2012 (10) TMI 25 - AT - Income Tax

Disallowance u/s 145A - erroneous claim of Modvat credit on the raw material and packing material on the basis of purchase and not on the basis of consumption - Held that - As decided in CIT v. Mahalaxmi Glass Works Pvt. Ltd. 2009 (4) TMI 182 - BOMBAY HIGH COURT it is not appropriate to include the closing Modvat in the figure of closing stock without modifying the figures of purchases, sales and opening stock. As the authorities below have not adjusted all the relevant figures with the amount of tax, duty, cess etc., the impugned order is set aside and restore the matter to the file of A.O. for deciding it afresh - in favour of assessee for statistical purposes. Benefit of 5% margin u/s 92C(2) in determining the Arm s Length Price denied - Held that - The Finance Act, 2012 with the insertion of sub-section (2A) to section 92C with retrospective effect has been made clear that where the variation between arithmetical mean and price at which the transaction has actually been undertaken exceeds 5% of arithmetical mean, the assessee shall not be entitled to exercise the option. Thus in view of this amendment to section 92C the CIT(A) was justified in not granting standard adjustment of 5% - against assessee.

Summary

Issues:
1. Additional ground raised by the assessee regarding adjustment in the value of opening stock for a subsequent assessment year.
2. Disallowance of Rs. 3,11,59,239 under section 145A for claiming Modvat credit.
3. Rejection of benefit of 5% margin in determining Arm's Length Price (ALP) for export transactions.

Analysis:

Issue 1:
The assessee raised an additional ground related to adjusting the value of the opening stock for a subsequent assessment year if an addition is sustained under section 145A for the current year. The Tribunal admitted this ground for hearing on merits as it involved a substantial question of law without introducing fresh facts.

Issue 2:
Regarding the disallowance of Rs. 3,11,59,239 under section 145A, the assessee claimed that the amount was not liable to be added as it was due to an error in claiming Modvat credit. However, both the Assessing Officer and the CIT(A) upheld the addition. The Tribunal observed that for the assessment year in question, the provisions of section 145A required adjustments in the value of purchases, sales, and opening stock to include taxes paid or incurred. Citing relevant judgments, the Tribunal set aside the previous orders and directed the Assessing Officer to re-decide the matter in compliance with section 145A.

Issue 3:
The final ground of the appeal involved the rejection of a 5% margin benefit in determining the Arm's Length Price (ALP) for export transactions. The TPO proposed an adjustment, which was upheld by the CIT(A) based on the ALP exceeding the declared price by more than 5%. The Tribunal noted a retrospective amendment to section 92C, which clarified that if the difference between the arithmetical mean and the transaction price exceeded 5%, the 5% standard adjustment would not apply. Consequently, the Tribunal upheld the CIT(A)'s decision, denying the standard adjustment of 5%.

In conclusion, the appeal was partly allowed for statistical purposes, addressing the various issues raised by the assessee in relation to the assessment year 2003-04.