The draft assessment order for AY 2012-13 was void ab initio as it was passed in the name of a non-existent company, the assessee having amalgamated pursuant to a High Court-approved scheme, which was duly intimated to the AO on 12.02.2016.

The Revenue contended that the assessment proceedings were valid since the DRP directions and the final assessment order were passed in the name of the amalgamated (successor) entity.

The ITAT held that if, on the date of passing the draft assessment order, the entity had ceased to exist, the draft order is non est in law, as there can be no assumption of jurisdiction against a non-existent person.

The assessee submitted that issuance of an invalid draft assessment order vitiates the entire assessment proceedings under section 144C, as the jurisdiction of the DRP and the final order are consequential.

The Revenue argued that the defect, if any, was a procedural irregularity curable by passing the final order in the correct name.

The ITAT observed that such a defect goes to the root of jurisdiction and is not a mere procedural irregularity; absence of a valid draft order invalidates the subsequent proceedings.

The assessee relied on judicial precedents holding that assessments framed on non-existent entities are void.

The Revenue sought to sustain the assessment on the basis of substance over form.

Relying on coordinate bench decisions in FedEx Express Transportation, Siemens Ltd., and Boeing India, the ITAT quashed the entire assessment proceedings.

The assessee contended that the royalty paid to its AE for use of trademarks was at ALP, having been benchmarked using the CUP method with comparable third-party agreements sourced from recognized databases.

The Revenue contended that the CUP method adopted by the assessee was not reliable, as strict comparability required under CUP was absent and the foreign royalty agreements relied upon were not comparable.

It was submitted that the use of the licensed trademarks resulted in commercial and economic benefits, including increased sales and market recognition, and that the TPO cannot question commercial expediency of the transaction.

It was argued that the assessee failed to demonstrate any tangible commercial or economic benefit arising from the use of trademarks, and mere increase in sales could not be directly attributed to payment of royalty.

The assessee argued that the determination of ALP at NIL was arbitrary and contrary to transfer pricing principles, and that the TPO erred in disregarding the economic analysis and documentation furnished by the assessee.

The Revenue submitted that the AE lacked significant brand presence in India, and therefore the determination of the arm’s length price of royalty at NIL was justified in the facts and circumstances of the case.

The assessee contended that the final assessment order was void ab initio as it was passed in clear violation of the mandatory procedure prescribed u/s 144C of the Act.

The Revenue submitted that a draft assessment order was duly prepared. According to the Revenue, the statutory procedure prescribed for cases involving reference to TPO was properly followed before finalising the assessment.

The ITAT held that compliance with Section 144C of the Act is mandatory in nature and cannot be treated as a mere procedural formality.

In accordance with Section 144C(2), the Assessing Officer(AO) is required to first issue a draft assessment order and grant the assessee a period of 30 days to either file objections or convey acceptance of the proposed variations.

It was further contended that the assessee did not file any objections to the draft assessment order within the prescribed time, and accordingly, the AO passed the final assessment order in conformity with the statutory provisions governing completion of assessment proceedings.

The ITAT observed that, the final assessment order dated 23.04.2021 was passed without proper service of the draft assessment order and before the expiry of the statutory period available to the assessee.

In the present case, no draft assessment order was issued, and the AO directly passed the final assessment order, in violation of the procedure prescribed under sections 144C(3) and (4). Consequently, the assessee contended that the impugned assessment order was procedurally defective and legally unsustainable.

The Revenue maintained that the assessment proceedings were conducted strictly within the prescribed statutory framework and was valid. It was also asserted that the additions made in the final assessment order, based on the findings and directions of the TPO, were legally sustainable.

The Tribunal concluded that by passing the final assessment order in such a manner, the AO acted in violation of Sections 144C(3) and 144C(4) of the Act. Consequently, the impugned assessment order was held to be unsustainable in law and was accordingly quashed.

