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2022 (7) TMI 1497 - AT - Income TaxTP Adjustment - sale of products by the assessee to its AE - HELD THAT - This is the second round of litigation before us, and the matter relates to an issue which is now sixteen years old, pertaining to A.Y 2006-07, and noting more particularly the fact that the despite clear directions of the ITAT, the Revenue authorities have failed to act on the same, we are inclined to hold that the assessee, having submitted all the plausible evidences with respect to its claim of error in the TP report and the Revenue authorities having failed to examine the same, despite two opportunities before them, one by the TPO, the other by the Ld.CIT(A),the adjustment no longer is sustainable. The TP adjustment made on account of sales to AE s is therefore directed to be deleted. Disallowance of prior period expenditure claimed - as argued CIT(A) ought to have allowed claim of prior period expenses crystallized during the year and correctly claimed by the appellant? - HELD THAT - Considering the fact that the assessee has been consistently debiting prior period expenses in all years, and also crediting prior period income and noting the huge turnover of the assessee, we agree that there is no revenue impact of the impugned disallowance of prior period expenses; that the exercise of making impugned disallowance would only be academic with the shifting of expenses from year to year. The decision in the case of Adani Enterprises 2016 (7) TMI 1250 - GUJARAT HIGH COURT squarely applies to the present case wherein it has been clearly held that where the disallowance of prior period expenses is a tax neutral exercise since the assessee incurs the same year to year with the tax rate also being the same in the years, there is no reason to make any such disallowance of prior period expenses. In view of the same, we are not inclined to uphold the disallowance of prior period expenses claimed by the assessee and direct the same to be deleted. Adjustment on account of determination of ALP of commission allegedly paid by the AE - Receipt of commission as a notional income and not taxable - CIT(A) deleted the addition, agreeing with the contentions of the assessee that this was reversal of an expenditure on account of commission debited by the assessee in its books of accounts - HELD THAT - We do not find any infirmity in the order of the Ld.CIT(A) who after appreciating all the evidences before him recorded a finding of fact that no commission was earned by the assessee and that the entry in the books of Atul Ltd (AEL) only pertained to reversal of commission income booked by it in earlier years as earned from the assessee. We find that the Ld.CT(A) has rightly dealt with this aspect pointing out that taking note of these very evidences the ITAT had in the first round restored the matter to the AO to consider the issue in the light of the explanation of the assessee. CIT(A) we agree ,has rightly held that these evidences therefore could not be rejected merely for the reason they were not produced earlier. No other infirmity being pointed out in the evidences ,we agree with the CIT(A) that the assessee has duly substantiated his explanation that the alleged commission income recorded in the name of the assessee in the Books of Atul Ltd.(AEL) was in fact only a reversal of earlier commission expenses booked by it on account of the same no longer being required to be paid. Thus no reason to interfere in the order of the Ld.CIT(A) deleting the adjustment on account of determination of ALP of commission allegedly paid by the AE to the assessee. Adjustment on quantity discount claimed by holding that discount to the AEs is as per the commercial policy of the assessee company - International transaction of purchase of goods from AE s on account of quantity discount given to them by the assessee - HELD THAT - CIT(A) has noted to the effect that the assessee had demonstrated its commercial policy with regard to quantity discount to be given to both its AE and non-AE by submitting data in this regard before him. We have further find that the ld.CIT(A) had also noted that even the AO had accepted quantity discount given by the assessee in all except four cases on the basis of existing instances of commercial policy in this regard of the assessee; that noting so, he held, having accepted existing commercial policy of the assessee to grant quantity discount and the assessee having exhibited existence of such quantity discount vis- -vis both of its AE and non-AE, therefore, the claim of the assessee of having paid quantity discount was substantiated and proved to be at ALP. DR was unable to point out any infirmity in the above finding of the ld.CIT(A) - Thus uphold the order of CIT(A) allowing the claim of the quantity discount paid to its AE. This ground is rejected. Addition u/s 14A r.w.r. 8D - disallowance of expenses incurred in relation to earning of exempt income - HELD THAT - In the case before us, it is an admitted case of the assessee itself before the lower authorities that disallowance, if any, at best can be to the extent of Rs. 2,25,000/- and a working to this effect was also admittedly filed before the CIT(A). CIT(A) has given finding that the disallowance has been worked out on a scientific basis by the CA who has submitted a report in this context. The ld.DR was unable to controvert the above fact. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) restricting the disallowance under section 14A to Rs. 2,25,000/-. Addition on account of excess depreciation claimed is upheld. Disallowance of deduction u/s 80IA on the new power plant of the assessee upheld. Enhance book profit u/s 115JB by the amount disallowed u/s 14A r.w. Rule 8D - HELD THAT - This issue has been decided in favour of the assessee by the Special Bench of the ITAT in the case of ACIT Vs. Vireet Investment Pvt. Ltd 2017 (6) TMI 1124 - ITAT DELHI Thus the order of the ld.CIT(A) allowing the assessee s claim of no adjustment to be made to the book profits on account of disallowance of interest under section 14A of the Act is upheld.
