2017 (1) TMI 1690 - AT - Income Tax

TP Adjustment - custom duty adjustment - HELD THAT - Company was incorporated in the year 2006 and in the second year of operation. The raw material component include import cost which constitute a major cost and claim adjustment of custom duty (non-cenvatable) before TPO. We rely on coordinate bench decision of Motonic India Automotive Pvt. Ltd Vs. ACIT 2016 (8) TMI 1423 - ITAT CHENNAI wherein direct the A.O. to give suitable adjustment against the custom duty component while determining the ALP. Considering the custom duty adjustment and co-ordinate bench decision we remit the disputed issue to the file of AO for custom duty adjustment. Adjustment of warranty cost - DRP and AO has confirmed action of the TPO in not excluding the extraordinary cost incurred by the assessee relating to warranty because of initial period of operations and we find that the warranty issue is not discussed by the TPO in his order. Accordingly we are of the opinion that warranty cost has to be dealt by the TPO and we remit the disputed issue to the file of the AO for fresh consideration. Working capital adjustment while determining net profit margin of the assessee - Considering the facts and material on record the financial statements and the paper book there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration. Disallowance of fee for technical services incurred during the previous year under provisions of section 40(a)(i) - Interest paid on delayed payment of TDS - HELD THAT - We found the assessee company has incurred this expenditure towards the fee for technical services and we are of the opinion that the Assessing Officer should verify and grant the deduction in the year in which assessee company makes the TDS payment and Accordingly we remit this issue to the file of the Assessing Officer. Disallowance being interest paid on delay payment of TDS - AR argued that the same cannot be disallowed u/s. 40(a)(ii) - HELD THAT - We perused the Assessment Order and found that there are no proper clarifications available. The Assessing Officer observed that the interest paid for delay in filing Return and payment of advance tax is not allowed as Business expenditure while applying the same analogy we are of the opinion that the interest paid on delayed payment of TDS cannot be allowed Accordingly we upheld the action of the Assessing Officer in disallowing the interest on delay payment of TDS Claim of fees for technical service on payment of TDS - Non appreciating that the entire amount was disallowed in the previous assessment year 2010-11 for non-deduction of TDS - HELD THAT - Claim has to be allowed based on the evidence and the assessee company should produce and support the payment with the payment details and also produce copy of 26AS being necessary for the Assessing Officer to allow the claim. Accordingly we remit the issue to the file of the Ld. AO for verification and decide the issue a fresh in the light of first provision to section 40(a)(i) of the Act.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for custom duty, warranty costs, and working capital adjustments.
2. Disallowance under section 40(a)(i) of the Income Tax Act for fees for technical services and interest paid on delayed payment of TDS.
3. Non-allowance of TDS credits.

Detailed Analysis:

1. Transfer Pricing Adjustment:
- Custom Duty Adjustment:
The assessee argued that the custom duty adjustment was not considered by the TPO, despite the company being in its initial stages of operation and incurring significant import costs. The TPO rejected the adjustment, stating that the burden of custom duty was passed on to customers and comparables did not incur such import duty. The Tribunal referred to the decision in Motonic India Automotive Pvt. Ltd. Vs. ACIT, which supports the adjustment of custom duty while determining the ALP. Consequently, the Tribunal directed the AO to give suitable adjustment against the custom duty component.

- Warranty Costs:
The assessee contended that extraordinary warranty costs incurred during the initial period of operations were not excluded by the TPO. The Tribunal noted that this issue was not discussed by the TPO and remitted it back to the AO for fresh consideration.

- Working Capital Adjustments:
The assessee argued that the TPO did not provide working capital adjustments while determining the net profit margin. The Tribunal recognized the necessity for working capital adjustments based on the financial statements and remitted the issue to the AO for fresh consideration.

2. Disallowance under Section 40(a)(i):
- Fees for Technical Services:
The AO disallowed ?93,49,121/- incurred for technical services under section 40(a)(i) due to non-compliance with TDS provisions. The Tribunal opined that the deduction should be allowed in the year of TDS payment and remitted the issue to the AO for verification and granting of the deduction accordingly.

- Interest on Delayed Payment of TDS:
The AO disallowed ?1,77,300/- paid as interest on delayed payment of TDS. The Tribunal upheld this disallowance, agreeing with the AO's reasoning that such interest cannot be allowed as a business expenditure.

3. Non-allowance of TDS Credits:
The AO did not allow the claim of ?1,73,38,207/- for fees for technical services, disallowed in the previous assessment year for non-deduction of TDS. The Tribunal noted that the claim should be allowed based on evidence and remitted the issue to the AO for verification, directing the assessee to produce necessary documents and Form 26AS for verification.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, with directions for fresh consideration and verification on various issues by the AO. The Tribunal emphasized the necessity for adjustments and verifications in accordance with legal provisions and precedents.