2019 (2) TMI 2101 - AT - Income Tax

TP adjustment on account of outstanding receivables - DRP directed to give working capital adjustment and re-compute the interest chargeable on outstanding net receivables by applying LIBOR 400 bps - HELD THAT - We note that the Tribunal 2017 (10) TMI 111 - ITAT DELHI for assessment year 2012-13 in case of the assessee, following the decision of Kusum Health Care Pvt. Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT held that no separate adjustment on account of interest receivable is required when working capital adjustment has already been made to the margins of the comparables while comparing the margin of the assessee under the TNMM. We set aside the finding of the DRP complied by the Assessing Officer in the impugned order and delete the adjustment on account of the interest receivables. In the result, the grounds of the appeal of the assessee are allowed. Disallowance towards stock written off - AO disallowed the claim in respect of obsolete inventory on the ground that the assessee did not furnish any report from any Engineer, production head or certificate from the third party that said inventory has become obsolete - DRP found that no such report from the Engineer or production head or third-party certificate was produced before the learner DRP, thus the Assessing Officer was directed to verify the submission of the assessee and bring out the facts properly and passed a speaking order on the issue - HELD THAT - As the assessee failed to produce any certificate from the expert third-party, respectfully following the finding of the Tribunal 2018 (2) TMI 1525 - ITAT DELHI , we reject the contention of the assessee and dismiss the grounds of appeal raised by assessee in this regard. Disallowance as excess depreciation claimed on fixed assets acquired by the assessee from NCR Corporation India Private Limited. - HELD THAT - The issue in dispute being identical to the issue decided by the Tribunal (supra), respectfully following the same, the issue of excess depreciation claimed is restored to the file of the Ld. Assessing Officer for verification and decide in view of the direction of the Tribunal 2018 (2) TMI 1525 - ITAT DELHI . The ground of the appeal is accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the assessment orders.
2. Transfer pricing adjustments.
3. Disallowance of "Stock written-off".
4. Disallowance of excess depreciation.
5. Initiation of penalty under section 271(1)(c).
6. Charging of interest under section 234A.

Detailed Analysis:

1. Validity of the Assessment Orders:
The appellant contended that the orders passed by the Deputy Commissioner of Income Tax-Transfer Pricing Officer (TPO), the Assistant Commissioner of Income Tax (AO), and the Dispute Resolution Panel (DRP) were "bad in law and void-ab-initio". However, grounds No. 1 and 2 were deemed general in nature and were not adjudicated upon.

2. Transfer Pricing Adjustments:
The appellant challenged the transfer pricing addition of Rs. 33,17,758/- on account of outstanding receivables. The Tribunal noted that in previous assessment years (2012-13 and 2013-14), it was held that no separate adjustment on account of interest receivable is required when working capital adjustment has already been made. The Tribunal cited the case of Principal Commissioner of Income Tax Vs. Kusum Health Care Pvt. Ltd., emphasizing that the TPO must conduct a proper inquiry to discern a pattern indicating an international transaction. Consequently, the Tribunal set aside the DRP’s findings and deleted the adjustment on account of interest receivables.

3. Disallowance of "Stock Written-off":
The appellant claimed a write-off of Rs. 25,20,421/- for obsolete inventory. The AO disallowed the claim due to the lack of supporting evidence such as reports from engineers or third-party certificates. The DRP directed the AO to verify the submission and pass a speaking order. The Tribunal upheld the AO’s disallowance, noting that the appellant failed to produce any expert third-party certification to substantiate the obsolescence of the inventory.

4. Disallowance of Excess Depreciation:
The appellant challenged the disallowance of Rs. 16,56,842/- as excess depreciation claimed on fixed assets acquired from NCR Corporation India Private Limited. The Tribunal observed that in previous years, similar issues were remanded to the AO for verification. Following the same approach, the Tribunal restored the issue to the AO for verification and directed the AO to pass a consequential order in accordance with the law.

5. Initiation of Penalty under Section 271(1)(c):
The Tribunal did not specifically address the issue of penalty initiation under section 271(1)(c), as it was consequential to the main issues adjudicated.

6. Charging of Interest under Section 234A:
Similarly, the issue of charging interest under section 234A was not specifically adjudicated, as it was consequential to the main issues.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal providing specific directions for verification and re-assessment of certain claims by the AO. The stay application seeking a stay on the recovery of the demand was dismissed as infructuous following the adjudication of the appeal. The order was pronounced in the open court on 25th February 2019.