2015 (6) TMI 361 - AT - Income Tax

TP adjustment - adopted the ALP margin at 35.18% in place of 22.17% and thus, arriving at an adjustment of ₹ 1,45,10,908/- - Held that - TPO has arrived at the figure of 35.18% margin in the cases of non-AE sales. Such calculation is not made part of the TPOs order. Ld. DRP also did not give any reason to reduce the rate of 35.18% to 30% and same has been reduced in adhoc manner. As against these actions of TPO and DRP, it is the case of the assessee that on similar transaction in earlier years no TP adjustment is made and the matter has to be considered in right perspective. We observe that the assessee has applied Cost Plus Method which has been accepted by TPO but in fact as it appears from the order passed by TPO, that he has adopted internal CUP method when he applied margin of non-AE to the transaction of the assessee with it s A.E. Keeping in view all these facts, We consider it appropriate to accept the request of Ld. AR to restore this issue to the file of TPO. Accordingly, we restore the issue to the file of TPO with a direction to consider this issue denovo and pass a reasoned and speaking order - Decided in favour of assesse for statistical purposes. Addition on account of employees contribution to PF and ESIC - Held that - After hearing both the parties, respectfully following the aforementioned decision of Hon ble Bombay High Court in the case of CIT vs. Ghatge Patil Transports Ltd., (2014 (10) TMI 402 - BOMBAY HIGH COURT)in which it has been held that the Tribunal was right in deleting the addition with regard to payment of employees contribution when the payment has been made before due date of filing the return, we delete the disallowance as all the payments are made before due date of filing of the return. - Decided in favour of assesse. Addition of interest under section 41(1) - Held that This issue is restored back to the file of AO with a direction to verify the contention of the assessee and, if after verification, it is found that the impugned amount is already offered to tax in assessment year 2004-05 and 2005-06, then no addition should be made in the present year and, if the contention of the assessee is not found to be correct, then the same may be added to the income of the assessee after giving the assessee a reasonable opportunity of hearing.- Decided in favour of assesse for statistical purposes.

Summary

Issues involved:
1. TP adjustment under section 92CA of the Income Tax Act.
2. Addition on account of employees' contribution to PF and ESIC.
3. Addition of interest under section 41(1) of the Act.

TP Adjustment (Issue 1):
The Appellate Tribunal considered the TP adjustment made by the Transfer Pricing Officer (TPO) under section 92CA of the Act. The TPO observed that the assessee made lesser margin on sales to associated enterprises (AE) compared to non-AEs. The TPO adopted an arm's length profit margin of 35.18%, resulting in an adjustment of Rs. 1,45,10,908. The assessee contended that the difference in profits was due to geographical factors and bulk sales. The Dispute Resolution Panel (DRP) reduced the margin to 30% considering these aspects. The Tribunal noted that the TPO's calculation method was unclear, and the DRP's reduction lacked reasoning. In light of the assessee's consistent method in previous years and to ensure justice, the Tribunal directed the issue to be reconsidered by the TPO, allowing the appeal for statistical purposes.

Employees' Contribution to PF and ESIC (Issue 2):
Regarding the addition on account of employees' contribution to PF and ESIC, the Tribunal referred to a decision of the Bombay High Court, stating that payments made before the due date of filing the return are allowable. The Tribunal upheld the assessee's contention that all payments were made before the due date, following the High Court's decision. Thus, the disallowance was deleted based on the timing of the payments.

Interest Addition under Section 41(1) (Issue 3):
The Tribunal addressed the addition of interest under section 41(1) amounting to Rs. 48,72,000. The assessee argued that this income had already been offered in earlier assessment years, providing detailed explanations and supporting documents. The Tribunal found that the DRP did not consider this issue adequately and directed the matter to be verified by the Assessing Officer (AO). If the amount was indeed offered in previous years, no addition should be made; otherwise, it could be added after due verification. The Tribunal allowed the appeal on this issue for statistical purposes.

In conclusion, the Appellate Tribunal ITAT MUMBAI reviewed and addressed the TP adjustment, employees' contribution to PF and ESIC, and the addition of interest under section 41(1) in the appeal filed by the assessee. The Tribunal directed the reconsideration of the TP adjustment by the TPO, deleted the disallowance related to employees' contributions based on the timing of payments, and instructed the AO to verify the previous offering of interest income before making any addition. The appeal was allowed for statistical purposes on all three issues.