied if justifiable reasons exist for the weight allocated to each method. It further held that DCF, though widely accepted, is not the only accepted valuation method. In that case 100% DCF was nevertheless sustained because the CCM component suffered from specific fundamental defects.
12.4. Applying the aforesaid principle, we first consider the assessee’s primary contention for adopting NAV alone. NAV is certainly a recognised valuation approach and assumes relevance when identified assets and liabilities are transferred. However, recognition of NAV as a valuation approach does not mean that future earning capacity of an operating business must invariably be ignored. The assessee itself considered such earning capacity relevant while obtaining a valuation containing a DCF component and, on that basis, made a suo motu adjustment. Rule 10AB requires consideration of all relevant facts. In the peculiar facts before us, therefore, we are not persuaded to hold that the contractual NAV of Rs.13,32,80,400/- alone necessarily constitutes the ALP. The assessee’s primary plea to that extent is not accepted.
12.5. At the same time, we find no sufficient basis for the Revenue to give zero weight to the NAV approach and 100% weight to DCF. No fundamental error in the NAV computation itself has been demonstrated. Significantly, the DCF value adopted by the Ld. TPO is the very DCF component already considered by the independent valuer. The dispute is thus substantially about the appropriate weight to be accorded to the asset base vis-a-vis future earnings. The statement of the valuer cannot by itself determine the legal permissibility of a methodology under section 92C and Rule 10AB. What is relevant is whether the method adopted is recognised, commercially rational and supported by the material. Tata Sons Pvt. Ltd. (supra) itself establishes that a combination of valuation approaches is not impermissible merely because more than one methodology has been considered.
12.6. We have also considered the reliance placed on the assessee’s own case in Kodak India (P.) Ltd. (supra), affirmed by the Hon’ble Bombay High Court in CIT v. Kodak India (P.) Ltd. (Bombay). The earlier decision arose on its own factual matrix and cannot mechanically determine the value of the present FPD transaction. Nevertheless, the jurisdictional High Court has affirmed the fundamental proposition that determination of ALP cannot rest upon an alien or ad hoc methodology dehors the methods prescribed under section 92C. The transfer pricing analysis must remain anchored in the statutory methods.
12.7. In view of the above, we are of the considered opinion that, on the material presently available, the weighted value of Rs.17,47,53,924/-determined by the independent SEBI registered Merchant Banker by considering NAV and DCF provides a more balanced application of the “other method” under Rule 10AB than adoption of either NAV alone or DCF alone. No material defect sufficient to discard the weighted valuation has been demonstrated by the Revenue. Since the assessee has already made a suomotu adjustment of Rs.4,14,73,524/- by adopting the weighted value of Rs.17,47,53,924/-, the further adjustment of Rs.7,95,97,982/- made by the Ld. TPO is directed to be deleted. We make it clear that, as the primary plea for adoption of NAV alone has not been accepted, the primary adjustment of Rs.4,14,73,524/- voluntarily offered by the assessee is not disturbed by this finding. Accordingly, Ground Nos. 5 and 6 are allowed to the extent indicated here in above.
13. Ground No. 9 relates to the assessee’s claim for refund of additional income-tax of Rs.86,95,505/- paid u/s. 92CE(2A) of the Act. The Ld. AR submitted that although the FPD transaction had been reported by the assessee as a deemed international transaction u/s. 92B(2) on account of the underlying global arrangement, Miraclon India Pvt. Ltd. and the assessee are independent parties and Miraclon India Pvt. Ltd. is not an associated enterprise of the assessee within the meaning of section 92A(1) or 92A(2). It was submitted that section 92CE(2) contemplates excess money remaining with an “associated enterprise” and section 92CE(3)(i) specifically assigns to the expression “associated enterprise” the meaning contained in section 92A(1) and 92A(2). On this basis, the assessee claims that the additional income-tax of Rs.86,95,505/- paid u/s. 92CE(2A) is refundable. The written synopsis specifically records the suomotu primary adjustment of Rs.4,14,73,524/- and additional tax of Rs.86,95,505/- and raises the above statutory contention.
13.1. The Ld. DR submitted that the assessee itself made the primary adjustment and paid the additional tax voluntarily and, therefore, refund cannot be granted without examining whether all statutory conditions for secondary adjustment are satisfied. We find that section 92B(2) creates a statutory fiction in specified circumstances whereby a transaction with a person other than an AE may be treated as a deemed international transaction. Section 92CE(2), however, refers to excess money available with “its associated enterprise” and section 92CE(3)(i) expressly defines “associated enterprise” by reference to section 92A(1) and 92A(2). A deeming provision has to be applied for the purpose for which it has been enacted and cannot automatically be enlarged beyond the statutory language. At the same time, the relief claimed by the assessee depends upon the foundational factual assertion that Miraclon India Pvt. Ltd. does not fall within any limb of section 92A qua the assessee.
13.2. We do not find from the orders of the authorities below a categorical finding identifying any particular provision of section 92A(1) or section 92A(2) under which Miraclon India Pvt. Ltd. has been held to constitute an associated enterprise of the assessee. We therefore consider it appropriate to restore this limited factual aspect to the Ld. AO. The Ld. AO shall verify from Form No.3CEB, the relevant agreements and the ownership/control particulars already on record whether Miraclon India Pvt. Ltd. is an associated enterprise of the assessee within the meaning of section 92A(1) or section 92A(2). If no such relationship exists and the transaction falls within Chapter X only by virtue of the deeming provision contained in section 92B(2), the Ld. AO shall consider the assessee’s claim of non-applicability of section 92CE(2)/(2A) in the light of the express definition contained in section 92CE(3)(i) and grant consequential refund of Rs.86,95,505/- in accordance with law. If the Revenue proposes to hold that Miraclon India Pvt. Ltd. is an AE, the precise clause of section 92A relied upon and the material satisfying such clause shall be specifically recorded in a speaking order after granting reasonable opportunity of hearing to the assessee. Accordingly, Ground No. 9 is allowed for statistical purposes.
14. To sum up, Ground No. 1 is dismissed; Ground Nos. 2, 7 and 8 are allowed; Ground Nos. 3 and 4 along with Additional Ground Nos. 1 and 2 are allowed for statistical purposes; Ground Nos. 5 and 6 are allowed to the extent indicated hereinabove; and Ground No. 9 is allowed for statistical purposes.
15. In the result, the appeal filed by the assessee bearing ITA No. 4815/Mum/2024 is partly allowed.
Order pronounced in the open court on 30th day of September 2026.
