2012 (12) TMI 1199 - AT - Income Tax

Issues Involved:
1. Deletion of addition made by TPO under the head export sale of threads.
2. Entitlement for deduction u/s 80HHC as an export incentive.
3. Adoption of Comparable Uncontrolled Price (CUP) method vs. Transactional Net Margin Method (TNMM) for determining Arm's Length Price (ALP).
4. Application of CUP method on the entire turnover of grey cotton canvass.
5. Condonation of delay in filing the appeal.

Summary:

1. Deletion of addition made by TPO under the head export sale of threads:

The Revenue impugned the order of the CIT(A) for the assessment years 2002-03 to 2004-05, arguing that the CIT(A) erred in deleting the addition made by the TPO under the head export sale of threads. The CIT(A) did not follow the CUP method but instead adopted the TNMM as used by the assessee for determining ALP. The TPO had rejected TNMM, favoring CUP method, and also rejected the volume discount claimed by the assessee. The CIT(A) accepted the assessee's contentions and deleted the additions made by the TPO.

2. Entitlement for deduction u/s 80HHC as an export incentive:

For the assessment years 2003-04 and 2004-05, the Revenue raised an additional ground that the CIT(A) erred in holding that the assessee company had not transferred any DEPB license and that the entire amount represents DEPB accruals, making it entitled for deduction u/s 80HHC as an export incentive. The D.R. conceded that this issue is covered in favor of the assessee by the Supreme Court judgment in Topman Exports vs. CIT, 342 ITR 49(SC).

3. Adoption of CUP method vs. TNMM for determining ALP:

The TPO had rejected the TNMM adopted by the assessee for determining ALP for the export of threads, favoring the CUP method. The CIT(A) reversed the TPO's findings without providing plausible reasons, which the Tribunal found to be sketchy and non-speaking. The Tribunal noted that the CIT(A) failed to give valid reasons for reversing the TPO's findings and merely relied on the assessee's submissions.

4. Application of CUP method on the entire turnover of grey cotton canvass:

The TPO had asked the assessee to apply the CUP method on the entire turnover of grey cotton canvass, which the assessee had applied only to a representative sample of 52.68% of the turnover. The CIT(A) upheld the TPO's decision but acknowledged that the sales were distress sales due to the closing down of the canvas division. The Tribunal remitted the matter back to the CIT(A) and DRP for fresh adjudication, considering external comparables and different market conditions.

5. Condonation of delay in filing the appeal:

The assessee filed ITA No.2032/Mds/2011 for the assessment year 2007-08 with a delay of three days. The Tribunal condoned the delay, citing satisfaction with the reasons provided by the assessee, and admitted the appeal for disposal on merits along with other connected appeals.

Conclusion:

The Tribunal remitted the matter back to the CIT(A) for the assessment years 2002-03 to 2005-06 and to the DRP for the assessment years 2006-07 and 2007-08 for fresh adjudication by passing a detailed and speaking order. The Tribunal also dismissed the Revenue's additional ground of appeal regarding export incentive u/s 80HHC for the assessment years 2003-04 and 2004-05.

Order pronounced in the open court on Friday, 21st day of December, 2012 at Chennai.

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