2014 (5) TMI 772 - AT - Income Tax

Transfer pricing adjustment Determination of ALP Held that - The assessing authority issued notice u/s 133(6) to M/s Magnum Interior P. Ltd. on 28-1-2014 - the party did not furnish any detail except balance confirmation, the AO proceeded to add the entire amount as deemed income on account of short receipt declared in P&L A/c - The AO is found to have made an order within a short span of time on 8-2-2014 after it had required M/s Magnum Interior P. Ltd. to furnish information through its notice dated 28- 1-2014 - No reasonable time was allowed to the said vendor to furnish details as sought by the assessing authority nor assessee was required to bring such details on record from the vendors - The AO has not made genuine efforts to obtain the details and reconcile the difference - The addition made appears to be a result of lack opportunity to the assessee thus, the addition is set aside and the matter is remitted back to the AO for procuring requisite details by exercise of his powers under the Act and make reconciliation with the transactions recorded in assessee s books of account before making any addition for deficiency. Addition on account of transaction with M/s N Links Held that - The assessment order does not reveal the mode and manner of sending the notice to the vendor - After the notice stood returned, the AO did not confront the assessee about this fact nor required him to give his address or call for the requisite information and furnish it to the AO for carrying out the directions given by DRP - the assessee could not be expected to have reconciled the difference nor assessing officer can be said to have made bona fide effort to carry out the exercise as directed by the DRP- thus, the addition is set aside and the matter is remitted back to the AO so that requisite inquiries are made and assessee is confronted with the results. The transactions with M/s Thinkpot, the assessee has pointed out that difference in accounts of the vendor with that of assessee is due to the fact that different method of accounting have been adopted by them - The assessee claims to have furnished copies of invoices issued by M/s Thinkpot and has also furnished bank statement for evidencing the payment made to the vendor through a/c payee cheuqes - The AO did not make any reasonable effort or attempt to verify the genuineness and correctness of the transactions before reaching the conclusion of difference in the accounts thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Adjustment of interest on outstanding payment from AE Held that - There is delay beyond stipulated period in recovery of dues in the international transaction with AE - The assessee did not bring on record any similar uncontrolled transaction to show that no interest has been charged by it for similar delays nor any exact comparability has been established - DRP after considering the legal position, as contemplated under explanation (1)(c) below sec. 92B of the Act Relying upon with reference to material and relevant facts on record, passed reasoned order and having regard to judgment dated 7-10-2010 of ITAT Bangalore Bench in the case of M/s Logix Micro Systems Ltd. Vs. ACIT 2010 (10) TMI 902 - ITAT BANGALORE there was no infirmity in the directions given by DRP Decided against Assessee.

Summary

Issues Involved:
1. Addition of amounts paid to vendors as income.
2. Disallowance of billing amount difference.
3. Consideration of evidences and principles of natural justice.
4. Treatment of inter-company receivables as international transactions.
5. Legality and adherence to principles of natural justice in additions/disallowances.
6. Initiation of penalty proceedings under section 271(1)(c).
7. Credit of tax deducted at source and self-assessment tax.
8. Charging of excess interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Addition of Amounts Paid to Vendors as Income:
The assessee contested the addition of amounts paid to vendors, Magnum Interiors Private Limited and N. Links, as income due to non-verification by the AO. The AO disregarded the details provided by the assessee, including ledger accounts, invoices, and bank statements. The Tribunal found that the AO did not provide reasonable time for the vendors to respond to the notices and did not make genuine efforts to reconcile the differences. The Tribunal set aside the additions and remitted the matter back to the AO for further verification and reconciliation.

2. Disallowance of Billing Amount Difference:
The AO disallowed the difference in billing amounts between the vendor Thinkpot and the assessee due to different accounting policies. The Tribunal noted that the assessee provided invoices and bank statements, but the AO did not make reasonable efforts to verify the transactions. The Tribunal set aside this addition and remitted it back to the AO for fresh reconciliation.

3. Consideration of Evidences and Principles of Natural Justice:
The Tribunal observed that the AO did not properly consider the evidences and material on record, leading to unjust additions. The Tribunal emphasized the need for the AO to make genuine efforts to obtain details and provide the assessee with an opportunity to support its claims, adhering to the principles of natural justice.

4. Treatment of Inter-Company Receivables as International Transactions:
The AO and TPO treated delayed payments from AEs as unsecured loans and benchmarked them using the Comparable Uncontrolled Price (CUP) method, leading to an adjustment of Rs. 83,814/-. The Tribunal upheld the DRP's directions, which allowed a 30-day period for payment and used the SBI base rate plus 150 basis points for benchmarking. The Tribunal found no infirmity in the DRP's reasoned order and rejected the assessee's ground.

5. Legality and Adherence to Principles of Natural Justice in Additions/Disallowances:
The Tribunal noted that the additions and disallowances made by the AO were based on presumptions and assumptions without providing adequate opportunity to the assessee. The Tribunal emphasized the need for the AO to follow the principles of natural justice and make genuine efforts to verify the transactions.

6. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal found the initiation of penalty proceedings under section 271(1)(c) to be premature and rejected the ground accordingly.

7. Credit of Tax Deducted at Source and Self-Assessment Tax:
The Tribunal did not specifically address this issue in detail, implying that it may not have been a significant point of contention in the appeal.

8. Charging of Excess Interest Under Sections 234B and 234C:
The Tribunal noted that the charging of interest under sections 234B and 234C is consequential in nature and directed the AO to calculate the interest while giving effect to the appellate order.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, setting aside certain additions and remitting them back to the AO for fresh verification and reconciliation, while upholding the adjustments related to inter-company receivables and rejecting the initiation of penalty proceedings. The Tribunal emphasized adherence to the principles of natural justice and the need for genuine efforts in verifying transactions.