ITAT Upholds TNMM Method for Gulbrandsen, Rejects Major Transfer Pricing Additions

June 10, 2026 : The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has delivered significant relief to chemical manufacturer Gulbrandsen Pvt. Ltd. by dismissing most of the Income Tax Department’s objections relating to transfer pricing adjustments, interest capitalization, research and development deductions, and book profit computation for Assessment Years 2012-13 and 2013-14.

In a detailed order pronounced on June 10, 2026, the Tribunal reaffirmed the principle that where facts remain unchanged across assessment years, tax authorities should maintain consistency in applying transfer pricing methodologies. The dispute arose after the Transfer Pricing Officer (TPO) rejected the Transactional Net Margin Method (TNMM) adopted by the company for benchmarking sales to its Associated Enterprises (AEs) and instead applied the Comparable Uncontrolled Price (CUP) method, resulting in substantial transfer pricing additions.

Gulbrandsen Pvt. Ltd., engaged in the manufacture and sale of industrial chemicals, had benchmarked its international transactions using Internal TNMM by comparing profit margins from transactions with AEs and non-AEs. The TPO disagreed with this approach and proposed adjustments after applying the CUP method, arguing that internal comparable transactions were available for direct price comparison.

However, the Tribunal noted that the same controversy had repeatedly arisen in the assessee’s own cases from Assessment Years 2007-08 to 2011-12. In those years, the ITAT had consistently held that TNMM was the Most Appropriate Method for determining the Arm’s Length Price. The Gujarat High Court had also affirmed the Tribunal’s view in earlier litigation.

Relying on those precedents, the Tribunal observed that there was no material change in the nature of products, transactions, associated enterprises, or business arrangements during the years under consideration. The Bench held that Internal TNMM continued to be the most reliable transfer pricing methodology and rejected the Revenue’s attempt to substitute it with the CUP method.

The Tribunal emphasized that transfer pricing analysis must consider economic realities, contractual arrangements, risk profiles, payment terms, business volumes, and other commercial factors. It observed that significant differences existed between transactions with associated enterprises and independent customers, making a direct CUP comparison unreliable. The Bench reiterated that “Internal TNMM is the appropriate benchmarking method and CUP is not reliably applicable in the facts of the case.”

The ITAT also upheld the deletion of transfer pricing additions relating to sales promotion and marketing services received from overseas associated enterprises. The Revenue had argued that the company failed to conclusively prove the actual rendering of services. Rejecting this contention, the Tribunal followed its earlier decisions and held that the taxpayer had already demonstrated the existence of agreements and supporting evidence showing that the services were rendered. The Bench further observed that the TPO’s role is confined to determining the arm’s length price and not questioning the commercial necessity of services received by a taxpayer.

On the issue of capitalization of interest relating to Capital Work-in-Progress (CWIP), the Tribunal ruled in favour of the assessee. The Assessing Officer had presumed that External Commercial Borrowing (ECB) loans were used for acquiring fixed assets and therefore sought to capitalize a portion of interest expenditure. The Tribunal found that the Department had failed to establish any direct nexus between the borrowed funds and the CWIP. Since the addition was based merely on assumptions without supporting evidence, the deletion granted by the Commissioner (Appeals) was upheld.

The Tribunal also approved the assessee’s claim for weighted deduction under Section 35(2AB) of the Income Tax Act relating to in-house research and development expenditure. It held that before the statutory amendment effective from April 1, 2016, there was no legal requirement for the Department of Scientific and Industrial Research (DSIR) to quantify eligible expenditure for allowing deduction under Section 35(2AB). Consequently, the Assessing Officer could not restrict the deduction solely on the basis of DSIR certification.

Similarly, the Tribunal upheld the deletion of additions made while computing book profits under Section 115JB of the Income Tax Act in respect of prior-period expenses. Referring to earlier judicial precedents, it held that there is no specific provision under the MAT framework permitting such adjustments.

The Revenue, however, succeeded on one important issue concerning additional depreciation. Gulbrandsen had claimed additional depreciation on expenditure relating to replacement of spares and parts in existing machinery. The Tribunal held that Section 32(1)(iia) allows additional depreciation only on acquisition of new plant and machinery and not on replacement of components of existing assets. Observing that the assessee failed to produce evidence showing installation of any new plant or machinery, the Bench restored the disallowance made by the Assessing Officer.

The ruling is significant for multinational businesses engaged in transfer pricing disputes, as it reinforces judicial preference for consistency where identical facts have already been examined in earlier years. The decision also highlights that tax authorities cannot disregard established transfer pricing methodologies without demonstrating material changes in facts or reliable comparable data. For taxpayers, the judgment provides important guidance on benchmarking international transactions, treatment of marketing support services, capitalization of interest, and R&D-related deductions under the Income Tax Act.

Case Reference: Assistant Commissioner of Income Tax, Circle-1(1)(1), Vadodara vs Gulbrandsen Pvt. Ltd., ITA Nos. 2281 & 2282/Ahd/2025