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2015 (1) TMI 486 - AT - Income TaxAssessment u/s 144 - rejection of books of accounts - order of DRP u/s 144C - Held that - DRP allowed the assessee to produce books of accounts and other related books and vouchers before the AO, hence, the AO is duty bound to accept the same during the remand proceedings and merely because the assessee had not accounted the additional custom duty paid and the AO had short span of time for verification of books of accounts and related bills and vouchers, the books of accounts of the assessee cannot be rejected. We also hold that when the DRP is allowing the assessee submission of books of accounts, then it is not open for the AO to examine the sufficient cause which prevented the assessee to submit books of acoutns during draft assessment proceedings. Thus inclined to hold that the action of the AO rejecting the books of accounts of the assessee is not based on justified and legal reasoning, hence, ground of the assessee is allowed. Refusal to admit additional evidence submitted by the assessee - Held that - DRP has allowed the assessee to submit its books of accounts and other relevant bills and vouchers before the AO during remand proceedings, hence, unable to accept this contention of the assessee that the DRP refused or declined to admit the additional evidence. Accordingly, this ground of the assessee being devoid of merits is dismissed. Transfer pricing adjustment - Addition to the income - difference between the value of MRP declared to custom authorities and the value of Maximum Retail Price (MRP) altered by the assessee on account of products sold by it to the Indian AE - Held that - TPO through its order dated 28.2.2014 passed u/s 154 of the Act rectifying the DRP assessment order dated 26.12.2013 have held that the assessee paid ₹ 31,10,33,139/- for the purchases made from its AE as against ₹ 35,29,83,970/- which is the ALP worked out in accordance with Rule 10B(1)(b) of the Act and the price paid by the assessee for purchases being lower than the ALP worked out therein, no adjustment on this account is being made. Thus, we further hold that the AO/DRP is duty bound to pass an order in this regard in conformity with the value determined by the AO and the provisions of the Act do not allow this authority to take a different stand or view against the order of the TPO. We also note that the sales shown by the assessee to Tianjin India has been accepted by the AO in the case of purchaser i.e. Tianjin India, hence, the sales made by the assessee cannot be disturbed by baseless estimation in the name of suppressed sales as wrongly alleged by the Revenue. Thus reach to a logical conclusion that the estimation of suppressed sale made by the AO of the assessment order dated 13.1.2014 is not justified, cogent and acceptable and further hold that the DRP was not right in upholding the draft assessment order on this issue. Accordingly, ground of the assessee are allowed. Ad hoc addition made by the AO on estimated basis - Held that - When rejection of books of accounts by the AO is not valid and justified, then the impugned ad hoc disallowance of 10% of the expenditure claimed by the assessee, as proposed by the AO, is not sustainable and held to be without any basis. Therefore, we are inclined to hold that the DRP was right in deleting impugned ad hoc disallowance of ₹ 92,65,306/- being 10% of total expenses claimed by the assessee. Accordingly, this ground of the revenue being devoid of merits deserves to be dismissed and we dismiss the same
Issues Involved:
1. Assessment of total income. 2. Addition based on the difference in MRP. 3. Rejection of books of accounts. 4. Refusal to admit additional evidence. 5. Initiation of penalty proceedings. 6. Deletion of ad-hoc disallowance of expenses. Issue-wise Detailed Analysis: 1. Assessment of Total Income: The Assessee contested the assessment of total income at Rs. 50,60,71,388 against the returned income of Rs. 7,92,82,894. The Tribunal noted that the AO made an addition of Rs. 42,67,87,494 based on the difference between the MRP declared to customs authorities and the altered MRP by the Assessee. The Tribunal concluded that the AO's action was not justified, as the concept of MRP used for customs duty purposes cannot be imported into the Income Tax Act for assessing income. The Tribunal held that the AO and DRP failed to appreciate that the MRP has no relevance in determining the actual sales value under the Income Tax Act. Hence, the Tribunal allowed the Assessee's grounds related to this issue. 2. Addition Based on Difference in MRP: The AO added Rs. 42,67,87,494 to the Assessee's income based on the difference between the declared and altered MRP. The Tribunal found that the AO's reliance on MRP for determining suppressed sales was misplaced. The Tribunal emphasized that the MRP is a legal fiction for customs and excise duty purposes and does not impact the actual transaction value between the Assessee and its AE. The Tribunal noted that the TPO had accepted the Assessee's transactions as being at arm's length and that the AO should have adhered to the TPO's findings. The Tribunal set aside the addition made by the AO. 3. Rejection of Books of Accounts: The AO rejected the Assessee's books of accounts, alleging that the Assessee failed to produce them during the draft assessment proceedings. The Tribunal observed that the DRP had directed the AO to allow the Assessee to produce its books during remand proceedings, which the Assessee did. The Tribunal held that the AO's rejection of the books was unjustified, especially since the AO had initially found nothing adverse upon verification. The Tribunal allowed the Assessee's ground on this issue. 4. Refusal to Admit Additional Evidence: The Assessee argued that the DRP erred in refusing to admit additional evidence. The Tribunal found no merit in this contention, noting that the DRP had allowed the Assessee to submit its books of accounts and other relevant documents during remand proceedings. The Tribunal dismissed this ground of the Assessee. 5. Initiation of Penalty Proceedings: The Tribunal did not adjudicate this ground, considering it premature and consequential to the main issue. Therefore, this ground was dismissed without any adjudication. 6. Deletion of Ad-hoc Disallowance of Expenses: The Revenue contested the DRP's direction to delete the proposed addition of Rs. 92,65,306, being 10% of the total expenses claimed by the Assessee. The Tribunal noted that the AO had not provided any rational basis for the ad-hoc disallowance and that nothing adverse had come to light regarding the expenses during proceedings before DRI/customs authorities. The Tribunal upheld the DRP's decision to delete the ad-hoc disallowance, dismissing the Revenue's appeal on this ground. Conclusion: The Tribunal allowed the Assessee's appeal regarding the assessment of total income and addition based on the difference in MRP, holding that the AO's actions were unjustified. The Tribunal also allowed the Assessee's ground on the rejection of books of accounts but dismissed the ground related to the refusal to admit additional evidence. The ground on penalty proceedings was dismissed as premature. The Tribunal dismissed the Revenue's appeal, upholding the DRP's deletion of the ad-hoc disallowance of expenses.
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