2011 (1) TMI 1209 - AT - Income Tax

Method of accounting, Transfer pricing - Computation of arm s length price, Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings

Summary

Issues Involved:
1. Disallowance on account of CENVAT credit u/s 145(a)
2. Disallowance of deduction u/s 80-IB
3. Disallowance u/s 14A
4. Transfer Pricing Adjustment u/s 92C(3)

Analysis:

Issue 1: Disallowance on account of CENVAT credit u/s 145(a)
The AO made disallowances/additions, including CENVAT credit under section 145(a). The CIT(A) directed adjustments with reference to opening stock, purchase, and sales before considering the addition to closing stock due to unutilized CENVAT credit. The Revenue challenged this decision, arguing that the adjustment should not have been made before considering the CENVAT credit. The ITAT upheld the CIT(A)'s decision, citing relevant judgments and dismissed the Revenue's appeal on this ground.

Issue 2: Disallowance of deduction u/s 80-IB
The AO disallowed deduction u/s 80-IB based on the Chartered Accountant issuing certificates. The CIT(A) held that there is no legal requirement for the same Chartered Accountant to certify accounts and issue Form No. 10CCA for claiming the deduction. The ITAT upheld the CIT(A)'s decision, stating that the deduction cannot be denied on this ground.

Issue 3: Disallowance u/s 14A
The Revenue contested the CIT(A)'s decision to restrict the disallowance u/s 14A to Rs. 1,00,000, arguing that it ignored the ITAT Special Bench decision. However, the ITAT upheld the CIT(A)'s decision, considering it a reasonable disallowance based on the dividend income earned by the assessee.

Issue 4: Transfer Pricing Adjustment u/s 92C(3)
Regarding the transfer pricing adjustment under section 92C(3), the ITAT found that both the assessee and the AO did not comply with statutory requirements. The ITAT held that imposing enterprise level operating profits as margins earned on international transactions with associated concerns is not permissible. Citing previous Tribunal decisions, the ITAT set aside the issue for fresh adjudication in accordance with the law, directing the assessee to file a new transfer pricing study.

In conclusion, the ITAT partially allowed the Revenue's appeal, upholding certain decisions of the CIT(A) while setting aside the transfer pricing adjustment issue for fresh adjudication.