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2018 (2) TMI 1914 - AT - Income TaxNotice u/s 143(2) issued before the reference u/s 92CA(1) - Whether the reference u/s 92CA(1) is bad because notice under section 143(2) of the Act was issued subsequently and on that ground the assessment proceedings were vitiated and bad under law? - HELD THAT - A reference under section 92CA(1) could validly be made by the AO to the TPO for determination of ALP of an international transaction even before a notice under section 143(2) of the Act was issued and the requirement of law is that as on the date of such a reference the income tax return in respect of which notice u/s 143(2) of the Act could be issued, must be pending without attaining finality by afflux of time; and when once a valid reference is made u/s 92CA(1) of the Act, the extended period of thirty three months is available for completion of assessment. This conclusion leads to the necessity of investigation into the fact - whether the notice u/s 143(2) of the Act could be issued in the matter as on the date of the reference made by the AO to the TPO for determination of the arm s length price of the international transactions. Coming to the admitted facts of the case on hand, we find that return of income was filed by the assessee on 28.10.2005. Time to issue notice under section 143(2) of the Act was available till 30-9-2006. However, reference u/s 92CA(1) was made by the learned AO to the learned TPO on 11.7.2006. Notice u/s 143(2) was issued on 4.9.2006. TPO passed order on 31.10.2008 and the learned AO passed the assessment order on 29.12.2008, before the expiry of the period of 33 months allowed by Second proviso to Section 153(1) of the Act. Reject the contention advanced on behalf of the assessee by way of additional grounds that the order dated 31.10.2008 passed by the TPO or the final assessment order dated 12.12.2008 passed by the learned AO or the impugned order are bad in law and void ab initio because the reference u/s 92CA(1) preceded the date of issuance of notice u/s 143(2) of the Act, and proceed to adjudicate the matter on merits. Selection of five comparable - HELD THAT - A reading of the TPO s order does not indicate any other reason than the incurring of continuous losses or facing decline in revenues for the last three years. Even in the decisions relied upon by the learned DR, it is stated that the loss making companies shall not be excluded simpliciter on the ground that there are declaring losses. What is to be culled out from the orders is that FAR analysis and other aspects shall be considered in juxtaposition to reach whether or not the comparables selected by the assessee are good comparables or not. In the case in hand, absolutely, there is no dispute on the functional profile of the assessee company similar to the comparables selected by them. While respectfully following the dictum of the Hon ble jurisdictional High Court in Chryscapital Investments Advisors (I) P. Ltd. 2015 (4) TMI 949 - DELHI HIGH COURT we find that, in the absence of any dissimilarity as to the functions performed, assets utilized and reasons undertaken, mere loss making or decline in revenues cannot be a ground to reject the otherwise comparable companies from the set of comparables. With this view of the matter, we are inclined to accept the contentions advances on behalf of the assessee that the three companies, namely, ITI Ltd., Punjab communications ltd. and Himachal Futuristic Communications (P) Ltd. cannot be excluded from the list of comparables. We, therefore, direct the learned TPO to include these three comparables in the list of comparables. Waiver of sales tax deferral loan, disallowance of the provisions for indirect expenses and disallowance of amortization of spares - HELD THAT - Subsequent waiver of the secured loan being capital or non trading in nature cannot be considered as remission of trading liability to tax u/s 41(1)(a) and on that premise, he deleted the same. Further, in assessee s own case in the asstt.2004-05 decided on 30.6.2017, this aspect is considered by this Tribunal and vide para 8, this Tribunal while placing reliance on the decision of the Hon ble Bombay High Court in CIT vs Sulzer India Ltd. 2014 (12) TMI 267 - BOMBAY HIGH COURT negatived the contention of the revenue that the addition made on account of treatment of secured loan waiver as revenue receipt. In view of this set of facts involved in this issue, while respectfully following the judicial reasoning, we do not find any merit in the contention of the revenue to treat this secured loan waiver as revenue receipt. We accordingly dismiss this ground of appeal. Provision for indirect tax - AO has lead to double disallowance, since the aforesaid amount of provision for indirect taxes has already been suo moto disallowed by the assessee while computing the taxable income for the subject matter and in view of the same, CIT(A) deleted it. We do not find any illegality or irregularity in this finding of the CIT(A) inasmuch as it is not either pleaded or established before us that the addition made by the AO does not lead to double disallowance or that the assessee suo moto did not disallow the same. It is a matter of record. We, therefore, find that the learned CIT(A) is justified in deleting this amount only to controvert the double disallowance and upheld the same. This ground of appeal is also dismissed. Amortization of spares - When there is consistency in the assessee following the straight line method of claiming amortization of spares in its accounts, we are also of the considered opinion that there is no justification for interfering in the method of calculation and the learned AO is not justified in making addition of the spares purchased during the current year to the opening balance of the spares of the earlier years so as to add the difference. With this view of the matter, we uphold the finding of the learned CIT(A) and dismiss this ground of appeal.
