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2017 (4) TMI 358 - AT - Income TaxTaxing of accrued income shown as unmatured advances in the balance sheet - Held that - The issue is covered in favour of the assessee by the decision of the ITAT, Hyderabad in assessee s own case for AY 2001-02 what is to be seen is whether the assessee has followed a recognized method of accounting or not. If method followed by the assessee is such whereby correct income cannot be deduced, then only the assessing officer has the authority to adopt a reasonable basis to determine the total income. In the instant case,. It cannot be disputed that the assessee has followed a recognized method of accounting and hence, there is no question of adding any further amount to the total income. - Decided in favour of assessee Arm s length Price determined by TPO u/s 92CA - Held that - As noted from the order of TPO, the total cost of the assessee adopted by the TPO is not correct as he should have adopted the cost what is relevant for the international transactions. As observed by the CIT(A), the cost adopted by the assessee are only relating to man power and depreciation relating to computer, may not be sufficient, there may be other cost associated to the international transactions like administration, management resources etc. To substantiate the cost allocation method adopted by the assessee, Assessee has filed additional evidence before us, which requires verification. At the same time, some of the filters adopted by the TPO, as highlighted by CIT(A), are not proper and some of the comparables considered by the TPO are not relevant to the assessee. Considering the above factual errors, we remit the issue back to the file of the TPO for de-novo consideration. We direct the TPO to re-do the assessment after giving proper opportunity to the assessee in this regard. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
Issues Involved:
1. Delayed payment of employees' contribution to PF. 2. Taxing of accrued income shown as unmatured advances in the balance sheet. 3. Arm’s Length Price (ALP) determined by Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act. Detailed Analysis: 1. Delayed Payment of Employees' Contribution to PF: The judgment does not provide specific details on this issue, suggesting it was not a primary contention in the appeals. 2. Taxing of Accrued Income Shown as Unmatured Advances: The Assessing Officer (AO) added the unmatured advances to the income, arguing that these advances had already accrued to the assessee and were not refundable. The AO cited the notes to accounts which indicated that the income had accrued. The CIT(A) deleted the addition, relying on a previous Tribunal decision in the assessee's own case. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered in favor of the assessee by a previous ITAT decision. The Tribunal emphasized that the method of accounting followed by the assessee was recognized and consistent, and thus, there was no need to add the unmatured advances to the income. 3. Arm’s Length Price (ALP) Determined by TPO: The assessee contested the ALP adjustment made by the TPO. The TPO had increased the operating cost and adopted a higher mark-up percentage, leading to a significant ALP adjustment. The CIT(A) provided partial relief, agreeing that some of the TPO's filters were incorrect and some comparables were not relevant. However, the CIT(A) upheld the increased operating cost determined by the TPO. The Tribunal found errors in the TPO's approach, particularly in the allocation of costs and the selection of comparables. The Tribunal noted that the TPO had not correctly considered the cost relevant to international transactions and had used some incorrect filters. The Tribunal remitted the issue back to the TPO for a fresh assessment, directing the TPO to re-evaluate the comparables and cost allocation after giving the assessee an opportunity to present its case. For subsequent years (AY 2008-09 and 2009-10), similar issues regarding unmatured advances and ALP adjustments were raised. The Tribunal upheld the CIT(A)'s deletion of additions for unmatured advances, as the issue was materially identical to AY 2007-08. For ALP adjustments, the Tribunal again found errors in the TPO's methods and remitted the issue back for fresh consideration. Separate Judgments: The Tribunal delivered a common judgment for the appeals related to AY 2007-08, 2008-09, and 2009-10, addressing the issues collectively for the sake of convenience. Conclusion: The Tribunal dismissed the revenue's appeals and allowed the assessee's appeals for statistical purposes, directing the TPO to re-evaluate the ALP adjustments with correct filters and cost allocations. The Tribunal upheld the CIT(A)'s deletion of additions for unmatured advances, consistent with previous decisions in the assessee's favor.
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