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2020 (9) TMI 1284 - AT - Income TaxTP adjustment - MAM selection - import of raw materials from associated enterprises (AEs) - assessee benchmarked said transaction in its transfer pricing report applying Cost Plus Method (CPM) as Most Appropriate Method (MAM) - HELD THAT - Respectfully following the decision rendered by this Tribunal 2019 (10) TMI 437 - ITAT MUMBAI in assessee s own case, we hold that CUP must be the Most Appropriate Method for benchmarking the international transaction of import of raw materials in view of the fact that direct comparable prices are available of TIPS Data Base for 95.79% of the total raw material imports from AEs by using the portfolio approach. TPO is directed to verify the additional evidences filed before this Tribunal by the assessee providing CUP data on the TIPS data base. Needless to mention that CUP method and comparable prices available in TIPS Data Base using portfolio approach covers 95.79% of total import of raw materials transaction from its AEs, if on verification, it is found by the ld. TPO that the import prices of the assessee to be lower than the comparable prices reported by the TIPS Data Base, the remaining imports i.e.4.21% are also be considered to be at arm s length and therefore, no adjustment to ALP would be warranted in such a scenario. Disallowance of foreign exchange loss - cancellation of forward contracts - In order to mitigate the risk of foreign exchange fluctuation, the assessee enters into forward exchange contracts with the banks - assessee submitted additional evidences as Certificate from the Citi Bank along with the cross referencing of related contract copies and details of exchange gain or loss realized/ unrealized on such contract - HELD THAT - Respectfully following the order of this Tribunal in assessee s own case 2019 (10) TMI 437 - ITAT MUMBAI , we deem it fit to remand this matter to the file of the ld. AO for verification of the bank certificate and decide this issue in accordance with the aforesaid direction. Accordingly, the ground No. 10 raised by the assessee is allowed for statistical purposes. Addition in respect of sundry creditors as unexplained credit - HELD THAT - Sundry creditors had apparently emanated out of purchases or revenue expenses incurred by the assessee. We find that nowhere in the orders of the lower authorities, the revenue has brought out the fact that the corresponding purchases / expenses to the sundry creditors were either ingenuine or were incorrect. Once, the purchases made from the parties involved has been accepted by the revenue, there cannot be any addition in respect of closing balance of the very same sundry creditor by treating it as unexplained credit within the meaning of Section 68 - Thus we direct the ld. AO to delete the addition made in respect of sundry creditors balance outstanding at the end of the year - Decided in favour of assessee. Disallowance of legal and professional fees on adhoc basis - HELD THAT - As most of the payments were made for securing services in respect of tax audit and other professional work from various parties. However, these evidences require factual examination of the ld. AO and hence, in the interest of justice and fair play, we deem it fit to remand this issue to the file of the ld. AO for denovo adjudication in the light of various additional evidence submitted by the assessee which are admitted herein and the ld.AO is directed to decide the issue in accordance with law. The assessee is hereby given liberty to furnish further evidence, if any, in support of its contention. Disallowance of interest u/s.36(1)(iii) which includes bank charges - assessee had given loans and advances as interest free - AO disallowed the interest on proportionate basis on the ground that on one hand,assessee has paid interest on its borrowings and on the other hand, no interest has been charged on the advances given - HELD THAT - We find that the assessee had pleaded that it has made mandatory deposits with excise department, electricity department, rent advance for housing etc., These deposits are to be made in the course of running of the business of the assessee company. Considering the huge volume of transactions by the assessee company and considering the huge volume of mandatory deposits given by the assessee as claimed by the assessee, we deem it fit and appropriate in the interest of justice and fair play to remand this issue also to the file of the ld. AO for giving a proper finding with regard to nature of each deposits after due verification of the evidences submitted by the assessee in that regard. The assessee is also directed to furnish the entire list of mandatory deposits (as claimed by it before the ld. AO) afresh together with supporting evidences thereon to justify its contentions. The ld. AO is directed to give a factual finding in this regard. Alternative argument made by the ld. AR that assessee having sufficient own funds for the purpose of making these advances - We find that this issue is already decided by the Hon ble Jurisdictional High Court in the case of HDFC bank 2014 (8) TMI 119 - BOMBAY HIGH COURT and accordingly we direct the ld. AO to verify the availability of the own funds with the assessee. If the assessee is having sufficient own funds, then there cannot be any disallowance of interest on borrowed funds, in any case. AO is directed to give findings on all the aforesaid aspects before proceeding to make any disallowance of interest on borrowed funds. The ground raised by the assessee are allowed for statistical purposes. Disallowance of depreciation on additions made to fixed assets - HELD THAT - We find that no proper finding has been given by the ld. AO with regard to these documents containing the day on