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2015 (7) TMI 215 - AT - Income TaxTransfer pricing adjustment - Held that - Respectfully following the order in assessee s own case for the assessment year 2006-07 this issue relating to adjustment in Arm s Length Price is set aside to the AO for fresh adjudication as in the preceding year wherein held assessee was entitled to select most appropriate method for a group of similar transactions. In doing so, he is free to choose difference methods for different business activities which in the present case are manufacturing physical trade & merchanting. Regarding additional evidence filed by the assessee in relation to documents from COVAT regarding import of oil, we find that assessee was prevented by sufficient cause for not filing these during assessment /DRP proceedings as the same were directed to be filed by DRP in assessee s own case for assessment year 2007-08 & 2008-09 and DRP on the basis of these had not made any addition in these years. Therefore, we admit the additional evidence as these are documents to arrive at the correct conclusion. In view of all facts and circumstances of the case as explained above we deem it appropriate to remit back the whole issue relating to transfer pricing to the office of Assessing Officer who will re-adjudicate the issue keeping in view all facts and circumstances. - Decided in favour of assessee for statistical purposes. Disallowance u/s 40(a)(i) of the Act for discounting charges - Held that - Since the facts involved for the year under consideration for this issue are similar to the facts involved in the preceding assessment year 2006-07 wherein held that the discounting charges are not in the nature of interest paid by the assessee. Rather after deducting discount, the assessee received net amount of bill of exchange accepted by the purchaser CFA not having any PE in India is not liable to tax in respect of such discount earned by it and hence the assessee is not under obligation to deduct tax at source u/s 195 of the Act. Accordingly, the same amount cannot be disallowed by invoking section 40(a)(i) of the Act. - Decided in favour of assessee. Addition on account of deemed dividend u/s 2(22)(e) - Held that - As decided in assessee s for the assessment year 2006-07 Assessing Officer himself arrived at the conclusion that assessee was not a direct registered shareholder in the lender company, therefore, relying upon various judgments as relied upon by Ld AR the loan received by assessee cannot be treated as deemed dividend u/s 2(22)(e) of the Act.- Decided in favour of assessee. Credit of additional TDS disallowed - Held that - A similar issue having identical facts was a subject matter of the assessee s appeal in the assessment year 2006-07 wherein held The provisions of section 155(14) empowers the Assessing Officer to give credit for tax deduction certificates which could not be filed with the return of income provided they are filed within two years from the end of assessment year in which such income was assessable and further provided that such income from which tax was deducted was disclosed in the return of income filed by assessee for that relevant assessment year. The assessee in the present case did not file such certificates within prescribed period of two years but filed these before the assessment was completed on 26.8.2010. However, various provisions of Act suggest that tax payable will always be after giving credit of tax deducted at source from the income of assessee. Therefore, keeping in view the substantive justice, we direct the Assessing Officer to give credit for such additional TDS certificates provided the income from which such TDS was deducted formed part of income declared by assessee in the return of income. - Decided in favour of assessee for statistical purposes
Issues Involved:
1. Transfer Pricing matters 2. Corporate Tax matters Detailed Analysis: 1. Transfer Pricing Matters: 1.1 Legality of Assessment Order: The assessee contested that the assessment order passed under section 143(3) read with Section 144C of the Income Tax Act, 1961, for the Assessment Year 2007-08 is "bad in law, contrary to facts, illegal and untenable," and thus, the additions made to the returned income should be deleted. 1.2 Violation of Natural Justice: The assessee argued that the TPO's order under section 92CA(3) and the directions issued by the DRP were contrary to law as the additions were made in gross violation of the principles of natural justice, without considering all relevant materials and by relying on irrelevant materials. 