2016 (9) TMI 306 - HC - Income Tax

Transfer pricing adjustments - Benefit of 30% given in the profit margin of Titagarh Wagons Ltd. (TWL) for the free of cost supplies received by TWL from the Railways - Held that - TPO has not taken into consideration the proper information related to the free of cost. material provided by the Railways to Titagarh Wagons Ltd. as well as to Texmaco Ltd. and thus the said information is necessary to take into account the functions performed, assets employed and risks assumed ( FAR ). Ld. DRP in his finding also has directed Ld. TPO to take these aspects while allowing the said comparables. There is no doubt that these two companies are having the major role in supplying coaches to the Indian Railway and these are proper comparables if all the aspects are taken into consideration including the free of cost material value. Therefore, Ld. TPO is directed to take into account 30% additional cost base to account free of cost material and revised the OP/TC margin of 13.65% for determining the arm s length margin as claimed by the Assessee.

Summary

Issues:
Delay in filing appeal condonation - ITAT's decision on benefit of 30% deduction for "free of cost supplies" - Legal infirmity in ITAT and DRP orders - Substantial question of law for determination.

Delay in filing appeal condonation:
The High Court condoned a two-day delay in filing the appeal after considering the reasons provided. The application for condonation of delay was disposed of accordingly.

ITAT's decision on benefit of 30% deduction for "free of cost supplies":
The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 contested the ITAT's order directing a 30% benefit to the Assessee in the profit margin of Titagarh Wagons Ltd. for "free of cost supplies" received from the Railways. The Revenue argued that without quantifying the exact amount of "free of cost supplies," there was no basis for allowing the 30% deduction. However, the Assessee had estimated the provision of free wheel sets to be 30% of sales value based on a public interview by the Managing Director of TWL. The DRP instructed the TPO to gather information about the value of "free of cost supplies" and directed that if the information was not received within a reasonable period, the benefit of 30% deduction should be given. The ITAT observed that proper consideration of free materials provided by the Railways was necessary while deciding on comparables, and directed the TPO to take into account 30% additional cost base for "free of cost" material to revise the OP/TC margin for determining the arm's length margin as claimed by the Assessee.

Legal infirmity in ITAT and DRP orders - Substantial question of law for determination:
After hearing the submissions of the Revenue's counsel and reviewing the orders of the ITAT and DRP, the Court found no legal infirmity in either order that would give rise to any substantial question of law for determination. Consequently, the appeal was dismissed.

This judgment addressed issues related to the condonation of delay in filing the appeal, the ITAT's decision on the benefit of 30% deduction for "free of cost supplies," and the legal infirmity in the ITAT and DRP orders. The Court upheld the ITAT's directive regarding the 30% deduction and found no substantial question of law for determination, leading to the dismissal of the appeal.