ITAT Deletes ₹3.88 Crore Transfer Pricing Addition Against Inductotherm India, Rebukes DRP for Ignoring Binding Precedents

May 27, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has granted significant relief to Inductotherm (India) Pvt. Ltd. by deleting a transfer pricing adjustment of ₹3.88 crore for the Assessment Year 2020-21, while also criticizing the Dispute Resolution Panel (DRP) for failing to follow binding judicial precedents in the company’s own earlier cases. The Tribunal further remanded issues relating to reversal of provisions and short grant of TDS/TCS credit back to the Assessing Officer for fresh verification.

The dispute arose from an assessment order passed under Sections 143(3), 144C(13), and 144B of the Income Tax Act, 1961, in which the tax department had made additions totaling over ₹7.64 crore. The appeal was heard by a Bench comprising Vice-President Dr. B.R.R. Kumar and Judicial Member T.R. Senthil Kumar. Inductotherm India was represented by Chartered Accountants Amol Mahajan and Dhanesh Bafna, while the Revenue was represented by CIT-DR Sher Singh.

Inductotherm India, a wholly owned subsidiary of a US-based group company, is engaged in the manufacture and sale of induction heating, welding, and industrial equipment. The company had filed its income tax return declaring income of approximately ₹175.94 crore. During scrutiny proceedings, the Central Processing Centre (CPC) made an adjustment of ₹3.75 crore under Section 143(1) on account of an alleged mismatch between the tax audit report and the income tax return relating to reversal of provisions. Separately, the Transfer Pricing Officer (TPO) made a transfer pricing adjustment of ₹3.88 crore concerning transactions with associated enterprises.

The core controversy before the Tribunal related to the methodology used for benchmarking international transactions. The assessee had adopted the Transactional Net Margin Method (TNMM) at the entity level and claimed that its operating margin exceeded that of comparable companies. However, the TPO rejected this approach and instead applied an internal Cost Plus Method by selecting around 240 comparable product lines from a product portfolio of nearly 9,000 items, resulting in a transfer pricing adjustment of ₹3.88 crore.

Before the Tribunal, the company argued that the TNMM approach had consistently been accepted in its own cases from Assessment Year 2006-07 onwards and that there had been no change in its functional, asset, or risk profile. It contended that the TPO’s selection of only a small subset of products was arbitrary and failed to satisfy the comparability requirements prescribed under Rule 10B of the Income Tax Rules, 1962.

The Revenue defended the adjustment, arguing that where reliable internal comparables exist, the Cost Plus Method should be preferred over an aggregated TNMM approach. It maintained that transfer pricing analysis must be conducted independently for each assessment year and that earlier decisions should not automatically govern subsequent years.

Rejecting the Revenue’s position, the Tribunal observed that identical issues had repeatedly been decided in favour of the assessee in earlier years and that no material change in facts had been demonstrated. Stressing the importance of judicial consistency, the Bench held that subordinate authorities cannot disregard binding precedents merely because the matter is pending before higher forums.

In a significant observation, the Tribunal stated, “Judicial discipline requires that orders of coordinate benches on identical facts must be followed unless stayed, reversed or distinguished on facts.” The Bench noted that even though the DRP itself had recorded that there was no change in the factual matrix, it nevertheless declined to follow the earlier Tribunal rulings.

Consequently, the Tribunal held that TNMM at the entity level remained the most appropriate method for determining the arm’s length price of the international transactions and directed deletion of the entire transfer pricing adjustment of ₹3.88 crore.

The Tribunal also expressed displeasure with the DRP’s refusal to examine issues arising from the CPC’s processing under Section 143(1). While discussing the panel’s decision not to adjudicate the assessee’s objections relating to reversal of provisions and concessional tax rate claims, the Bench remarked, “At this juncture, we feel it is abdication of responsibility of the Senior Revenue Officers who are part of the DRP.”

On the issue of reversal of provisions amounting to ₹3.75 crore, the company argued that the provisions had already been disallowed in earlier years when they were originally created. Therefore, taxing their reversal in the current year would result in double taxation. The assessee also relied on a revised tax audit report and an auditor’s certificate to explain that the mismatch arose due to an inadvertent classification error.

The Tribunal accepted the legal principle that once an expenditure has already been disallowed, its subsequent reversal cannot ordinarily be taxed again. It observed, “Once such disallowance has already been made, reversal of such provisions during the year cannot again be treated as taxable income, as it would amount to double taxation of the same item.” However, since factual verification was still required, the matter was remanded to the Assessing Officer for fresh examination after granting an adequate opportunity of hearing to the assessee.

The Bench also restored the issue of short grant of TDS and TCS credit to the Assessing Officer, directing verification of the claim from Form 26AS, AIS, and supporting records before granting the appropriate tax credits in accordance with law.

The ruling reinforces the principle that tax authorities must adhere to established judicial precedents in the absence of any material change in facts. It also underscores the Tribunal’s concern over procedural fairness in tax administration and its willingness to intervene where taxpayers face potential double taxation or denial of legitimate credits. For multinational companies facing transfer pricing disputes, the decision serves as an important reminder that consistency in tax treatment across assessment years remains a key component of Indian tax jurisprudence.

Case Title: Inductotherm (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax, Circle 2(1)(1), Ahmedabad
Case No.: ITA No. 1609/Ahd/2024 (Assessment Year 2020-21)
Court: Income Tax Appellate Tribunal, Ahmedabad Bench
Coram: Dr. B.R.R. Kumar (Vice-President) and T.R. Senthil Kumar (Judicial Member)
Date of Decision: May 27, 2026
Counsel for Assessee: Amol Mahajan and Dhanesh Bafna
Counsel for Revenue: Sher Singh, CIT-DR