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2018 (3) TMI 1824 - AT - Income TaxTransfer pricing adjustment - international transactions pertaining to provision of design engineering services and supply of equipment - MAM Selection - HELD THAT - As decided in own case 2014 (3) TMI 23 - ITAT DELHI the assessee was quite justified in adopting internal TNMM and comparing the profit earned on its transactions with AEs with profit earned with non- AEs. Accordingly the ALP adjustment of deserves to be deleted. Adjustment in respect of direct supplies/services - considering that the PE of the assessee was involved in negotiating and concluding contracts on behalf of the head office (HO) with Indian customers and that the AO erred in determining the gross profit @ 25% from the direct sales/services and attributing 50% thereof to the PE of the assessee - HELD THAT - As decided in own case 2014 (3) TMI 23 - ITAT DELHI in the absence of assessee s cooperation by submission of requisite information the Assessing Officer had no option except to resort to this addition on estimate basis learned representatives fairly agree that the issue is covered in favour of the assessee by the Tribunal s order dated 31st October 2013 in assessee s own case for the assessment year 2006-07. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. In the assessment order and DRP s order also the stand taken in the earlier years is reiterated. Respectfully following views of the coordinate bench on this issue in respect of an earlier assessment year we delete the impugned addition. Ad-hoc disallowance of business expenses - HELD THAT - neither the AO nor the ld. DRP had not given any cogent reason and the basis while making ad-hoc disallowance. We therefore considering the totality of the facts deem it appropriate to remand this issue back to the file of the AO to be decided afresh after proper verification from the documents furnished by the assessee before the ld. DRP in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Charging of interest u/s 234B - HELD THAT - The point worth noting in this regard is that the Finance Act 2012 has inserted this proviso prospectively w.e.f. 1.4.2012. Even the Memorandum explaining the provisions of the Finance Bill 2012 provides that This amendment will take effect from 1st April 2012 and would accordingly apply in relation to advance tax payable for the financial year 2012-13 and subsequent financial years . It therefore becomes vivid that the insertion of the proviso to section 209(1) is prospective and the same cannot be applied retrospectively to the year under consideration. In that view of the matter and respectfully following the above precedents we hold that no interest can he charged u/s 234B of the Act for the year under consideration. This ground is allowed
Issues Involved:
1. Completion of assessment under section 143(3) of the Income Tax Act. 2. Transfer Pricing adjustment in respect of provision of services/supplies to associated enterprises (AEs). 3. Addition on account of direct supplies/services by the head office. 4. Ad-hoc disallowance of business expenses. 5. Charging of interest under section 234B of the Income Tax Act. Issue-wise Detailed Analysis: 1. Completion of Assessment Under Section 143(3): The AO completed the assessment under section 143(3) of the Act, determining the income at INR 28,387,525 against the Nil income returned by the appellant under normal provisions and book profits amounting to INR 14,653,072 as per section 115JB. 2. Transfer Pricing Adjustment: The AO/TPO/DRP made a transfer pricing adjustment of INR 31,869,942 for international transactions related to design and engineering services and supply of equipment, alleging these were not at arm's length per sections 92C(1) and 92C(2) of the Act. The AO rejected the segmental profit and loss account for AE and non-AE segments, claiming they were unreliable and unaudited. The AO also rejected the internal TNMM used by the appellant and applied external TNMM using external comparable companies, selecting and rejecting comparable companies based on an incorrect appreciation of FAR profile. The AO ignored rule 10B(4) and judicial pronouncements advocating multiple-year data for determining the arm's length price and did not grant economic/idle capacity/risk adjustments. The AO did not provide the benefit of the 5% range per section 92C(2) proviso and made adjustments on the entire cost base without excluding costs related to non-AE and idle capacity segments. Judgment: The Tribunal noted that an identical issue was adjudicated in the appellant's favor for the assessment year 2008-09 (ITA No. 6227/Del/2012). The Tribunal followed the previous decision, emphasizing that the authorities erred in rejecting segmental results and internal TNMM. The Tribunal ruled in favor of the appellant, considering the issue academic for grounds 2.4 to 2.8. 3. Addition on Account of Direct Supplies/Services by Head Office: The AO made an adjustment of INR 2,712,400, alleging the PE in India was involved in negotiating and concluding contracts on behalf of the head office. The AO applied an arbitrary rate of 25% to determine gross profit from direct sales/services and attributed 50% to the PE. Judgment: The Tribunal cited previous orders (ITA No. 884/Del/2011 for AY 2006-07 and ITA No. 6227/Del/2012 for AY 2008-09), which ruled in favor of the appellant, finding no material evidence suggesting the PE's involvement in direct transactions. The Tribunal followed these precedents and decided in favor of the appellant. 4. Ad-hoc Disallowance of Business Expenses: The AO made an ad-hoc disallowance of INR 2,605,000 due to the appellant's failure to submit detailed evidence for repair and maintenance, communication, and miscellaneous expenses. Judgment: The Tribunal found that the DRP did not consider the details provided by the appellant and made disallowances without cogent reasons. The Tribunal remanded the issue back to the AO for fresh verification and decision based on the documents provided by the appellant. 5. Charging of Interest Under Section 234B: The AO charged interest under section 234B of the Act. Judgment: The Tribunal referred to the decision in ITA No. 884/Del/2011 for AY 2006-07, which held that no interest could be charged under section 234B when the payer is responsible for TDS. The Tribunal followed this precedent and ruled in favor of the appellant. Conclusion: The appeal was partly allowed for statistical purposes, with the Tribunal ruling in favor of the appellant on several issues and remanding the ad-hoc disallowance of business expenses for fresh consideration by the AO.
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