ITAT Ranchi’s Transfer Pricing & Section 80-IA Ruling in Usha Martin Limited Vs ACIT

1. Background of the Appeal

The Ranchi Bench of the Income Tax Appellate Tribunal examined an appeal filed by Usha Martin Limited (formerly Usha Beltron Limited) against an order passed by the CIT(A), Ranchi dated 27.01.2017 in Appeal No. 411/Ran/Oth/10-11 for Assessment Year 2007-08. The order was pronounced in open court on **12.06.2025` by Shri George Mathan, Judicial Member, and Shri Ratnesh Nandan Sahay, Accountant Member.

Authorised Representatives appeared for the assessee, while the Departmental Representative represented the Revenue.

The assessee’s appeal contained original grounds and additional grounds filed later. Some grounds were not pressed and were accordingly dismissed, while others raised significant issues on:

  • Transfer Pricing adjustments under TNMM
  • Treatment of a Government company as a comparable
  • Interest rate on loans to an Associated Enterprise (AE) in Thailand
  • Arm’s length rate for corporate guarantee
  • Deduction under Section 80-IA for captive power
  • Disallowances linked to miscellaneous and foreign travel expenses
  • Charging of interest under Section 234B, Section 234D, and Section 244A

The appeal was ultimately partly allowed for statistical purposes.

2. Additional Grounds: Disallowance of Miscellaneous Expenses & Interest

2.1 Double Disallowance of Miscellaneous Expenses (Additional Grounds 1.4 & 1.5)

Under additional Ground No. 1.4, the assessee alleged double disallowance of general expenses aggregating to Rs.11,38,453/-.

  • The assessee had booked miscellaneous expenses of Rs.4,10,64,429/-.
  • Out of this, the assessee had voluntarily disallowed Rs.2,27,69,056/- in its return (suo motu disallowance).
  • The Assessing Officer, without adjusting for this voluntary disallowance, applied a 5% disallowance on the entire miscellaneous expenditure, working out a disallowance of Rs.20,53,221/-.
  • The assessee contended that if any further disallowance was contemplated, it should be limited to 5% of the balance, after reducing the suo motu disallowance; effectively, the complaint was that a further Rs.11,38,453/- represented a duplicative disallowance.

The Tribunal observed that the assessee’s own disallowance of Rs.2,27,69,056/- was significantly higher than the Rs.20,53,221/- disallowed by the Assessing Officer. Given this, the Tribunal held that no further disallowance was warranted and:

  • Deleted the entire disallowance made by the Assessing Officer.
  • Allowed additional Ground Nos. 1.4 and 1.5 in favour of the assessee.

2.2 Interest under Section 244A, 234B & 234D (Additional Grounds 1.6 & 1.7)

  • Additional Ground No. 1.6 relating to Section 244A interest was not argued during the hearing. No separate adjudication was made.
  • Additional Ground No. 1.7 concerned charging of interest under Section 234B and Section 234D. The Tribunal treated these as consequential, to follow the outcome of other issues in the appeal.

The additional grounds were thus disposed of in line with the above directions.

3. Transfer Pricing – TNMM & Choice of Comparables

Ground No. 2 of the main appeal covered multiple transfer pricing aspects, particularly under TNMM.

3.1 Business Profile & Method Adopted

The assessee is engaged in manufacturing and sale of:

  • Steel wire
  • Steel ropes
  • Wire rods
  • Billets
  • Wires and allied steel products

The assessee applied the Transaction Net Margin Method (TNMM) and provided a list of around 10 comparables, extracted in the TPO’s order. Since the assessee’s turnover was approximately Rs.1,500 crores, the TPO applied a turnover filter of Rs.1,000 crores to Rs.2,000 crores for identifying comparables.

3.2 TPO’s Final Set of Comparables

On applying this turnover filter, the TPO selected three companies:

  1. Motherson Sumi Systems
  2. Ramswaroop Industries Ltd.
  3. Hindustan Copper Limited (HCL)

While preparing its own set of comparables, the assessee had also selected Uttam Galva Steels Ltd. and Welspun Gujrat Stahl Rohren Ltd., but their turnover was Rs.2,190 crores and Rs.2,735 crores, respectively. As these exceeded the upper limit of the turnover filter, the TPO rejected them.