The assessee contended that the Transfer Pricing order passed under section 92CA(3) was barred by limitation, having been issued beyond the statutory time limit prescribed under section 92CA(3A) read with section 153.

The Revenue supported the action of the TPO, contending that the TP order was passed within the permissible time limits when viewed in light of the legislative intent to allow the Assessing Officer adequate time to complete the assessment proceedings.

It was argued that the statutory timeline under section 92CA(3A) mandates that the Transfer Pricing Officer must pass the order within 60 days prior to the date on which the limitation for completion of assessment expires.

It was argued that the statutory time limit prescribed for passing a TP order should not be interpreted in a rigid or inflexible manner, but rather in a manner that advances the object of the provisions governing assessment.

According to the assessee, the 60-day period prescribed under section 92CA(3A) is mandatory in nature and not merely directory

The Revenue further submitted that even assuming some delay, the TP order by itself does not give rise to any enforceable consequence, as it only forms the basis for the assessment and has no independent operation.

Consequently, it was submitted that the belated Transfer Pricing order was invalid in law, and therefore the entire transfer pricing adjustment made pursuant thereto was liable to be deleted.

According to the Revenue, no prejudice is caused to the assessee merely by the passing of the TP order, since it attains finality and enforceability only upon incorporation in the final assessment order.

The assessee submitted that SBLC charges incurred on behalf of the AE were fully recovered on a cost-to-cost basis without any mark-up.

Revenue argued that issuance of SBLC amounted to a corporate guarantee and warranted charging of guarantee commission at arm’s length.

ITAT held that the TPO proceeded on an incorrect assumption that the assessee had not recovered SBLC charges, whereas evidence clearly showed cost-to-cost reimbursement by the AE.

The assessee contented that issuance of SBLC could not be equated with bank or corporate guarantees issued by commercial banks, rendering bank guarantee–based benchmarking is inappropriate and justified benchmarking of SBLC transactions using the “Other Method,” determining the ALP at Nil.

The TPO alleged that the assessee had not charged any consideration for SBLC services and applied external CUP using bank guarantee commission rates.

The Tribunal held that SBLC or corporate guarantees issued by group entities cannot be benchmarked against bank guarantee commission rates charged by commercial banks. Relying on the Bombay High Court’s ruling in Glenmark Pharmaceuticals Ltd., ITAT accepted benchmarking under the ‘Other Method’ and deleted the TP adjustment on SBLC commission.

With respect to loans advanced to the AE, the assessee submitted that interest was charged at 3.55%, based on LIBOR plus appropriate spread, which was comparable to prevailing rates offered by the Jordan Central Bank. The assessee contended that CUP method adopted using local market rates was appropriate and reflected arm’s length conditions.

Revenue further contended that the interest rate charged on loans to the AE was inadequate and adopted a higher rate based on LIBOR with an enhanced spread. Accordingly, Transfer Pricing adjustments were proposed on both SBLC commission and interest on loan.

With respect to interest on loan, ITAT held that the interest rate charged by the assessee was in line with prevailing market rates. Accordingly, ITAT deleted the Transfer Pricing adjustments on both counts and ruled in favour of the assessee.

The assessee contended that the TPO erroneously applied adjustments on the entire turnover of INR 5.99 crore instead of limiting the adjustments strictly to transactions with the AEs, which amounted to only INR 4.80 crore.

The Revenue supported the TPO and DRP’s approach, maintaining that the transfer pricing adjustments made were appropriate and justified under the facts and circumstances of the case.

The ITAT held that transfer pricing adjustments must be restricted solely to international transactions with AEs and should not be applied at the entity-wide turnover level.

The assessee maintained that it had used internal TNMM for spare parts manufactured by it and exported to AEs and external TNMM for spare parts sourced from the domestic market and exported to AEs (Global Sourcing).

The Revenue argued that all exports of spare parts, whether manufactured by the assessee or sourced from third parties, constitute a single trading function and therefore should be evaluated together under one Transfer Pricing method.

