> **Order:** ITA No. 287/Del/2016 (AY 2011-12) with ITA Nos. 901/Del/2017 (AY 2012-13), 6949/Del/2017 (AY 2013-14) and Revenue's ITA No. 1024/Del/2016 (ITAT Delhi), pronounced 08.10.2025.

## Facts

Grounds 10 to 10.10 challenged the disallowance of Rs.238,20,87,484 under section 40(a)(i) for non-deduction of tax on purchases from the associated enterprise, the assessee contending no disallowance was warranted in view of Article 24 of the Treaty.
The purchases, aggregating Rs.2382.08 crores, were made on FOB basis; the goods were manufactured outside India, property passed outside India, the purchases were at arm's length, and the seller had no permanent establishment in India.
Grounds 12 to 12.19 challenged a transfer-pricing adjustment of Rs.789,92,95,000 on royalty paid, made on the basis of an order under section 92CA(3).

## Issues

Whether section 40(a)(i) read with section 195 disallows FOB import purchases from an associated enterprise where no tax was deducted at source. Whether the royalty transfer-pricing adjustment stands where the assessee's own earlier years were decided in its favour.

## Holding

On the purchases: tax is deductible only upon a transaction or payment chargeable to tax in India, and the provisions of section 40(a)(i) read with section 195 are outside the scope of payments towards purchases of goods manufactured outside India; the additions proposed are not valid.
The Tribunal added that the purchases, accepted in the transfer-pricing study with no adjustment proposed, are the transfer-pricing officer's domain, not the Assessing Officer's, and that it was inclined to delete the additions made under section 40(a)(i).
On royalty: the issue was covered in the assessee's favour in its own cases for earlier years and by the Delhi High Court's consolidated order dated 03.02.2025, which the Revenue did not controvert, so grounds 12 to 12.19 were allowed.
The later years followed: the AY 2012-13 and 2013-14 purchase grounds were allowed in line with the AY 2011-12 decision, and the royalty grounds likewise.
In the result the assessee's three appeals were allowed as indicated and the Revenue's appeal was partly allowed.

## Why a client would care

For associated-enterprise import purchases, the fight is transfer pricing, not TDS: once the transfer-pricing officer accepts the purchases, a section 40(a)(i) disallowance for non-deduction has no legs to stand on in this reasoning. Royalty benchmarking lives or dies on own-case consistency.

## Questions clients ask

**Q1. Can an FOB import purchase from an associated enterprise be disallowed under section 40(a)(i) for non-deduction?**

On this reasoning, no: section 40(a)(i) read with section 195 does not reach payments for goods manufactured outside India, and the additions were not valid.

**Q2. What decided the royalty adjustment?**

Own-case consistency — the issue was covered in the assessee’s favour for earlier years and by the Delhi High Court’s consolidated order of 03.02.2025, which the Revenue did not controvert.

**Q3. If the transfer-pricing officer accepted the purchases, does the TDS view survive?**

The Tribunal held the purchases fell in the transfer-pricing officer’s domain and deleted the section 40(a)(i) additions.

## Disclaimer

*This note summarises a Tribunal order for general information. It is not professional advice and does not predict the outcome of any other case. Tax and company-law positions depend on facts and dates; take a written opinion before you act. Harun Raaj & Associates is a Chartered Accountants firm in Visakhapatnam.*

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