2018 (6) TMI 363 - AT - Income Tax

TPA - working of margin of assessee and comparables by adopting the PLI of net margin / operating revenue - Held that - We are inclined to restore the issue to the file of the Assessing Officer for deciding afresh after considering assessee s claim of adopting the PLI of net margin / operating revenue and also examining working of margins submitted by the assessee. AO shall decide the issue keeping in view our observations and only after extending reasonable opportunity of being heard to the assessee. Grounds raised by the assessee are partly allowed for statistical purposes. Disallowance of employer s contribution to provident fund and ESI - Held that - By virtue of the amendment made to section 43B employer s contribution to provident fund / ESI is allowable as deduction if they are paid before the due date of return of income to be filed for the relevant assessment year. The Hon ble Jurisdictional High Court has expressed such view in case of Hindustan Organics Ltd. 2014 (7) TMI 477 - BOMBAY HIGH COURT . We direct the Assessing Officer to allow assessee s claim of deduction in respect of employer s contribution to provident fund and ESI if they have been made before the due date of filing of return of income for the impugned assessment year.

Summary

Issues:
1. Transfer pricing adjustment based on net margin/marketing cost as PLI.
2. Disallowance of employer's contribution to provident fund and ESI.
3. Levy of interest under sections 234B and 234D of the Act.

Transfer Pricing Adjustment Issue:
The case involved an appeal by the assessee against the order of the Commissioner (Appeals) regarding transfer pricing adjustments made by the Transfer Pricing Officer. The dispute centered around the appropriate Profit Level Indicator (PLI) to be adopted for determining the arm's length price of marketing service fees paid to Associated Enterprises (A.Es). The Transfer Pricing Officer used net margin/marketing cost as the PLI, leading to a significant adjustment proposed under section 92CA of the Act. The assessee contested this choice, arguing that the correct PLI should be net margin/operating revenue. The Tribunal agreed with the assessee, emphasizing that the denominator in the PLI should be revenue/sales when the transaction involves costs. The case was remanded to the Assessing Officer for reconsideration based on the correct PLI, allowing the assessee a fair opportunity to present its case.

Employer's Contribution Disallowance Issue:
Another issue in the case was the disallowance of the employer's contribution to provident fund and ESI by the Assessing Officer due to delayed payments. The Commissioner (Appeals) upheld this disallowance citing lack of details. However, the Tribunal noted that as per an amendment to section 43B of the Act, such contributions are deductible if paid before the due date of filing the return of income for the relevant assessment year. Relying on a High Court ruling, the Tribunal directed the Assessing Officer to allow the deduction if the payments were made before the due date, thereby granting relief to the assessee on this issue.

Interest Levy Issue:
The final issue concerned the levy of interest under sections 234B and 234D of the Act. While this ground was not extensively argued during the hearing, the Tribunal directed the Assessing Officer to adjust the income computation accordingly based on their decisions on the previous issues. This ensured that any consequential effects of the interest levy were appropriately addressed in the revised income calculation. Ultimately, the Tribunal partially allowed the appeal for statistical purposes, providing relief to the assessee on the transfer pricing and employer's contribution issues.