2017 (5) TMI 532 - AT - Income Tax

Adjustment in view of the section 145A - Held that - As submitted before the assessing officer assessee is following exclusive method of accounting in respect of modvat as prescribed by the accounting standards-2 of the Institute of charted accountants of India and also in accordance with the directions of ITAT Mumbai bench in the case of Hawking s Cookers Limited vs ITO 2008 (8) TMI 904 - ITAT MUMBAI . The assessee has also stated that the tax audit report clearly mentions that no adjustment in view of the section 145A of the Income Tax Act is required. The authorities below have rejected the submissions without pointing out any reason as to why the above submissions of the assessee deserve to be rejected. It is settled law that even administrative order have to be consistent with the rules of natural justice. This position was reiterated by the Hon ble Apex Court in the case of M/s SAHARA INDIA (FIRM) 2008 (4) TMI 4 - Supreme Court . Hence in view of the above submissions of the assessee which have not been controverted by the authorities below by a speaking order, we set aside the order s of the assessing officer on this issue and decide the issue in favour of the assessee. Disallowance u/s.40a(ia) - Held that - Upon careful consideration we find that Ld. DRP also noted that assessee has furnished evidences and particulars which the DRP wanted the assessing officer to examine and act upon. In the interest of justice we remit this issue again to the file of the assessing officer. Assessing officer is directed to give effect to the direction of the Ld. DRP after giving the assessee proper opportunity of being heard. Addition of interest - Advance given without any purpose for the business carried on by the assessee - Held that - The deposit was made at the end of the financial year for entering into the agreement for rent for the accommodation to be used by the employee. There was slight delay in finalising the agreement, which can be considered to be reasonable. Hence we agree with the Ld. Counsel of the assessee that facts and circumstances do not warrant and addition of notional income on the deposit in the hand of the assessee. Accordingly we said aside the order s of the parties below the decide the issue in favour of assessee.

Issues Involved:
1. Addition of ?17,84,41,000/- under section 92CA(3) of the Act.
2. Non-implementation of the certificatory order dated 22/12/2010 under section 92CA(5) r.w.s 154 of the Act.
3. Restriction of transfer pricing adjustment to ?4,18,04,000/-.
4. Addition of ?9,49,968/- on account of Modvat under section 145A of the Act.
5. Deduction in respect of Modvat credit relating to opening inventory.
6. Addition of ?8,16,19,125/- under section 40(a)(ia) of the Act.
7. Addition on account of Interest free deposit/advance of ?2,50,000/-.

Detailed Analysis:

1. Addition of ?17,84,41,000/- under section 92CA(3) of the Act:
The assessee, BASF Coatings (India) Pvt. Ltd. (BCIL), engaged in manufacturing and supplying coil coatings, undertook a Transfer Pricing (TP) study using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) included Asian Paints Ltd. and Goodlas Nerolac Paints Ltd. as comparables, which the assessee objected to on qualitative grounds. The TPO rejected these objections, leading to a TP adjustment of ?17,84,40,000/-. The Dispute Resolution Panel (DRP) upheld the TPO's inclusion of these comparables but directed the TPO to verify the Profit Level Indicator (PLI) of ICI India Ltd. and recompute the TP adjustment accordingly. The issue was remitted to the Assessing Officer (AO) to verify the computations and decide as per law.

2. Non-implementation of the certificatory order dated 22/12/2010 under section 92CA(5) r.w.s 154 of the Act:
The assessee argued that the AO should have given effect to the order passed under section 154, which recomputed the TP adjustment at ?10,51,78,000/-. The DRP directed the AO to verify the correctness of the figures and recompute the TP adjustment. The Tribunal remitted the issue to the AO to consider the workings in light of the order passed under section 154 and the DRP's directions.

3. Restriction of transfer pricing adjustment to ?4,18,04,000/-:
The DRP directed the TPO to verify the recomputation of the PLI of ICI India Ltd. and adopt the arithmetic mean PLI of 9 companies at 7.88%, leading to a TP adjustment of ?4,18,04,000/-. The Tribunal remitted the issue to the AO to verify the correctness of the figures and recompute the TP adjustment accordingly.

4. Addition of ?9,49,968/- on account of Modvat under section 145A of the Act:
The assessee claimed that the AO should have allowed deduction in respect of Modvat credit relating to opening inventory without making any adjustment to the closing inventory. The AO made an adjustment of ?9,49,968/- under section 145A. The Tribunal found that the authorities below had rejected the assessee's submissions without providing reasons and decided the issue in favor of the assessee, setting aside the AO's order.

5. Deduction in respect of Modvat credit relating to opening inventory:
The Tribunal held that the assessee's method of accounting for Modvat credit, as prescribed by Accounting Standard-2 and in accordance with ITAT Mumbai Bench directions in the case of Hawkins Cookers Ltd., was correct. The Tribunal set aside the AO's order and decided the issue in favor of the assessee.

6. Addition of ?8,16,19,125/- under section 40(a)(ia) of the Act:
The AO disallowed ?8,16,19,125/- under section 40(a)(ia) for non-compliance with TDS provisions. The DRP directed the AO to verify the details of TDS payments and recompute the disallowance. The Tribunal remitted the issue to the AO to give effect to the DRP's directions after verifying the details.

7. Addition on account of Interest free deposit/advance of ?2,50,000/-:
The AO added ?2,50,000/- as notional interest on an advance of ?25,00,000/- given to Mr. Rishabh Saksena and Mrs. Anu Saksena. The DRP upheld the addition, noting that the lease agreement was dated after the relevant financial year. The Tribunal found the delay in finalizing the agreement reasonable and set aside the addition, deciding the issue in favor of the assessee.

Conclusion:
The Tribunal remitted several issues to the AO for verification and recomputation as per the DRP's directions and decided in favor of the assessee on the issues related to Modvat credit and notional interest on the deposit. The assessee's appeal was allowed for statistical purposes.

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