Relied on earlier ITAT rulings in its own case (AY 2006–07 onwards) where such segmentation was accepted.

The Revenue maintained that a unified approach would better reflect the commercial reality and align with the arm’s length principle, thereby opposing the assessee’s reliance on different TNMM methods for different segments.

The AE, VRSA, was appointed as Development Manager under a Development Management Agreement (DMA) to supervise the mall project.

The Revenue, via the TPO, questioned the genuineness of development supervision services claimed from AE VRSA, alleging no real or tangible benefit was derived by the assessee from these services.

The ITAT held that the TPO overstepped its jurisdiction by evaluating the necessity or business expediency of the service instead of determining the arm’s length price.

The assessee demonstrated limited in-house capabilities, with minimal employee cost and no internal project management infrastructure.

The Revenue contended that the expense should be disallowed because the TPO believed the services were not commercially expedient or necessary for the project, implying that the arrangement was designed to shift profits rather than reflect a genuine business transaction.

The Tribunal observed that there was substantial evidence demonstrating the AEs multifaceted involvement in the project. Consequently, the ITAT directed the deletion of the transfer pricing adjustment of INR 9.83 crores in full.

The merger with Bharti Airtel Ltd. was sanctioned by NCLT on 08.03.2018 and effective from 14.05.2018. The AO was duly informed via a letter dated 12.06.2018.

The Revenue relied on the existing assessment orders as they were issued and did not provide any detailed explanation or justification for issuing orders in the name of the merged (non-existent) entity.

Despite frequent reminders, all assessment-related notices and orders were issued in the name of Telenor India Communications Pvt. Ltd., which was legally non-existent at the time.

The Revenue did not dispute the fact that the merger was approved and the AO was informed, but did not consider this a valid reason to invalidate the assessment orders.

Highlighted that the TPO’s order even acknowledged the merger, yet proceeded in the wrong entity’s name.

The Revenue did not address or respond to the assessee’s argument that issuing orders in the name of a non-existent entity makes the assessment void.

Cited the judgments in Vedanta Ltd. and Maruti Suzuki India Ltd. to assert that such an assessment order passed in the name of a non-existent entity is void ab initio and cannot be cured under Section 292B.

Essentially, the Revenue took a procedural stance, relying on the assessment documents as issued, without substantiating why the procedural lapse should not affect the validity of the assessment.

The assessee had not opted for Safe Harbour Rules, making the TPO’s invocation of Rule 10TA invalid and without jurisdiction. The assessee contented that foreign exchange gains and losses are inherently linked to its operating revenue from IT services provided to AEs in foreign currency.

The Revenue relied on Rule 10TA (Safe Harbour Rules) to exclude foreign exchange gains from operating income, saying this is how operating margin should be calculated.

The ITAT ruled that Rule 10TA applies solely to assessees who have voluntarily opted for the Safe Harbour Rules; as the assessee had not done so, the TPO’s invocation of the rule was invalid. The Tribunal further noted that the foreign exchange gain was directly related to the assessee’s revenue from IT services and should be classified as operating income.

To support its position, the assessee cited several Pune ITAT rulings, including Dana India, Delval Flow Controls, and Robertshaw Controls, which held that foreign exchange fluctuations from regular business operations are operating in nature.

However, the revenue did not address the assessee’s claim that both forex gains and losses are operating, nor the inconsistent treatment of gains versus losses.

The ITAT referred to several rulings of the Pune ITAT, as well as the decision of the Delhi High Court in Fiserv India Pvt. Ltd, which supported the assessee’s position regarding the treatment of foreign exchange fluctuations.

Contended that CCD issuance was a quasi-capital transaction, not subject to Transfer Pricing (TP) provisions and agrued that TPO while determining the ALP at NIL, did not adopt any of the methods prescribed under Section 92C(1) read with Rule 10AB.

Supported the AO's stance, arguing that the assessee failed to obtain a proper valuation of shares before issuing the preferential CCDs to the investor.

