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2020 (7) TMI 658 - AT - Income TaxTP Adjustment - Comparable selection - exclusion of comparable company namely International Flavors Fragrances (I) Ltd (IFF) and inclusion of Ultra Industries Ltd (UIL) - TPO proposed to include IFF as a valid comparable company by taking view that the assessee while making TP research for comparable, rejected this company only on the ground of (RPT) related party transaction - HELD THAT - Hon ble Bombay High Court in CIT Vs PTC Software 2016 (9) TMI 1282 - BOMBAY HIGH COURT while considering the question of law if the Tribunal erred in excluding comparable only on the ground that the said comparable had prepared the financial for the year ending on June against the assessee as on March. Rule 10B(4) of Income tax Rules, are clear and obligates that the data to be used for comparison should be data relating to the same financial year in which the international transaction were entered by the tested party. The contention of the revenue that mandates of Rule 10B can be ignored as difference of three months was also rejected. The case law relied by ld DR for the revenue in Pangea3 Legal Database System (P) Ltd Vs ITO 2017 (3) TMI 267 - ITAT MUMBAI is not helpful to him as the quarter wise accounts for IFF is not available in the financial statements of this comparable. Even otherwise the decision of Jurisdictional High Court is having binding effect. Thus, considering the decision of the jurisdictional High Court, we affirm the order of ld. DRP for exclusion of IFF. In the result the ground No. 1 of revenue s appeal is dismissed. Comparability of UIL - During the TP proceedings the assessee vide its letter dated 29.10.2012 ask to TPO to include this comparable as the data of this company was not available at the time of search. TPO rejected the prayer of the assessee by taking view that FAR (functions performed asset employed and the risk assumed) analysis was not done, and that in previous year this comparable was not taken though this company was appearing the search process of the assessee. DRP directed to include this comparable on the ground that the activities of this comparable is similar to the assessee. We have seen that the ld DRP has considered the import contents of this comparables as well as Synthite Industries and included solely on the basis of activities. Disallowance of bad debts - HELD THAT - The Hon ble Bombay High Court in CIT Vs Essar Technology Ltd 2015 (1) TMI 252 - BOMBAY HIGH COURT while considering the question of law whether Tribunal was right in allowing the bad debts claimed by the assessee even the same were not offered as income in the earlier years as per the provisions of section 36(2)(1). The Hon ble Court held that the Tribunal did not commit any error in recording a factual finding that in the present case that the bad debt can be written off as irrecoverable, otherwise that would also have gone contrary to the judgment of the Supreme Court delivered in the case of T.R.F. Ltd. v. CIT 2010 (2) TMI 211 - SUPREME COURT . In the result this ground of appeal is allowed.
Issues Involved:
1. Determination of Arm’s Length Price (ALP) for import of raw materials. 2. Exclusion and inclusion of certain comparable companies in Transfer Pricing analysis. 3. Disallowance of bad debts written off. 4. Condonation of delay in filing the appeal by the revenue. 5. Maintainability of the revenue’s appeal. Detailed Analysis: 1. Determination of Arm’s Length Price (ALP) for Import of Raw Materials: The assessee challenged the assessment order for AY 2009-10, where the Assessing Officer (AO) determined the ALP for the import of raw materials at ?73,20,85,000/- against the transaction price of ?83,32,29,000/-. The AO/TPO made adjustments based on the Transfer Pricing Officer's (TPO) order under section 92CA(3) of the Act. The TPO identified international transactions and benchmarked them using the Transaction Net Margin Method (TNMM), with the assessee showing a profit margin of 4.29%. The TPO included additional comparables, resulting in a mean margin of 9.14%, leading to an adjustment of ?10,11,43,000/-. The DRP partially upheld the adjustments, directing the exclusion of International Flavors & Fragrances (I) Ltd. and inclusion of Ultra International Co. Ltd. 2. Exclusion and Inclusion of Comparable Companies: The assessee argued against the inclusion of International Flavors & Fragrances (I) Ltd. due to differences in financial periods and functional dissimilarities. The DRP directed its exclusion, which was upheld by the Tribunal, citing the Bombay High Court's decision in CIT vs. PTC Software (I) (P) Ltd, which mandates that data for comparison should relate to the same financial year. The Tribunal also upheld the inclusion of Ultra International Co. Ltd., as directed by the DRP, noting that the revenue did not provide sufficient differentiation in functions. 3. Disallowance of Bad Debts Written Off: The AO disallowed the claim of bad debts amounting to ?14,36,000/-, stating that the assessee failed to establish that the debts had become bad and irrecoverable. The Tribunal, referencing the Supreme Court's decision in TRF Ltd. vs. CIT and the Bombay High Court's decision in CIT vs. Essar Technology Ltd, held that the write-off of bad debts in the profit and loss account suffices for deduction under section 36(1)(vii) of the Act. The Tribunal allowed the assessee's claim for bad debts. 4. Condonation of Delay in Filing the Appeal by the Revenue: The revenue's appeal was filed 43 days beyond the prescribed period. The Tribunal condoned the delay, accepting the revenue's explanation that the delay was due to a bona fide belief that the DRP's direction was against the assessee. The Tribunal referenced the Supreme Court's decision in Land Acquisition Collector vs. Mst Katiji, which emphasizes a liberal approach in condoning delays to serve substantial justice. 5. Maintainability of the Revenue’s Appeal: The assessee argued that the revenue's appeal was not maintainable due to the retrospective omission of sub-section (2A) of section 253 by the Finance Act 2016. The Tribunal, however, held that the omission of a statutory provision is equivalent to its repeal, as per the Supreme Court's decisions in Fibre Boards P. Ltd. and M/s. Shree Bhagwati Steel Rolling Mills. Therefore, actions taken under the omitted provision during its validity are saved by sections 6 and 6A of the General Clauses Act. The Tribunal dismissed the assessee's objection and held the revenue's appeal as valid. Conclusion: The Tribunal upheld the DRP's directions on the exclusion and inclusion of certain comparables, allowed the assessee's claim for bad debts, condoned the delay in the revenue's appeal, and validated the maintainability of the revenue's appeal. The assessee's appeal was allowed, and the revenue's appeal was dismissed.
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