2010 (11) TMI 769 - AT - Income Tax

Disallowance of deduction under section 80HHC in respect of sale of profit on DEPB licence - Held that - Merit in the plea of the parties that the matter requires to be restored to the file of the AO in view of Kalpataru Colours & Chemicals case (2010 (6) TMI 63 - BOMBAY HIGH COURT). Arm length price - CIT(A) deleted the addition - Held that - The aggregate difference of Rs. 6,94,310 between sale of L&T LLC (Rs. 2,13,64,571) Arm s Length Price (Rs. 2,06,70,261) is only 3.35% and is well within the 5% of the tolerance limit permitted by the law - In the absence of any contrary material placed on record by the revenue against the finding of the CIT(A) and keeping in view that the difference between the sale of L&T LLC and Arm s Length Price is only 3.35% which is well within the limit of 5% uphold the finding of the ld. CIT(A) in deleting the addition made by the Assessing Officer - The ground taken by the revenue is, therefore, rejected.

Summary

Issues involved:
1. Deduction under section 80HHC in respect of profit on DEPB license.
2. Addition under section 92CA(3) regarding transfer pricing adjustments.

Issue 1 - Deduction under section 80HHC:
The appeal pertains to the allowance of deduction under section 80HHC for profit on DEPB license by the Assessing Officer. The Assessing Officer questioned the eligibility of the assessee for this deduction due to the DEPB Scheme. However, the ld. CIT(A) ruled in favor of the assessee, stating that the conditions under the proviso to section 80HHC were met. The Appellate Tribunal noted that the issue was similar to a recent judgment by the Jurisdictional High Court and decided to restore the matter to the Assessing Officer for reconsideration in line with the court's decision. The Tribunal directed a reevaluation of the claim after providing a reasonable opportunity for the assessee to be heard. The revenue's grounds were partly allowed for statistical purposes in this regard.

Issue 2 - Addition under section 92CA(3) - Transfer Pricing:
The second issue concerns the addition of Rs. 7,28,865 made by the Assessing Officer under section 92CA(3) related to transfer pricing adjustments. The ld. CIT(A) disagreed with the Assessing Officer's decision based on the facts presented. The ld. CIT(A) highlighted that the difference between the sale price to a related party and the Arm's Length Price was within the permissible tolerance limit of 5%. The Tribunal upheld the ld. CIT(A)'s decision, noting that the TPO's approach was selective and arbitrary. As there was no contrary material presented by the revenue against the ld. CIT(A)'s findings, the Tribunal rejected the revenue's ground on this issue. Consequently, the revenue's appeal was partly allowed for statistical purposes.

In conclusion, the Appellate Tribunal's judgment addressed the issues of deduction under section 80HHC and transfer pricing adjustments under section 92CA(3), providing detailed analysis and considerations based on the facts and legal provisions involved in the case.