which each of the assets were actually put to use. From the details of each of the assets being put to use, we find that innumerable assets were purchased during the year from various parties. The ld. AO should also be practical in understanding the business model of the assessee and without the existence of these innumerable assets, the assessee could not have conducted its manufacturing activities by producing the finished goods and generating sales thereon, which has been duly offered to tax. Hence. We deem it fit and appropriate in the interest of justice and fair play to set aside this issue to the file of the ld. AO for denovo verification in accordance with law. The assessee is directed to furnish the details of each of the additions which were being put to use as certified by the Tax Auditor (which are filed before us along with the fact sheet). AO is directed to examine the same in accordance with law and grant depreciation on additions to fixed assets as per law. Accordingly, the ground raised by the assessee is allowed for statistical purposes. Not granting of set off of brought forward unabsorbed business losses of A.Y.2008-09 and 2009-10 - HELD THAT - This matter requires factual verification from final assessment records of the relevant assessment year. Hence, we direct the ld. AO to verify the same and grant set off of losses as per law. Accordingly, the ground raised by the assessee is allowed for statistical purposes. Non-grant of credit for TDS granting - HELD THAT - This matter requires factual verification with the corresponding TDS certificates or any other supporting documents thereon by the ld. AO. Accordingly, we direct the ld. AO to grant credit for TDS after due verification of the relevant documents as per law.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance of Foreign Exchange Loss 3. Addition of Sundry Creditors as Unexplained Credit 4. Disallowance of Legal and Professional Fees 5. Disallowance of Interest under Section 36(1)(iii) 6. Disallowance of Depreciation on Additions to Fixed Assets 7. Non-Grant of Set Off of Brought Forward Unabsorbed Business Losses 8. Non-Grant of Credit for TDS 9. Charging of Interest under Section 234B 10. Initiation of Penalty Proceedings under Section 271(1)(c) Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue was the transfer pricing adjustment concerning the import of raw materials from associated enterprises (AEs). The assessee benchmarked the transaction using the Cost Plus Method (CPM) but the Transfer Pricing Officer (TPO) adopted the Transactional Net Margin Method (TNMM) due to the assessee being a loss-making concern. The TPO made an adjustment of Rs.38.29 Crores. The Dispute Resolution Panel (DRP) upheld the TPO's decision. The Tribunal, following its previous decision in the assessee’s own case for earlier years, directed the TPO to adopt the Comparable Uncontrolled Price (CUP) method using TIPS Data Base, covering 95.79% of the transactions, and to apply a portfolio approach. 2. Disallowance of Foreign Exchange Loss: The assessee incurred a net foreign exchange loss of Rs.8,18,29,149 on cancellation of forward contracts. The AO disallowed the loss, treating it as speculative. The DRP directed verification of forward contracts. The Tribunal, following its earlier decision, remanded the matter to the AO for verification of bank certificates to determine if the forward contracts were for trading purposes. If verified, the loss should be allowed as a business deduction. 3. Addition of Sundry Creditors as Unexplained Credit: The AO added Rs.6,78,403 as unexplained credit under Section 68. The Tribunal, citing the Delhi High Court decision in Ritu Agarwal’s case, held that once purchases are accepted, no addition can be made for sundry creditors. The Tribunal directed the AO to delete the addition. 4. Disallowance of Legal and Professional Fees: The AO made an ad-hoc disallowance of 20% of legal and professional fees amounting to Rs.1,41,67,242 due to lack of documentary evidence. The Tribunal remanded the issue to the AO for verification of additional evidence submitted by the assessee. If no discrepancies are found, no disallowance should be made. 5. Disallowance of Interest under Section 36(1)(iii): The AO disallowed interest of Rs.3,80,21,868 on the ground that the assessee gave interest-free advances while having borrowed funds. The Tribunal remanded the issue for verification of the nature of advances and mandatory deposits. If the assessee had sufficient own funds, no disallowance should be made. 6. Disallowance of Depreciation on Additions to Fixed Assets: The AO disallowed depreciation of Rs.2,67,84,398 on additions to fixed assets due to lack of details on the assets being put to use. The Tribunal remanded the issue to the AO for verification of additional evidence and the tax audit report. If the assets were put to use, depreciation should be allowed. 7. Non-Grant of Set Off of Brought Forward Unabsorbed Business Losses: The Tribunal directed the AO to verify the records and grant set off of brought forward unabsorbed business losses for A.Y. 2008-09 and 2009-10 as per law. 8. Non-Grant of Credit for TDS: The Tribunal directed the AO to grant TDS credit after verifying the relevant documents. 9. Charging of Interest under Section 234B: The issue of charging interest under Section 234B was deemed consequential and did not require specific adjudication. 10. Initiation of Penalty Proceedings under Section 271(1)(c): The issue was considered premature for adjudication at this stage. Conclusion: The Tribunal allowed the appeal partly for statistical purposes, remanding several issues back to the AO for verification and proper adjudication based on additional evidence and legal precedents.
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