2012 (12) TMI 1113 - AT - Income Tax

Summary

Issues Involved:
1. Transfer pricing adjustment for international transactions of sale of polyester film products.
2. Transfer pricing adjustment on account of commission paid to the A.E.
3. Disallowance u/s 14A of the Act.
4. Disallowance of unexplained receipts.

Summary:

1. Transfer Pricing Adjustment for International Transactions of Sale of Polyester Film Products:
The assessee challenged the transfer pricing adjustment of Rs. 2,00,47,316 for the sale of polyester film products to its Associated Enterprises (A.Es). The Tribunal noted that the issue was identical to the assessee's own case for the assessment year 2005-06. The Tribunal found that the Transfer Pricing Officer (TPO) had made adjustments by comparing the average price charged to non-A.Es with the price charged to A.Es, rejecting the assessee's approach of comparing local sales in the Indian market. The Tribunal set aside the impugned order and directed the TPO to adopt the Transactional Net Margin Method (TNMM) and carry out a fresh comparability analysis, providing the assessee an opportunity to present necessary information.

2. Transfer Pricing Adjustment on Account of Commission Paid to the A.E.:
The assessee contested the adjustment of Rs. 9,80,596, where the TPO adjusted the arm's length rate of commission to 5% instead of 12.5%. The Tribunal referred to the assessee's own case for the assessment year 2005-06, where it was held that the arm's length commission rate should be 10%. The Tribunal upheld the rate of 10% as arm's length and set aside the benefit of +/- 5% given by the Commissioner (Appeals). Thus, the ground was partly allowed.

3. Disallowance u/s 14A of the Act:
The Assessing Officer (AO) disallowed Rs. 1,62,56,000 u/s 14A, applying Rule-8D, which was confirmed by the Dispute Resolution Panel (DRP). The Tribunal noted that Rule-8D is applicable only from the assessment year 2008-09, as per the Hon'ble Jurisdictional High Court's judgment in Godrej & Boyce Mfg. Co. Ltd. The Tribunal directed the AO to re-examine the nature of investment and expenditure attributable to such investment and work out a reasonable basis without resorting to Rule-8D. The ground was partly allowed for statistical purposes.

4. Disallowance of Unexplained Receipts:
The AO added Rs. 28,685 as unexplained receipts from East West Freight Carriers Ltd., which was not credited in the Profit & Loss account. The assessee argued that the AO did not provide a proper opportunity to explain the transaction. The Tribunal set aside the impugned order and restored the matter to the AO, directing him to provide a proper opportunity to the assessee to present relevant details. The ground was allowed for statistical purposes.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, with directions for fresh examination and opportunity for representation on the contested issues.