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2020 (9) TMI 1098 - AT - Income TaxTP Adjustment - Disallowance of the claim of adjustment for extraordinary expenses relating to recovery of production overheads, selling and administrative overheads, one time technological fee for Chennai metro in the Transport segment - HELD THAT - Adjustment on account of extraordinary expenses in production overheads and selling and administrative overheads claimed by the assessee are not of any specific distinct expenditure. These are the regular expenses normally incurred by the assessee during the course of business. As rightly pointed out by the DRP, the assessee has proceeded to make adjustment in its profits despite the assessee being the tested party. There is nothing on record to suggest that in the comparables submitted, whether there was any adjustment for extraordinary and non-recurring items. This was required as evident from the various case laws referred by the DRP. Assessee itself being the tested party cannot adjust its profits without ensuring corresponding adjustment in the result of comparables. As regards the one-time technical assistance fee for Chennai Metrorail project is concerned, we find ourselves in agreement with the TPO that it is very much normal business expenditure of the assessee and same cannot be said to be extraordinary. Assessee s submission that it was Assessing Officer s duty to bring the details of adjustment required in comparables is totally unsustainable as the initial duty in this regard is cast on the assessee. The assessee has miserably failed in discharging this initial duty. Accordingly, in our considered opinion, the adjustment sought by the assessee in this regard has rightly been disallowed by the authorities below. Adjustment, if any, must be made only in respect of international transactions pertaining to Transport segment of the assessee and not the segment as a whole. In our considered opinion, the above is also a sound and consistent proposition and we are of the considered opinion that the same should be applied for the current year also - TPO is directed to make the computation by making the adjustment to AE transaction to Transport segment. Determination of arm s-length price for royalty paid - disallowance of Royalty payment in the Power segment - royalty paid for trademark is 1% as per DRP - HELD THAT - Determination of arm s length price as Nil by the TPO is not at all sustainable. For the Royalty for technology license, the DRP contradicted itself and did exactly what the TPO has done with a difference that after holding that the comparable agreement submitted in this regard by the assessee are different, it proceeded to fix the rate of royalty in this regard the rate of 1% of net sales to AE by simply observing that the assessee has already paid royalty rate of 1% with regard to trademark. DRP having agreed with the TPO that comparables and agreements submitted by the assessee are different and are not comparable, the DRP cannot wash his hands by picking up an arbitrary rate that since the royalty paid for trademark is 1%, the same rate is to be applied for royalty rate for technology license. The same is not at all based upon cogent reasoning and due analysis Law does not permit the TPO or DRP to determine the arm s length price on estimation or adhoc basis.See M/S. JOHNSON JOHNSON LTD. 2017 (3) TMI 1520 - BOMBAY HIGH COURT Departmental Representative s plea in this regard is that since the authorities below have failed to follow the prescription of the Act and law, the matter should be remanded to them is not at all sustainable as we find that assessee has duly submitted the comparables and agreements and if the authorities below rejected the same, but failed to follow the prescription of Act, the duty cast upon them, the assessee cannot be put through the rigours of 2nd round of litigation without any fault of its own. In this regard we draw support from the above decision from Hon'ble Jurisdiction High Court which confirmed the order by ITAT similar to this case. Accordingly assessee s grievance of ad hoc determination of arm s-length price for royalty paid by the TPO and the DRP succeeds. Accordingly, the ground raised by the assessee in this regard is allowed. As already upheld the DRP action of sustaining the 1% rate of royalty for Assessment Year 2013-14 for the trademark, the Revenue s grounds against the DRP direction, in this regard to uphold the computation at Nil by the TPO fails in view of our discussion herein above. Addition of unpaid service tax payable on the receivables not collected by GEPIL as on 31 March 2010 - whether AO erred not allowing deduction of service tax paid till 30 September 2010 i.e. due date of filing ROI? - HELD THAT -This issue is covered in favour of the assessee by the ITAT decision in the case of G.E. Power India Ltd. 2019 (6) TMI 1526 - ITAT MUMBAI wherein a delete the disallowance made by the assessee under section 43B. Addition of TPA to the book profits for the purposes of section 115JB - Whether book profits of a company cannot be adjusted except as provided in Explanation 1 of Section 115JB(2), and transfer pricing adjustment is not one of the classes of adjustments provided in that Explanation? - HELD THAT - We find that this issue is to be decided in favour of the assessee on the touchstone of Hon ble SC decision in Appollo Tyres 2002 (5) TMI 5 - SUPREME COURT and several decisions of Hon ble Bombay High Court, following the same, wherein it is held that no adjustment in book profit is to be done unless mandated in the Act. Since, the Act in Explanation (1) of section 115JB(2) does not provide for any such adjustment, this issue is decided in favour of the assessee.