1.3 Specific Errors in Transfer Pricing Adjustments: The assessee raised several specific grievances regarding the DRP and TPO's handling of the transfer pricing adjustments: - 1.3.1 Profit Level Indicator (PLI): The DRP and TPO erred in concluding that 'Return on Value Added Costs' (ROVAC) used by the appellant as PLI for its merchanting business was not permissible while applying the Transactional Net Margin Method (TNMM). - 1.3.2 Market Prices and Comparable Uncontrolled Prices: The DRP and TPO failed to consider that all underlying international transactions of merchanting activities were undertaken at market prices and ignored the Comparable Uncontrolled Prices submitted by the appellant. - 1.3.3 Comparability of Trading Companies: The DRP and TPO erred in using trading companies as comparable to the appellant despite significant differences in economic value add, risk, and functions. - 1.3.4 Incomparable Trading Companies: Even if trading companies were to be used as comparables, the DRP and TPO considered incomparable trading companies. - 1.3.5 Inconsistent Basis for Operating Margin: The DRP and TPO adopted an inconsistent basis while calculating the operating margin of the appellant vis-`a-vis the comparable companies. - 1.3.6 Single Year vs. Multiple Year Data: The DRP and TPO erred in directing the use of single-year data as against the multiple-year data used by the appellant. - 1.3.7 5 Percent Variation: The DRP erred in not directing the TPO to allow a variation of 5 percent in determining the arm's length price. - 1.3.8 Failure to Address Objections: The DRP failed to deal with all the objections raised by the appellant without citing any reasons and proceeded purely on presumptions. Tribunal's Findings: The Tribunal observed that the issue was covered by its earlier order dated 28.11.2013 in the assessee's own case for the assessment year 2006-07. It noted that the facts for the year under consideration were identical to those in the previous year. Therefore, the Tribunal set aside the issue relating to the adjustment in Arm's Length Price to the AO for fresh adjudication, following the earlier order. 2. Corporate Tax Matters: 2.1 Disallowance of Discounting Charges: The assessee claimed that the discounting charges of Rs. 274,567,319/- should not have been disallowed under section 40(a)(i) of the Act. The AO had disallowed the charges, treating them as interest and holding that the assessee was liable to withhold tax under section 195. 2.1.1-2.1.8 Specific Arguments Against Disallowance: - The assessee argued that the discounting of PN results in business income for CTSFA, and in the absence of its Permanent Establishment (PE) in India under the relevant Double Tax Avoidance Agreement (DTAA), the same cannot be brought to tax in India. - The assessee contended that it had merely sold the PN at a discount and had not borrowed any loan or incurred any debt. - The assessee cited various circulars issued by the Central Board of Direct Taxes (CBDT) and judicial precedents to support its claim that the discounting charges were not interest and thus not liable for tax withholding under section 195. Tribunal's Findings: The Tribunal noted that the issue was covered by its earlier order dated 28.11.2013 in the assessee's own case for the assessment year 2006-07. It observed that the disallowance of discounting charges had been deleted by following the judgment of the Hon'ble Delhi High Court in the case of Cargill Global Trading India Pvt. Ltd. (CGTIPL) and that the SLP filed by the department against the said order had been dismissed by the Hon'ble Supreme Court. Therefore, the Tribunal deleted the impugned disallowance made by the AO. 2.2 Deemed Dividend: The AO treated Rs. 32,810,658/- as deemed dividend under section 2(22)(e) of the Act, based on the loan received from CGTIPL. The assessee contended that the provisions of section 2(22)(e) were not applicable as it was not a registered shareholder of CGTIPL. Tribunal's Findings: The Tribunal noted that the issue was covered by its earlier order dated 28.11.2013 in the assessee's own case for the assessment year 2006-07. It observed that the AO had arrived at the conclusion that the assessee was not a direct registered shareholder in the lender company. Therefore, relying on various judgments, the Tribunal held that the loan received by the assessee could not be treated as deemed dividend under section 2(22)(e) of the Act. 2.3 Credit for Additional TDS: The assessee claimed that the AO had erred in not giving credit for additional TDS certificates amounting to Rs. 22,225/- filed during the assessment proceedings. Tribunal's Findings: The Tribunal noted that a similar issue was a subject matter of the assessee's appeal for the assessment year 2006-07, wherein it had directed the AO to give credit for additional TDS certificates provided the income from which such TDS was deducted formed part of the income declared by the assessee in the return of income. Therefore, the Tribunal remanded the issue back to the AO to be decided in accordance with the directions given for the assessment year 2006-07. Conclusion: The appeal of the assessee was partly allowed for statistical purposes, with the issues relating to transfer pricing adjustments and credit for additional TDS remanded back to the AO for fresh adjudication. The disallowance of discounting charges and the addition on account of deemed dividend were deleted.
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