2018 (10) TMI 1793 - AT - Income Tax

TP Adjustment - international transaction for vessel freight - HELD THAT - Evidences produced before the Transfer Pricing Officer and the Assessing Officer rightly come to the conclusion that the transaction in two vessels, namely THEOSKEPASTI and GOA are within deviation of ( /-) 5%, and therefore, the transaction is within ALP. Accordingly, the upward adjustment is rightly deleted by the CIT(A). The case of the assessee is also supported by another reason that prices quoted by Steel Index are available in public domain and assessee filed price data of relevant dates during proceedings before TPO. TPO has accepted the TSI prices in TP Study for determining ALP. Therefore, the comment of the TPO in his report that Trade Steel Index is arithmetical which was not explained by the assessee was rightly rejected by the CIT(A) and held that the assessee has sufficiently demonstrated the same. Therefore, there is no need to interfere with the order of the CIT(A). Ground No. 1 of the Revenue s appeal is dismissed Disallowance of travelling expenses - HELD THAT - As considered the details filed for the sum of ₹ 71 lakhs odd and find that they contain details with regard to person who incurred the expenses, place, details of ticket, details of hotel etc. The A.O has not pointed out any specific instance of unsubstantiated claim of expenditure. The disallowance is, therefore, uncalled for and is correctly deleted - CIT-A correctly deleted the addition Disallowance of Legal and Professional Charges - allowable business expenses - HELD THAT - A.O has not brought on record any evidence to prove that the expenses were not incurred in relation to business nor any specific instance of unsubstantiated claim has been pointed out by the A.O. No reason to sustain the disallowance made by the AO on adhoc basis - CIT-A correctly deleted the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of adjustment of ?81,44,959/- pertaining to arm’s length price as suggested by the Transfer Pricing Officer (TPO).
2. Deletion of disallowance of ?2,00,000/- on account of traveling expenses.
3. Deletion of disallowance of ?2,00,000/- on account of legal and professional charges.

Issue-Wise Detailed Analysis:

1. Deletion of Adjustment of ?81,44,959/- Pertaining to Arm’s Length Price:
The primary issue was whether the CIT(A) erred in deleting the adjustment of ?81,44,959/- related to the arm’s length price (ALP) as suggested by the TPO. The assessee, a private limited company engaged in the export of Iron Ore Fines, had international transactions with its Associate Enterprise (AE) in Singapore. The TPO used the Transaction Net Margin Method (TNMM) and Comparable Uncontrolled Price (CUP) method to determine the ALP. The TPO found discrepancies in the pricing of two vessels, "THEOSKEPASTI" and "GOA," and proposed an upward adjustment of ?81,44,959/-.

The CIT(A) observed that the TPO accepted the TNMM for freight charges and the CUP method for Iron Ore Fines, except for the two vessels. The CIT(A) noted that the TPO rejected the benefit of a ±5% deviation as per the second proviso of Sec. 92C(2). The CIT(A) held that the benefit of ±5% should be allowed, making the transactions within ALP. The CIT(A) also found that the prices quoted by the Steel Index were publicly available and sufficiently demonstrated by the assessee. Therefore, the upward adjustment of ?81,44,959/- was deleted, and the CIT(A)'s decision was upheld by the Tribunal.

2. Deletion of Disallowance of ?2,00,000/- on Account of Traveling Expenses:
The second issue was the deletion of a ?2,00,000/- disallowance made by the Assessing Officer (AO) on account of traveling expenses. The AO disallowed the amount, stating that some expenses were not properly supported and complete details were not available. The CIT(A) reviewed the details filed by the assessee, which included information about the person who incurred the expenses, the place, ticket details, and hotel details. The CIT(A) found that the AO did not point out any specific instance of unsubstantiated expenditure and concluded that the disallowance was uncalled for. The Tribunal agreed with the CIT(A) and dismissed the Revenue's appeal on this ground.

3. Deletion of Disallowance of ?2,00,000/- on Account of Legal and Professional Charges:
The third issue was the deletion of a ?2,00,000/- disallowance made by the AO on account of legal and professional charges. The assessee incurred approximately ?65 lakhs towards these charges and provided detailed information to the CIT(A). The AO did not present any evidence to prove that the expenses were not related to the business or point out any specific instance of unsubstantiated claims. The CIT(A) found no reason to sustain the disallowance made by the AO on an ad-hoc basis and deleted it. The Tribunal upheld the CIT(A)'s decision, finding it reasoned and proper.

Cross Objection by the Assessee:
The cross-objection filed by the assessee was in support of the CIT(A)'s order. Since all grounds raised by the Revenue were dismissed, the cross-objection became infructuous and was also dismissed.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and the cross-objection filed by the assessee, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the Open Court on 11th October 2018.