2018 (6) TMI 1825 - AT - Income Tax

TP Adjustment - selection of certain comparables - HELD THAT - Companies rejected on functional dissimilarity as well as the RPT more than the threshhold limit. Disallowing re-imbursement of travelling and conveyance expenses and the reimbursement of Salary and Allowance u/s 40 (a) (i) - HELD THAT - As decided in own case 2017 (9) TMI 1024 - ITAT DELHI AR submits that while computing the disallowance u/s 40(a)(i) of the Act the AC should have considered the factual situation that has a bearing on the computation of disallowance u/s. 40 (a) (i) of the Act. From a reading of the assessment order, we find that the Assessing Officer did not consider any further facts while complying with the directions of the DRP, as such, this fact needs verification at the end of the Assessing Officer, after affording an opportunity to the assessee to furnish the requisite details that have a bearing on the disallowance u/s. 40 (a) (i) of the Act. We, therefore, set aside this aspect to the file of the Assessing Officer. Respectfully following the order of the Tribunal in assessee s own case in the preceding assessment year we deem it proper to restore this issue to the file of the Assessing Officer/TPO for adjudication of the issue afresh. Delayed contribution made to Employees Provident Fund (EPF) - HELD THAT - It is an admitted fact that the contributions to employee s provident fund though deposited beyond the prescribed date as per the PF act, however, the same has been deposited prior to the due date of filing of return of income. The coordinate Benches of the Tribunal are taking the consistent view that where the EPF is deposited prior to due date of filing of return of income, no disallowance u/s. 43B or 2 (24) (x) read with 36 (1) (va) can be made. Since admittedly the EPF has been deposited prior to due date of filing of return of income, therefore, we hold that no disallowance is called for in the instant case. We, therefore, direct the Assessing Officer to delete the disallowance. The ground raised by the assessee on this issue is accordingly allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Disallowance of Reimbursement of Travel and Conveyance Expenses
3. Disallowance of Reimbursement of Salaries and Allowances
4. Disallowance of Delayed Contribution to Employees Provident Fund
5. Levy of Interest under Section 234B
6. Initiation of Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue revolves around the selection of comparables for determining the arm’s length price (ALP) of international transactions. The assessee challenged the inclusion of certain companies as comparables by the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP). The Tribunal analyzed each comparable:

- HSCC (India) Ltd.: The Tribunal restored the issue to the TPO to verify if HSCC (India) Ltd. received any government grants or incentives and whether it is engaged in diversified activities. The TPO was directed to decide the issue afresh, considering the Tribunal's decision in the preceding year.

- Mahindra Consulting Engineers Ltd.: The Tribunal noted that this company was included in the list of comparables in the assessee’s own case for A.Y. 2010-11. However, due to claims of functional dissimilarity and significant related party transactions (RPT), the issue was restored to the TPO for verification.

- Mitcon Consultancy and Engineering Services Ltd.: This company was excluded in the previous year due to multi-dimensional functionality and high fixed assets to sales ratio. The Tribunal restored this issue to the TPO for verification of RPT and segmental data.

- Mahindra Engineering Services Ltd.: The Tribunal restored the issue to the TPO to verify the functional dissimilarity and significant RPT.

- Inclusion of MN Dastur & Company Pvt. Ltd. and EDAC Engineering Ltd.: These companies were directed to be included as comparables based on the Tribunal's decisions in the preceding years.

2. Disallowance of Reimbursement of Travel and Conveyance Expenses:
The Tribunal restored the issue to the TPO for fresh adjudication. The assessee argued that the reimbursement to Granite USA was not chargeable to tax in India and did not warrant disallowance under section 40(a)(i) of the Act. The Tribunal directed the TPO to verify the factual situation and decide the issue afresh.

3. Disallowance of Reimbursement of Salaries and Allowances:
The Tribunal restored this issue to the TPO for fresh adjudication. The assessee argued that the reimbursement of salaries to Granite USA was merely a reimbursement of costs and did not warrant tax deduction in India. The Tribunal directed the TPO to verify the factual situation and decide the issue afresh.

4. Disallowance of Delayed Contribution to Employees Provident Fund:
The Tribunal held that contributions to the Employees Provident Fund, though deposited beyond the prescribed date under the PF Act, were deposited before the due date of filing the return of income. Therefore, no disallowance under section 43B or 2(24)(x) read with 36(1)(va) was warranted. The Tribunal directed the Assessing Officer to delete the disallowance.

5. Levy of Interest under Section 234B:
The Tribunal dismissed this ground as premature.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal dismissed this ground as premature.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the TPO to re-examine various aspects of the transfer pricing adjustments and disallowances. The Tribunal emphasized the need for verification of functional dissimilarities, related party transactions, and the nature of reimbursements to ensure compliance with the arm’s length principle and tax laws.