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2017 (2) TMI 1114 - AT - Income TaxTPA - selection of comparable - exclusion of Bosch Chassis System India Ltd. and non-inclusion of Escorts Ltd. - Held that - In view of the admission of the assessee and in view of the present facts and circumstances, we hold that both Bosch Chassis System India Ltd. and Escorts Ltd. having different accounting year ending are not to be included in the final set of comparables in order to benchmark the international transaction of the assessee, while applying TNMM method. We direct so. The Assessing Officer/Transfer Pricing Officer is directed therefore to recompute the adjustment, if any, in the hands of the assessee in this regard. The Ld. Authorised Representative for the assessee pointed out that in case if Bosch Chassis System India Ltd. is excluded from the final set of comparables, its margin would be within /-5% and no adjustment is to be made on account of Arm s Length provisions. Accordingly, we direct the Assessing Officer to work out the margins of the comparables and compare it with the PLI of the assessee. Corporate guarantee adjustment made in the hands of the assessee - Held that - The facility provided by the assessee to its AE under which Corporate Guarantee was given by the assessee on behalf of the subsidiary. The Transfer Pricing Officer while benchmarking the international transaction of the assessee was of the view that against the provision of Bank Guarantee, the assessee should have charged some amount as Guarantee fee and he worked out the above in the hands of the assessee by adopting the Guarantee fee @1%, i.e. resulting in addition of ₹ 6,40,000/-. The assessee is in appeal against the order of the Assessing Officer/ Transfer Pricing Officer. Thus we direct the Assessing Officer to apply the rate of 0.5% as charges for providing Bank Guarantee to the Associate Enterprise and restrict the addition accordingly. Grounds raised by the assessee are thus partly allowed. Deduction allowable in view of the provisions of section 43B - Held that - Under the provisions of section 43B of the Act, it is provided that in case the assessee does not deposit certain sums within the stipulated period, then the said amount is to be disallowed in the hands of the assessee but the assessee is entitled to claim the same as deduction in the year of payment. The assessee claims that the provisions made on account of excise duty, bonus and sales tax were offered to tax in assessment year 2007- 08 since the amounts were not deposited, however, the said amounts have been paid in the year under consideration but by an inadvertent error, while filing the return of income, the said deductions were not claimed. Following the ratio laid down in the case of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012 (7) TMI 158 - BOMBAY HIGH COURT ) we hold that the assessee can raise such a plea before the authorities, i.e. during the course of assessment or appeal proceedings. Accordingly, we find no merit in the observations of the Dispute Resolution Panel in rejecting the claim of the assessee relying on the ratio laid down by the Hon ble Supreme Court in the case of Goetze India Ltd. Vs. CIT (2006 (3) TMI 75 - SUPREME Court). Reversing the same, we direct the Assessing Officer to verify the claim of the assessee and allow the same in accordance with law
Issues Involved:
1. Aggregate addition of ?2,76,62,100/- 2. Application of Section 92C of the Income Tax Act, 1961 3. Profitability of internal comparables 4. Selection and rejection of comparables under TNMM 5. Addition in respect of purchase/sale of traded/finished goods 6. Addition in respect of guarantee to the associate enterprise 7. Allowance under Section 43B 8. Additional ground for working capital adjustment Issue-wise Analysis: 1. Aggregate Addition of ?2,76,62,100/-: The assessee contested the aggregate addition made by the Assessing Officer (AO) amounting to ?2,76,62,100/-. The Tribunal noted that the AO had made this addition based on the Transfer Pricing Officer's (TPO) findings, which were subsequently upheld by the Dispute Resolution Panel (DRP). The Tribunal dismissed the general grounds related to the aggregate addition as they were not specific to any particular issue. 2. Application of Section 92C of the Income Tax Act, 1961: The assessee argued that the AO erred in making additions without considering the provisions of Section 92C. The Tribunal observed that the primary contention was the method used for benchmarking the international transactions. The TPO had rejected the Comparable Uncontrolled Price (CUP) method adopted by the assessee and instead applied the Transactional Net Margin Method (TNMM). The Tribunal upheld the application of TNMM, as the assessee's representative conceded that if certain comparables were excluded, the assessee's margins would fall within the acceptable range. 3. Profitability of Internal Comparables: The assessee claimed that internal comparables were available and should have been considered. However, this ground was dismissed as the Tribunal found that the internal CUP method proposed by the assessee was not appropriate. 4. Selection and Rejection of Comparables under TNMM: The assessee contested the exclusion of Bosch Chassis System India Ltd. and the non-inclusion of Escorts Ltd. as comparables. The Tribunal noted that Bosch Chassis System India Ltd. had a different financial year ending, which justified its exclusion. Similarly, Escorts Ltd. was excluded due to its different accounting year. The Tribunal directed the AO/TPO to recompute the adjustment after excluding these comparables, acknowledging that the assessee's margins would be within the acceptable range if these exclusions were made. 5. Addition in Respect of Purchase/Sale of Traded/Finished Goods: This ground was dismissed as it was general in nature and did not provide specific arguments against the addition. 6. Addition in Respect of Guarantee to the Associate Enterprise: The assessee challenged the addition of ?6,40,000/- made for the corporate guarantee provided to an associate enterprise. The TPO had applied a 1% guarantee fee, which was upheld by the DRP. The Tribunal referred to the Mumbai Tribunal's decision and the Bombay High Court's ruling, which justified a 0.5% rate for such guarantees. The Tribunal directed the AO to apply the 0.5% rate, thereby partly allowing the assessee's appeal on this ground. 7. Allowance under Section 43B: The assessee contended that certain deductions on account of excise duty, bonus paid, and sales tax dues paid were not allowed. The Tribunal acknowledged that these amounts were paid within the stipulated period under Section 43B. The Tribunal referred to the Bombay High Court's decision in CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd., which allowed such claims even if not made in the return of income. The Tribunal directed the AO to verify and allow these claims in accordance with the law. 8. Additional Ground for Working Capital Adjustment: The assessee raised an additional ground seeking working capital adjustment if TNMM was to be applied. The Tribunal admitted this additional ground and directed the AO to verify and decide the issue of working capital adjustment as per the law and settled legal position. Conclusion: The appeal was partly allowed, with specific directions provided for the AO to recompute adjustments and verify claims as per the Tribunal's findings and applicable legal precedents. The Tribunal's order emphasized the importance of applying appropriate methods and comparables in transfer pricing assessments and allowed certain claims under Section 43B based on judicial precedents.
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