Issues Involved:
1. Validity of Reference to Transfer Pricing Officer (TPO) before Issuance of Notice under Section 143(2). 2. Transfer Pricing Adjustment in Manufacturing and Installation Segment. 3. Deletion of Additions by CIT(A) on Waiver of Sales Tax Deferral Loan. 4. Deletion of Additions by CIT(A) on Provision for Indirect Taxes. 5. Deletion of Additions by CIT(A) on Amortization of Spares. Issue-wise Detailed Analysis: 1. Validity of Reference to TPO before Issuance of Notice under Section 143(2): The assessee argued that the reference made by the AO to the TPO under Section 92CA(1) before issuing a notice under Section 143(2) was invalid, rendering the assessment order void ab-initio. The Tribunal admitted this additional ground based on the Supreme Court’s decision in NTPC vs. CIT, which allows for the admission of additional grounds that do not require new fact-finding. The Tribunal examined relevant case laws, including CIT vs. SAP Labs Pvt. Ltd. and Maximize Learning (P) Ltd. vs. ACIT, and concluded that the reference to the TPO is valid as long as the return of income, which could be subject to a notice under Section 143(2), is pending. Therefore, the Tribunal held that the reference to the TPO was valid and did not vitiate the assessment proceedings. 2. Transfer Pricing Adjustment in Manufacturing and Installation Segment: The TPO had rejected four out of five comparables selected by the assessee for benchmarking the manufacturing and installation segment, leading to a transfer pricing adjustment of ?14,37,43,273/-. The CIT(A) reduced this adjustment to ?2,27,68,692/-. The Tribunal found that the TPO’s rejection of comparables based on continuous losses or declining revenues was not justified, as loss-making or declining revenues are trends in the industry. The Tribunal directed the TPO to include the three rejected comparables (ITI Ltd., Punjab Communications, and Himachal Futuristic Communications Ltd.) in the list of comparables, thereby accepting the assessee's contention. 3. Deletion of Additions by CIT(A) on Waiver of Sales Tax Deferral Loan: The Revenue challenged the CIT(A)’s deletion of ?33,11,94,214/- added by the AO on account of the waiver of sales tax deferral loan. The CIT(A) had relied on the Mumbai Bench decision in Sulzer India Ltd. vs. JCIT, which was upheld by the Bombay High Court, to conclude that the waiver of a secured loan being capital in nature cannot be considered as remission of trading liability under Section 41(1)(a). The Tribunal upheld the CIT(A)’s decision, citing consistency with previous Tribunal decisions in the assessee’s own case for earlier assessment years. 4. Deletion of Additions by CIT(A) on Provision for Indirect Taxes: The AO had disallowed ?4,87,82,286/- on account of provision for indirect taxes, which the assessee had already suo moto disallowed while computing taxable income. The CIT(A) found that the AO’s addition led to double disallowance and deleted it. The Tribunal upheld the CIT(A)’s decision, finding no irregularity or illegality, as the addition by the AO indeed resulted in double disallowance. 5. Deletion of Additions by CIT(A) on Amortization of Spares: The AO had disallowed ?1,74,06,851/- for excess amortization of spares, estimating the life of spares at three years. The CIT(A) observed that the AO had not computed amortization on a straight-line basis and that the assessee had consistently followed the straight-line method. The Tribunal upheld the CIT(A)’s direction to allow amortization of spares on a straight-line basis, finding no justification for the AO’s interference in the method of calculation. Conclusion: The Tribunal partly allowed the assessee’s appeal by directing the inclusion of three comparables in the transfer pricing analysis and upheld the CIT(A)’s deletions of additions on waiver of sales tax deferral loan, provision for indirect taxes, and amortization of spares. The Revenue’s appeal was dismissed.
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