ITAT Kolkata on APA Impact: TPO Must Recompute ALP in Line with CBDT Agreement

Background of the Dispute

The appeal in DIC Fine Chemicals Pvt. Ltd. Vs DCIT (ITAT Kolkata) arose from a final assessment order framed under Section 143(3) read with Section 144C(13) and Section 144B of the Income Tax Act 1961 for AY 2021–22.

The assessee, a wholly owned subsidiary of DIC Singapore, operates from Dahej SEZ and functions as a manufacturing hub within the DIC Group, which is headquartered in Japan and engaged globally in fine chemicals, including printing inks and organic pigments. The assessee is primarily engaged in the manufacture and export of sheet‑fed ink to its Associated Enterprises (AEs).

For AY 2021–22, the assessee reported various international transactions with its AEs, including:

• Purchase of raw materials and deemed purchase of raw materials
• Purchase of capital goods
• Sale of finished goods
• Cross-charging and recovery of expenses

These were largely benchmarked using Transactional Net Margin Method (TNMM), while certain expense cross-charges were tested using Other Method as per transfer pricing rules.

Declared Income vs Assessed Income

• Returned income: ₹3,73,66,449
• Transfer pricing adjustment proposed by TPO and sustained by DRP: ₹14,97,74,696
• Assessed income under normal provisions: ₹18,71,41,145

The assessee challenged this outcome before the ITAT Kolkata, raising grounds on:

• Alleged invalidity and limitation of the assessment
• Transfer pricing methodology, selection of comparables, and use of multiple PLIs
• Computation of book profits under Section 115JB
• Arithmetical mistakes in interest/fee computation
• Levy of interest under Section 234B and initiation of penalty under Section 270A

Nature of International Transactions and TPO’s Adjustment

According to the transfer pricing documentation, the following international transactions were reported:

The TPO/AO proposed the following adjustments to the arm’s length price (ALP):

• On purchase of raw materials and capital goods: ₹7,47,85,179
• On sale of finished goods: ₹8,30,95,903
• Total TP adjustment: ₹15,78,81,082

Pursuant to directions issued by the Dispute Resolution Panel (DRP), the AO recomputed the assessee’s income as follows:

Total income as per ROI: ₹3,73,66,449
Add: TP adjustment: ₹14,97,74,696
Total income assessed: ₹18,71,41,145

The final order was passed after following the Section 144C mechanism, with the TP adjustment fully incorporated.

Grounds Raised Before the Tribunal

The assessee’s grounds (paraphrased and regrouped) covered the following broad issues:

(A) General and Legal Grounds

1. The final assessment order was alleged to be contrary to the prescribed procedure and therefore invalid in law.
2. It was contended that the AO’s order, adopting the TPO’s findings as per DRP directions, stemmed from misreading of facts and incorrect interpretation of law.
3. Challenge to the assessed income of ₹18,71,41,145 as against the returned income of ₹3,73,66,449.
4. An additional contention that the final order was passed beyond the time limit under Section 153, rendering the assessment time-barred for AY 2021–22.

(B) Transfer Pricing-Related Objections (Grounds 5–13)