2013 (10) TMI 1454 - AT - Income Tax

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Arm's Length Price Determination
3. Unabsorbed Depreciation Adjustment
4. Penalty Proceedings u/s 271(1)(c)

Summary:

Transfer Pricing Adjustment:
The assessee contested the transfer pricing adjustment of Rs. 35,17,37,000 made by the AO based on the DRP's directions. The AO aggregated the manufacturing sub-segments and failed to appreciate the nuances of the segmented business operations. The DRP/AO did not consider the TP policy and additional evidence submitted by the assessee. The ITAT remanded the case back to the AO to analyze the additional evidence submitted before the DRP, in line with the decision in the assessee's own case for Assessment Year 2007-08. The ITAT emphasized the need for a transaction-by-transaction analysis to determine the arm's length nature of the international transactions, as supported by various judicial precedents and OECD guidelines.

Arm's Length Price Determination:
The DRP/AO erred in determining the arm's length price for the Contract R&D support services segment by ignoring the tax holiday entitlement u/s 10A and not allowing the benefit of the +/-5% range mentioned in the proviso to Section 92C(2). The ITAT directed the AO to first ascertain the comparability of the supplementary evidence provided by the assessee and then analyze the pricing policy in light of these evidences.

Unabsorbed Depreciation Adjustment:
The assessee raised the issue of not adjusting the unabsorbed depreciation of Rs. 1,38,51,671 from Assessment Year 2007-08 against the current year income. Since the order for Assessment Year 2007-08 was already set aside to the AO, the ITAT restored this issue back to the AO for reconsideration.

Penalty Proceedings u/s 271(1)(c):
The issue of penalty proceedings u/s 271(1)(c) for concealment of income or furnishing inaccurate particulars was considered premature by the ITAT. The ITAT remanded the issue back to the AO along with the transfer pricing adjustment and the determination of the assessee's entitlement u/s 10A.

Conclusion:
The ITAT allowed the appeal for statistical purposes, remanding all issues back to the AO for fresh adjudication based on the supplementary evidence and in accordance with the principles of arm's length pricing. The order was pronounced in open court on October 9, 2013.