ITAT held that the issuance of CCDs is quasi-capital in nature, and therefore, transfer Pricing provisions are not applicable.

Relied on High Court precedents (Vodafone, Equinox Business Park, Shell India Markets) stating Chapter X doesn't apply to share/quasi-capital issuance to foreign AEs.

Contented that each assessment year is distinct, thus the principle of res judicata doesn't apply, meaning the CIT(A)'s AY 2012-13 decision shouldn't automatically bind the current year.

ITAT affirmed the deletion of the TP adjustment related to the issuance of CCDs and the consequential deletion of interest on debentures.

Contended that the issuance of a corporate guarantee on behalf of its AE is not an international transaction as per Section 92B of the Act and argued that argued that it is a shareholder function and does not involve the provision of a service that warrants a separate charge.

TPO/AO/DRP treated the corporate guarantee provided by the assessee to its AEs as an international transaction.

ITAT held that a corporate guarantee qualifies as an international transaction under Section 92B (2) and Explanation (i)(c), includes "capital financing, including any type of long-term or short-term borrowing, lending or guarantee" within the inclusive definition of "international transaction."

Highlighted that the guarantee fee was excessive, citing ITAT rates of 0.20%-0.53% and its own 0.5% precedent from AY 2018-19.

Held that the transaction qualifies under Section 92B since it affects the profits, income, losses, or assets of the enterprises and confers a benefit (lower interest rates) to the AE.

ITAT noted that the issue of corporate guarantee fee calculation has been addressed by various judicial forums, with a common range of 0.2% to 0.5% being considered justified.

TP proceedings were invalid as the AO failed to establish the required “arrangement” causing “more than ordinary profit” under Section 80IA (10).

Under the proviso to Section 80IA(10), profits from a reported SDT must be determined based on the arm’s length price.

The ITAT emphasized that Section 80IA (10) applies only if an arrangement designed to shift profits exists between the AE parties.

Consistent operating profits across years show no inflated or “more than ordinary” profit due to any arrangement.

TPO applied strict filters (turnover, export, RPT) for selecting comparables, which the DRP largely accepted.

TPO can determine ALP under Section 80IA (10) proviso for SDTs only if an arrangement is first established.

Cell 1-1

Cell 1-2

Cell 1-3

Cell 2-1

Cell 2-2

Cell 2-3

Contented AE relationship with MGL ended after two months due to director’s resignation and share sale and only ₹1.86 crore should be benchmarked, not ₹10.95 crore.

Contended that the entire amount of INR 11,20,16,432/- for software services to MGL was reported as an AE transaction in the original Form 3CEB.

Argued no “business restructuring” disclosure needed and  showed two month AE transactions at arm’s length with 22% margin.

Rejected assessee’s addendum to Form 3CEB and shareholding change evidence due to procedural non-compliance.

Assessee used the "Other Method" with SBI PLR (13.75%) to benchmark interest (paid at 10.45%) on its ₹5.5 crore INR-denominated ECB, claiming it was at arm’s length.

Rejected the assessee's benchmarking approach, asserting that since the interest and principal were to be discharged in Indian rupees, the transaction was similar to "Masala Bonds."

ITAT upheld the assessee's use of SBI PLR for benchmarking interest on INR-denominated ECBs, distinguishing them from Masala Bonds by noting that the borrower bears no currency risk.

Relied on Hyderabad ITAT ruling in Adama India Pvt. Ltd. and Special Bench decision in Invesco (India) Pvt. Ltd., which held domestic rates suitable for INR loans.

Argued that domestic rates like SBI-PLR could not be adopted for benchmarking an ECB transaction, even if denominated in Indian rupees, as it is fundamentally an external borrowing.

ITAT followed coordinate bench rulings in Adama India Pvt Ltd and the Special Bench ruling in Invesco (India) Private Limited, which supported benchmarking INR-denominated loans with Indian domestic rates.