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2013 (10) TMI 973 - AT - Income TaxAllowability of expense of prior period Held that - Expense, related to prior period, should be either allowed in the present year or if it is not allowed in the present year, then the same should be allowed in the earlier year, to which such expenses are related to - The assessee has disclosed a loss of Rs.6,92,700/- in the present year, and in A.Y.2000-2001, the assessee has filed return of income disclosing NIL income after setting off of brought forward loss of earlier years to the extent of Rs.303.11 lakhs. Hence, even if this expenses are allowed in the earlier years i.e. A.Y. 2000-2001, it will ultimately be adjusted in the present year, by way of set off of brought forward loss, and therefore, it will make no difference even if deduction is allowed in the present year Decided against the Revenue. ALP in an international transaction to be decided by Appellate authorities Held that - Adjustments made on account of ALP by tax authorities can he deleted in appeal al only if the appellate authorities are satisfied and record finding that ALP submitted by the assessee is fair and reasonable. Merely finding faults with the transfer price determined by the revenue authorities (AO/TPO) addition on account of adjustments cannot he deleted. This is because the mandate of section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record have to determine ALP themselves. Subject to statutory Provisions, appellate authorities can direct lower revenue authorities to carne this exercise in accordance with law. The matter cannot he left hanging in between. ALP of international transaction has to he determined in every case. Excess payment of royalty - Payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities Held that - Explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex-factory sale value of the concerned products. It was also explained before the learned CIT(A) that if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e. parent company - Only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A), then the effective rate worked out is only 2.3% on sale, as against 3% paid by other group entities - This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue Decided against the Revenue. Refund of excess TDS deducted Held that - Appellant had made a wrong calculation of royalty for the period from 1.4.2003 to 30.6.2003 and deducted excess TDS and had paid the same. Therefore, the excess TDS to be recovered from the Income tax Department was worked to be Rs.16,25,243/- and the same was shown on the asset side of the balance sheet. This amount was not debited to P & L account but the appellant had wrongly disallowed the same in the statement of total income and it was claimed as deduction before the A.O. but the A.O. has not discussed the same in the assessment order and had not allowed the deduction. The A.O. is directed to allow the same as deduction Decided against the Revenue.
Issues Involved:
1. Ex-parte assessment under Section 144. 2. Disallowance of sales and warranty commission. 3. Admittance of fresh evidence in violation of Rule 46A. 4. Adjustment under Section 145A. 5. Prior period expenses. 6. Voluntary donation as business expenditure. 7. Delayed payment of employer's contribution to PF. 8. Old balance written off. 9. Consultancy fees. 10. Provision for obsolescence of inventory. 11. Transfer Pricing adjustments (Royalty Payment, Purchases, Depreciation). 12. Jurisdiction of CIT(A) to adjudicate issues decided by TPO. 13. Additional export value adjustment. 14. Provision for TDS on royalty. Issue-wise Detailed Analysis: 1. Ex-parte Assessment under Section 144: The CIT(A) commented that the AO should not have made the assessment ex parte under Section 144. The tribunal decided that since all issues on merit were addressed, no separate adjudication was required regarding this finding. 2. Disallowance of Sales and Warranty Commission: The CIT(A) deleted the disallowance based on the decision of the Bangalore Bench of the Tribunal and the Hon'ble Apex Court in the case of Rotork Controls India P. Ltd. The tribunal restored the matter to the CIT(A) for fresh decision after examining if the provision was made on a scientific basis. 3. Admittance of Fresh Evidence in Violation of Rule 46A: The CIT(A) deleted the disallowance made by the AO without obtaining a remand report. The tribunal restored the matter to the CIT(A) for fresh decision after obtaining a remand report from the AO. 4. Adjustment under Section 145A: The CIT(A) allowed the adjustment for under-valuation of closing stock. The tribunal upheld this decision, finding no reason to interfere. 5. Prior Period Expenses: The CIT(A) allowed the expenses either in the present year or the preceding year. The tribunal upheld this decision, noting that the AO ignored the request to allow the expenses in the relevant year. 6. Voluntary Donation as Business Expenditure: The CIT(A) allowed the voluntary donation as a business expenditure. The tribunal reversed this decision, noting that the assessee could not establish any business purpose served by the donation. 7. Delayed Payment of Employer's Contribution to PF: The CIT(A) allowed the delayed payment based on the judgment of the Hon'ble Apex Court in the case of Alom Extrusions. The tribunal upheld this decision. 8. Old Balance Written Off: The CIT(A) allowed the claim based on the judgment of the Hon'ble Apex Court in the case of TRF Ltd. The tribunal upheld this decision. 9. Consultancy Fees: The CIT(A) allowed the deduction on a proportionate basis. The tribunal upheld this decision, noting that the agreement was for a period of 12 months and the entire amount was paid in the present year. 10. Provision for Obsolescence of Inventory: The CIT(A) directed the AO to allow the claim subject to the assessee furnishing complete particulars. The tribunal upheld this decision, noting that the CIT(A) ensured all details and evidence were obtained and examined by the AO. 11. Transfer Pricing Adjustments: - Royalty Payment: The CIT(A) deleted the addition, noting that the effective rate of royalty paid by the assessee was less than that paid by other AEs. The tribunal upheld this decision. - Purchases: The TPO adopted TNMM, but the CIT(A) accepted CUP method used by the assessee. The tribunal restored the matter to the CIT(A) for fresh decision after verifying if the quotation price is supported by actual transaction prices. - Depreciation: The CIT(A) deleted the adjustment on the same basis as the purchase of raw materials. The tribunal restored the matter to the CIT(A) for fresh decision in line with the decision on purchase of raw materials. 12. Jurisdiction of CIT(A) to Adjudicate Issues Decided by TPO: The tribunal rejected the Revenue's contention, noting that the CIT(A) has the authority to adjudicate issues in an assessment order, regardless of the TPO's directions. 13. Additional Export Value Adjustment: The assessee did not press this ground, and the tribunal rejected it as not pressed. 14. Provision for TDS on Royalty: The CIT(A) allowed the deduction, noting that the amount was shown on the asset side of the balance sheet and not debited to the P&L account. The tribunal upheld this decision, noting no defect in the CIT(A)'s decision. Conclusion: The tribunal's decisions resulted in partial allowances for statistical purposes and rejections of certain grounds, with some matters being restored to the CIT(A) for fresh decisions. Both COs of the assessee were dismissed.
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