2020 (3) TMI 388 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - The assessee is engaged in installation, assembling and maintenance of Lifts and Escalators, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Adherence to Turnover filter applied by the assessee company as companies having turnover less than one crore need to be rejected. Addition on account of unaccounted income reflected in Form 26AS - onus to prove - HELD THAT - We are of considered view that merely on AIR information based on TDS statement addition cannot be made in the hands of the assessee. The assessee has successfully reconciled 602 entries from the total 616 entries in question. For the remaining entries the assessee has denied to have transactions with the parties during the impugned assessment year. Since, the assessee has denied the transactions, onus was on the Revenue to show that TDS reflected in Form 26AS is in respect of the amounts that have been received by the assessee during the relevant period. The Revenue has failed to discharge its onus. The Bangalore Bench of the Tribunal in the case of Arati Raman vs. DCIT 2012 (10) TMI 1045 - ITAT BANGLORE has held that addition cannot be sustained on the basis of AIR information alone . The onus is on the Department to prove correctness of information by way of bringing cogent evidence - Since the Revenue has failed to lead positive evidence, the addition to be deleted. Non-granting of deduction in respect of provision for bad and doubtful debts while computing book profits under section 115JB - claim was not made by assessee in return of income - HELD THAT - Since, we have held that provision of doubtful debts is not an allowable deduction while computing income under normal provisions, as a corollary to the aforesaid findings the Book Profits under section 115JB are not required to be reduced by that extent. We do not find any infirmity in the impugned order in rejecting assessee s claim.

Summary

Issues Involved:
1. Adjustment of ?7,35,65,122/- made on international transactions for import of stores and spares, lifts, and escalators.
2. Addition of ?64,28,945/- on account of unaccounted income reflected in Form 26AS.
3. Non-granting of deduction in respect of provision for bad and doubtful debts while computing book profits under section 115JB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Adjustment of ?7,35,65,122/- on International Transactions
The assessee, engaged in the installation, assembling, and maintenance of lifts and escalators, used the Transaction Net Margin Method (TNMM) to benchmark its international transactions, which was accepted by the Revenue. The dispute centered on the inclusion of S.S.S. Electricals (India) Ltd. as a comparable. The TPO rejected this company due to its low turnover and alleged functional disparity. The assessee provided evidence, including the company's annual report, showing a turnover of more than ?2 crores. The DRP directed the TPO to include S.S.S. Electricals if its turnover exceeded ?1 crore, but the TPO did not comply. The Tribunal found that the TPO failed to provide the assessee an opportunity to present its case as per the DRP’s directions. Consequently, the Tribunal directed the TPO to include S.S.S. Electricals (India) Ltd. in the list of comparables, allowing the assessee's appeal on this ground.

Issue 2: Addition of ?64,28,945/- on Unaccounted Income
The addition was based on AIR information reflecting TDS statements. The assessee reconciled transactions with 602 entities out of 616 and denied transactions with the remaining 14 entities. The DRP had directed the Assessing Officer to provide the assessee an opportunity to reconcile these transactions, which was not done. The Tribunal held that additions could not be made solely on the basis of AIR information without corroborative evidence. The onus was on the Revenue to prove that the TDS entries reflected actual income received by the assessee. Since the Revenue failed to provide such evidence, the Tribunal deleted the addition of ?64,28,945/-, allowing the assessee's appeal on this ground.

Issue 3: Non-granting of Deduction for Provision for Bad and Doubtful Debts
The assessee claimed a deduction for provision for bad and doubtful debts amounting to ?1,40,22,384/- while computing book profits under section 115JB. This claim was made for the first time before the Assessing Officer and was rejected based on the Supreme Court's decision in Goetze India Ltd. vs. CIT. The DRP entertained but rejected the claim on merits. The Tribunal noted that the assessee had debited the provision in the P&L Account and reduced the amount from debtors in the Balance Sheet. However, the assessee also claimed a separate deduction for bad debts actually written off, leading to a potential double deduction, which is impermissible. The Tribunal concluded that the provision for doubtful debts was an unascertained liability and not allowable as a deduction while computing book profits under section 115JB. Thus, the Tribunal dismissed the assessee's appeal on this ground.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the inclusion of S.S.S. Electricals (India) Ltd. as a comparable and deleting the addition of ?64,28,945/- based on unaccounted income. However, the Tribunal upheld the non-granting of deduction for the provision for bad and doubtful debts while computing book profits under section 115JB.