ITAT Delhi: Consistent Functional Profile of Comparable Mandates Its Inclusion in Transfer Pricing Benchmarking — Sanden Vikas India Pvt. Ltd Vs ACIT
Background and Overview
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently adjudicated an appeal filed by Sanden Vikas India Pvt. Ltd against an assessment order framed under Section 143(3) read with Section 144C(13) and Section 144B of the Income Tax Act, 1961. The assessment had been completed in conformity with directions issued by the Dispute Resolution Panel (DRP). The case pertains to Assessment Year 2017-18 and revolves primarily around a transfer pricing adjustment concerning the purchase of raw materials and components from Associated Enterprises (AEs).
The ruling carries significant implications for transfer pricing litigation in India, particularly regarding the consistency of comparable selection across assessment years and the standard of functional comparability applicable under the Transactional Net Margin Method (TNMM).
Preliminary Procedural Note
At the outset, the Tribunal noted that the assessee had attempted to raise an additional ground of appeal challenging the validity of the assessment on the ground of limitation, drawing support from the decision of the Madras High Court in the case of Roca Bathroom Products Pvt Ltd. However, this additional ground was subsequently withdrawn by the assessee during proceedings and was therefore not admitted by the Tribunal.
Profile of the Assessee
Sanden Vikas India Pvt. Ltd is a manufacturer of Car Air Conditioner Systems and Components, including compressors, HVAC units, cooling units, evaporators, condensers, hoses, pipes, and receiver driers. The company primarily supplies its finished goods to unrelated parties within India. Its shareholding structure is split equally — 50% is held by Sanden International Ltd, Singapore, and Sanden Holdings Corporation, Japan, while the remaining 50% is held by the Indian promoter group (Vikas group).
The assessee imports raw materials both from its AEs and from independent third parties. After processing these inputs into finished goods, the products are sold predominantly to unrelated customers in India.
Grounds of Appeal Raised
The assessee raised the following grounds before the Tribunal:
General and Procedural Grounds
- Ground Nos. 1, 2, 8, and 10 — These were general in nature, broadly challenging the legality and factual correctness of the transfer pricing adjustment of ₹2,48,65,842/- made in relation to the international transaction of purchase of raw materials and components from AEs. The Tribunal treated these as general grounds requiring no specific adjudication.
Transfer Pricing Grounds
Ground No. 3 — The assessee challenged the rejection of its search process and quantitative filters applied for selecting comparables, alleging that no cogent reasons were furnished for the rejection.
Ground No. 4 — The assessee contended that the Transfer Pricing Officer (TPO) conducted a fresh search using inappropriate quantitative filters and failed to provide full details of the search process — including each filter's outcome, an accept-reject matrix, operating margin computation, and FAR analysis — thereby violating principles of natural justice and amounting to cherry-picking of comparables.
Ground No. 5 — The assessee specifically challenged the rejection of Calsonic Kansei Motherson Auto Products Private Limited as a comparable, arguing that this company is engaged in the manufacture of non-core auto components similar to the assessee and its exclusion contravenes the comparability standard prescribed under
Rule 10B(2)of the Income Tax Rules, 1962.Ground No. 6 — The assessee disputed the inclusion of the following seven companies selected by the TPO as comparables, alleging functional, product, and industry dissimilarity:
- Turbo Energy Private Limited
- Standard Radiators Private Limited
- Tech Auto Private Limited
- Rexnord Electronics & Controls Limited
- Elgi Equipments Limited
- Triton Valves Limited
- Kirloskar Pneumatic Company Limited