2016 (7) TMI 1493 - AT - Income Tax

Disallowance u/s 10A - splitting up or reconstruction of the existing unit - Held that - DRP directed the Assessing Officer to consider the claim of the assessee in the light of the CBDT Circular No.1 of 2013 dated 17.1.2013. A similar direction was given by this Tribunal in assessee s own case for assessment year 2007-08. CIT(A), for the assessment year 2007-08, in fact, examined this issue and found that there was no case for splitting up or reconstruction, and accordingly, allowed the claim of the assessee u/s 10A. The order of the CIT(A) for the assessment year 2007-08 is dated 3.2.2016. It is not known whether the Revenue has filed any appeal before this Tribunal against the order of the CIT(A) for assessment year 2007-08. However, for the sake of consistency, this Tribunal is of the considered opinion that the DRP has rightly directed the Assessing Officer to consider CBDT Circular No.1 of 2013 and adjudicate the claim of the assessee u/s 10A of the Act. Transfer pricing adjustment - assessee submitted assessee-company do not have any controlling interest in respect of the so called concern with which the assessee entered into international transaction - Held that - This Tribunal is of the considered opinion that since the assessee claims to have less than 26% interest in the Associated Enterprise and not holding any controlling interest in the management and finance, the matter needs to be reexamined by the Assessing Officer. In other words, whether the non-resident company to which the assessee has transaction is an Associated Enterprise within the parameters of law needs to be examined. Since such an exercise was not done either by the TPO or DRP, this Tribunal is of the considered opinion that the matter needs to be reexamined. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the issue afresh after referring the matter once again to the TPO and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. Domestic transaction entered into by one of the comparable company viz. Dun & Bradstreet Information Services India Pvt. Ltd (DB India) - Held that - As rightly submitted by the ld. Counsel and the ld. DR, when transfer pricing adjustments were made in respect of the international transaction, the domestic transaction has to be excluded. However, the matter needs to be verified whether DB India has any transaction in the domestic market as claimed by the assessee. Since nobody has examined the transaction of DB India with its non- Associated Enterprise, this Tribunal is of the considered opinion that the matter needs to be reexamined as claimed by the ld. DR. Accordingly, the orders of the lower authorities are set aside and the issue with regard to transfer pricing adjustment is remitted back to the file of the Assessing Officer. Reimbursement in the cost and revenue base while computing the entity level margins and also TDS credit - Held that - This Tribunal is of the considered opinion that when the tax was deducted, credit shall be given while computing the tax liability of the assessee. Therefore, the Assessing Officer shall verify the TDS credit in respect of the assessee and give necessary credit while determining the tax liability of the assessee.

Summary

Issues:
1. Disallowance of deduction claimed u/s 10A of the Act.
2. Transfer pricing adjustment made by the DRP.
3. Consideration of domestic transaction in transfer pricing adjustment.
4. Reimbursement in the cost and revenue base while computing entity level margins and TDS credit.
5. Interest levied u/s 234B and 234C of the Act.

1. Disallowance of Deduction u/s 10A:
The appeal concerns the disallowance of deduction claimed u/s 10A of the Act for the assessment year 2009-10. The Assessing Officer rejected the claim, but the CIT(A) allowed it based on the acquisition of the entire undertaking by slump sale. The A direction was given to consider the claim in light of the CBDT Circular. The Tribunal found no infirmity in the direction, emphasizing the need for consistency with previous rulings. The order of the lower authority was confirmed, upholding the direction to consider the claim under section 10A.

2. Transfer Pricing Adjustment:
Regarding transfer pricing adjustment, the issue revolved around the controlling interest of the assessee in the associated enterprise. The DRP presumed control based on pricing but failed to provide a clear finding. The Tribunal agreed that the matter required reexamination, emphasizing the necessity for the Assessing Officer to determine the associated enterprise status based on legal parameters. The orders of the lower authorities were set aside, and the issue was remitted back for reassessment.

3. Consideration of Domestic Transaction in Transfer Pricing Adjustment:
The grievance raised by the assessee was the consideration of domestic transactions of a comparable company in transfer pricing adjustments. Both the TPO and DRP included domestic transactions, which the Tribunal agreed should be excluded when dealing with international transactions. The matter was to be reexamined to verify the transactions of the comparable company, ensuring proper exclusion of domestic transactions for accurate transfer pricing adjustments.

4. Reimbursement and TDS Credit:
No specific arguments were presented on these issues during the hearing. However, the Tribunal emphasized the necessity of giving TDS credit while computing the tax liability of the assessee. The Assessing Officer was directed to verify the TDS credit and provide necessary adjustments in determining the tax liability.

5. Interest Levied u/s 234B and 234C:
The Tribunal directed the reassessment of interest levied under sections 234B and 234C of the Act. The Assessing Officer was instructed to reconsider the matter and decide on the levy of interest in accordance with the law, ensuring a reasonable opportunity for the assessee. The appeal of the assessee was partly allowed for statistical purposes, with the order pronounced in July 2016 at Chennai.