2022 (5) TMI 1525 - AT - Income Tax

TP Adjustment - Non-consideration of gross profit ( GP )/sales as the PLI respect of the international transaction of purchase of raw materials - HELD THAT - We hold that PLI should be adopted for the purpose of comparing the assessee s margin in Auto component manufacturing segment and that the comparable companies PLI should be GP by sales. We direct the AO/TPO to re-compute the arm s length margin of the assessee in accordance with the above direction after giving reasonable opportunity of being heard to the assessee. This ground is allowed in favour of the assessee. Disallowance u/s. 43B - provision made towards bonus and long-term service awards along with the amounts actually paid and claimed as a deduction in the return of income - HELD THAT - No argument that the assessee is entitled for claiming deduction u/s. 43B with respect to provision made for bonus and long-term service awards based on the actual amount paid on or before the due date for filing the return of income. The auditors, Price Waterhouse Co., have verified the actual amount paid by the assessee, have certified the same in the tax audit report in Form 3CD stating that the assessee has paid the said amounts before the due date for furnishing the return of income u/s.139(1). Hence we are of the considered view that the assessee is entitled for the deduction u/s. 43B - Decided in favour of assessee.

Summary

Issues:
1. Transfer pricing adjustment regarding gross profit/sales.
2. Addition under section 43B of the Income Tax Act for bonus provision.

Transfer Pricing Adjustment - Gross Profit/Sales:
The appeal challenged the order passed by the National Faceless Assessment Centre under section 143(3) r.w.s. 144C of the Income Tax Act for the assessment year 2017-18. The primary contention was related to transfer pricing adjustment and corporate issues. The appellant sought relief concerning the determination of the Arm's Length Price (ALP) in the auto components manufacturing segment. Specifically, the focus was on the computation of the profit level indicator (PLI) as done by the Transfer Pricing Officer (TPO), advocating for PLI to be operating profit on sales. The Tribunal, in line with previous decisions, directed the adoption of GP by sales as the PLI for comparing the assessee's margin in the auto component manufacturing segment. This decision was supported by the Hon'ble Karnataka High Court's dismissal of the revenue's appeal against a similar order in a previous year.

Addition under Section 43B - Bonus Provision:
The second issue pertained to the disallowance made by the Assessing Officer (AO) under section 43B concerning bonus and long-term service awards. The appellant had created provisions for these amounts but claimed a deduction under section 43B based on actual payments made before the due date for filing the return of income. Despite objections raised before the Dispute Resolution Panel (DRP) and directions issued for verification by the AO, the disallowance was sustained in the final assessment order. However, during the appeal, the appellant provided detailed evidence, including the auditors' certification in Form 3CD, to support the actual payments made. The Tribunal, after thorough examination, concluded that the appellant was entitled to the deduction under section 43B for the claimed amounts, as verified by the auditors. Consequently, the addition made by the AO was deleted, and the appeal was allowed in favor of the assessee.

In conclusion, the judgment addressed the issues of transfer pricing adjustment and disallowance under section 43B of the Income Tax Act. The decision provided clarity on the determination of the Arm's Length Price and the eligibility of the appellant for deductions based on actual payments, ensuring a fair and just resolution in both aspects.