Issues Involved:
1. Transfer Pricing Adjustment. 2. Disallowance under section 14A of the Income Tax Act. 3. Claim of Prior Period Expenses. 4. Adjustment to Arm's Length Price (ALP) on account of sales to subsidiaries. 5. Notional Income from Commission. 6. Quantity Discount. 7. Depreciation Claim. 8. Deduction under section 80IA. 9. Adjustment to Book Profits under section 115JB. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: The Tribunal examined the adjustment of Rs. 1,00,09,905/- related to the sale of goods to Associate Enterprises (AEs). The assessee contended that a mistake in the Transfer Pricing (TP) study had been identified and supported by a Chartered Accountant's (CA) certificate. Despite the Tribunal's direction to reconsider the evidence, the authorities failed to verify the details. Consequently, the Tribunal directed the deletion of the TP adjustment, emphasizing the failure of the authorities to comply with the Tribunal's directions. 2. Disallowance under Section 14A: The Tribunal addressed disallowance under section 14A for various years. For Asst.Year 2006-07, the Tribunal upheld the deletion of Rs. 49,09,881/- and restricted the disallowance to Rs. 1,75,000/- based on the CA's report. For Asst.Year 2007-08, the Tribunal noted that Rule 8D was not applicable and upheld the disallowance restricted to Rs. 2,25,000/-. For Asst.Year 2009-10, the Tribunal directed the AO to apply the decision of Asst.Year 2007-08. 3. Claim of Prior Period Expenses: The Tribunal examined the disallowance of prior period expenses for multiple assessment years. For Asst.Year 2006-07, the Tribunal allowed the claim of Rs. 47,87,776/-, noting the consistency in claiming such expenses and the lack of revenue impact. For Asst.Year 2007-08, the Tribunal upheld the deletion of Rs. 52,95,097/- based on similar reasoning. For Asst.Year 2009-10, the Tribunal directed the AO to apply the decision of Asst.Year 2006-07. 4. Adjustment to ALP on Account of Sales to Subsidiaries: The Tribunal addressed the adjustment of Rs. 1,74,69,516/- related to sales to subsidiaries. The Tribunal upheld the deletion of Rs. 74,59,611/- for quantity discount, noting that the assessee had demonstrated its commercial policy and substantiated it with comparative data of sales to AE and non-AE. 5. Notional Income from Commission: The Tribunal examined the addition of Rs. 1,21,60,877/- on account of notional income from commission. The Tribunal upheld the deletion, agreeing with the CIT(A) that the commission was a reversal of an expenditure and not actual income. The Tribunal noted that there was no concept of taxing notional income under the Act. 6. Quantity Discount: The Tribunal addressed the adjustment of Rs. 74,59,611/- related to quantity discount given to AEs. The Tribunal upheld the deletion, noting that the assessee had demonstrated its commercial policy and substantiated it with comparative data. The Tribunal found the approach of the assessee reasonable and held that the rejection by the TPO was not correct. 7. Depreciation Claim: The Tribunal examined the reduction of the depreciation claim by Rs. 85,11,361/- for Asst.Year 2009-10. The Tribunal upheld the addition, noting that the issue had been consistently decided against the assessee in preceding years. 8. Deduction under Section 80IA: The Tribunal addressed the disallowance of Rs. 21,42,48,271/- under section 80IA for Asst.Year 2009-10. The Tribunal upheld the disallowance, agreeing with the Revenue that the CIT(A) had no power to restore the issue to the AO. 9. Adjustment to Book Profits under Section 115JB: The Tribunal examined the adjustment to book profits on account of disallowance under section 14A. The Tribunal upheld the deletion, noting that the issue had been decided in favor of the assessee by the Special Bench of the ITAT in the case of ACIT Vs. Vireet Investment Pvt. Ltd. Conclusion: The Tribunal allowed the appeals of the assessee for Asst.Year 2006-07, dismissed the appeals of the Revenue for Asst.Year 2006-07 and Asst.Year 2007-08, dismissed the appeal of the assessee for Asst.Year 2009-10, and partly allowed the appeal of the Revenue for Asst.Year 2009-10 for statistical purposes.
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