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2019 (12) TMI 1154 - AT - Income TaxTP Adjustment - 6% markup on cost / expenditure - Mutual agreement between the assessee and associated enterprises - assessee not in possession of any formal agreement - HELD THAT - In the earlier years the 6% markup on cost was the proposition considered by learned CIT(A) which was accepted by the ITAT. In the present assessment year there is no mention whatsoever about this claim of the assessee in the order of learned CIT(A). All the assessee s arguments before learned CIT(A) were confined to selection of comparables and certain other adjustments. We agree that this contention of the assessee deserves consideration provided the facts for the present assessment year are in conformity with the earlier assessment years. Furthermore as noted above this aspect has not at all been considered at the level of learned CIT(A). In the interest of justice we deem it appropriate to remit this aspect of assessee s contention to the file of learned CIT(A) to consider the same and give a finding thereupon. Needless to add the assessee should be granted opportunity of being heard. - Matter remanded back to CIT(A).
Issues Involved:
1. Deemed dividend addition under Section 2(22)(e) of the Income Tax Act. 2. Transfer Pricing adjustment and its methodology. 3. Taxability of intercompany deposit as deemed dividend. 4. Applicability of CBDT circular on tax effect threshold for appeals. Issue-Wise Detailed Analysis: 1. Deemed Dividend Addition under Section 2(22)(e): The revenue's appeal challenged the CIT(A)'s decision to restrict the addition under Section 2(22)(e) to ?24 lakhs out of loans of ?78 lakhs, arguing that the lender company had accumulated profits of ?1,08,48,212/-. However, the tribunal dismissed the revenue's appeal in limine due to the tax effect being below the ?50 lakhs threshold set by CBDT Circular No. 17/2019 dated 8.8.2019. The tribunal noted that no exceptions to this circular were shown by the revenue. 2. Transfer Pricing Adjustment and Its Methodology: The assessee's appeals for both assessment years 2009-10 and 2010-11 raised issues regarding the Transfer Pricing (TP) adjustments. The grounds included errors in confirming adjustments, ignoring fresh comparables, not addressing inconsistencies in the TPO's search, and not considering the appellant's low-risk consignment manufacturer status. The tribunal referred to the assessee's TP study, which grouped all international transactions and benchmarked them using external TNMM as the most appropriate method. The TPO had rejected this benchmarking, leading to significant TP adjustments. The tribunal noted that the ITAT had previously accepted a 6% markup on the expenses incurred by the assessee for earlier years, based on mutual agreement between the assessee and its AE. However, the tribunal found that this argument was not adequately considered by the CIT(A) for the relevant assessment years. Therefore, the tribunal remitted this aspect back to the CIT(A) to consider the 6% markup argument and give a finding thereupon, ensuring the facts for the present assessment years align with earlier years. 3. Taxability of Intercompany Deposit as Deemed Dividend: The assessee's appeal for the assessment year 2009-10 included the issue of taxing intercompany deposits as deemed dividends, arguing that the assessee was neither a registered shareholder nor a beneficial shareholder of the lender company. The tribunal agreed to remit this issue back to the assessing officer for fresh consideration in light of new details about the shareholding patterns provided by the assessee. 4. Applicability of CBDT Circular on Tax Effect Threshold for Appeals: The tribunal dismissed the revenue's appeal in limine due to the tax effect being below the ?50 lakhs threshold set by CBDT Circular No. 17/2019. This circular mandates that appeals should not be filed before the ITAT if the tax effect is below ?50 lakhs, unless exceptions apply, which were not shown in this case. Conclusion: The tribunal dismissed the revenue's appeal due to the low tax effect and remitted the issues of deemed dividend and TP adjustments back to the assessing officer and CIT(A) for fresh consideration, ensuring alignment with earlier years' findings and providing the assessee an opportunity to present new details and arguments. The tribunal emphasized the importance of consistency in treatment and methodology, particularly in Transfer Pricing adjustments.
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