2016 (1) TMI 1366 - AT - Income Tax

TPA - most appropriate method for determining ALP & quantification of TP adjustment - Held that - The issue in the present case is covered by the decision of Tribunal in assessee s favour by the Tribunal s order in assessee s own case for A.Ys. 2003-04 & 2004-05 2011 (2) TMI 1283 - ITAT AHMEDABAD wherein Hon ble ITAT has held that TNMM method is the most appropriate method. Thus the entire TP adjustment should have been deleted. Claim of bad debts written off - Held that - The amount which has been claimed by the assessee as bad debts have been written off in the books of account. Hon ble Apex Court in case of TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT ) has held that in view of the amended provisions w.e.f. 01.04.1989 it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the account of the assessee. - Decided in favour of assessee

Summary

Issues Involved
1. Jurisdiction of CIT(A) in set-aside proceedings.
2. Transfer Pricing Adjustment using CUP method instead of TNMM.
3. Disallowance of written-off sundry balances.
4. Disallowance of loss on forfeiture of shares.
5. Levying of interest under sections 234B/C/D of the Act.

Detailed Analysis

1. Jurisdiction of CIT(A) in Set-Aside Proceedings:
The Assessee contended that the CIT(A) erred in law by going beyond the directions of the Hon'ble ITAT in a set-aside proceeding, which is not permissible under the law. This ground was deemed general and required no adjudication.

2. Transfer Pricing Adjustment Using CUP Method Instead of TNMM:
The primary issue revolved around the Transfer Pricing Adjustment of Rs. 49,31,625/-. The TPO had initially made adjustments in the sale price of 8 products by rejecting the TNMM method selected by the Assessee and adopting the CUP method. The CIT(A) partially upheld the TPO's adjustments but confirmed the addition only for one product, amounting to Rs. 49,31,625/-.

The CIT(A) analyzed the methods under Rule 10B of the IT Rules, emphasizing the broader functional level comparison required under TNMM and the detailed product/service price comparison under CUP. The CIT(A) found that the Assessee's TNMM method was more appropriate for 7 out of 8 products due to the complexity and diversity of transactions. However, for the product Tetra Butyl AMM BR, the CIT(A) upheld the CUP method, leading to the partial adjustment.

The Tribunal, following its earlier decisions in the Assessee's own case and that of its associate concern, Schutz Dishman Bio-tech Pvt. Ltd., held that the TNMM method was the most appropriate for determining ALP. Consequently, the Tribunal deleted the entire TP adjustment made by the Assessing Officer, allowing the Assessee's appeal and dismissing the Revenue's appeal.

3. Disallowance of Written-Off Sundry Balances:
The Assessee claimed Rs. 13,16,191/- as sundry balances written off, which was disallowed by the Assessing Officer and upheld by the CIT(A) based on the decision of the Hon'ble Gujarat High Court in Dhall Enterprise and Engineers Pvt. Ltd. The Tribunal, however, applied the Supreme Court's ruling in TRF Ltd. vs. CIT, which held that post-01.04.1989, it is sufficient if the bad debt is written off in the accounts, without needing to prove it irrecoverable. Based on this, the Tribunal directed the deletion of the addition, allowing the Assessee's claim.

4. Disallowance of Loss on Forfeiture of Shares:
The Assessee's claim of Rs. 4,65,074/- as a loss on forfeiture of shares was disallowed by the Assessing Officer and upheld by the CIT(A). During the appeal, the Assessee chose not to press this ground, leading to its dismissal by the Tribunal as not pressed.

5. Levying of Interest Under Sections 234B/C/D of the Act:
The Assessee contested the levy of interest under sections 234B/C/D of the Act, arguing that the orders were passed without properly appreciating the facts and ignoring various submissions. However, this issue was not separately adjudicated in the Tribunal's final decision.

Conclusion
The Tribunal allowed the Assessee's appeal partly by deleting the entire Transfer Pricing adjustment and the disallowance of written-off sundry balances, while dismissing the Revenue's appeal. The ground regarding the loss on forfeiture of shares was dismissed as not pressed. The Tribunal's decision was pronounced in open Court on 08.01.2016.