Issues Involved:
1. Delay in filing the appeal and its condonation. 2. Disallowance of extraordinary expenses in the Transport segment. 3. Transfer pricing adjustment on royalty payments in the Power segment. 4. Addition of unpaid service tax payable. 5. Deduction of service tax on payment basis. 6. Addition of transfer pricing adjustment to book profits under Section 115JB. 7. Addition of merger expenditure disallowance to book profits. 8. Short grant of tax deducted at source. 9. Excess interest charged under Section 234C. 10. Revenue's appeal on adjustment reduction to AE transactions. Detailed Analysis: 1. Delay in Filing the Appeal and Its Condonation: The appeal in ITA No. 956/Mum/2018 was delayed by 63 days due to the concerned person being medically unfit. The assessee submitted an affidavit supporting the reasonable cause for the delay. Upon hearing both parties and reviewing the records, the delay was condoned. 2. Disallowance of Extraordinary Expenses in the Transport Segment: The assessee claimed adjustments for extraordinary expenses related to production overheads, selling and administrative overheads, and a one-time technological fee for the Chennai Metro project. The TPO disallowed these adjustments, stating they were routine and normal expenditures. The DRP upheld the TPO's decision, emphasizing that adjustments must be made to the results of comparables, not the tested party. The Tribunal agreed with the authorities, noting that the expenses were regular business expenditures and not extraordinary. The Tribunal also directed that adjustments should be made only for AE transactions, not at the entity level. 3. Transfer Pricing Adjustment on Royalty Payments in the Power Segment: The TPO rejected the assessee's approach of aggregating royalty payments with other transactions and insisted on separate benchmarking. The TPO determined the arm's length price (ALP) for royalty payments as Nil, which was upheld by the DRP for the assessment year 2012-13. For 2013-14, the DRP directed the TPO to determine the ALP as per the prescribed methods. The Tribunal agreed with the DRP, stating that the TPO must compute the ALP based on the rules and law, and cannot determine it as Nil. The DRP's ad hoc fixation of the royalty rate at 1% for technology license was also rejected, as it was not based on any prescribed method. 4. Addition of Unpaid Service Tax Payable: The issue of unpaid service tax payable was covered in favor of the assessee by previous ITAT decisions. The Tribunal held that service tax is payable only upon receipt from the consumer, and since the assessee did not claim any deduction for the service tax payable, no disallowance under Section 43B could be made. 5. Deduction of Service Tax on Payment Basis: The AO was directed to reexamine the issue of allowing the deduction of service tax on a payment basis in the current year, which was disallowed in the previous year. If the amount was disallowed in the concerned assessment year for non-payment, the assessee's ground would succeed. 6. Addition of Transfer Pricing Adjustment to Book Profits under Section 115JB: The Tribunal admitted the additional ground regarding the addition of transfer pricing adjustment to book profits. It was decided in favor of the assessee, following the Supreme Court decision in Appollo Tyres and several Bombay High Court decisions, which held that no adjustment in book profit is to be done unless mandated in the Act. 7. Addition of Merger Expenditure Disallowance to Book Profits: The assessee's counsel did not press this issue, and it was dismissed as not pressed. 8. Short Grant of Tax Deducted at Source: The AO was directed to examine the factual issue of short grant of tax deducted at source. 9. Excess Interest Charged under Section 234C: This was a consequential issue and did not require specific adjudication. 10. Revenue's Appeal on Adjustment Reduction to AE Transactions: The Revenue's appeal against the DRP's decision to reduce the adjustment to AE transactions only was dismissed. The Tribunal referred to the ITAT decision in the assessee's own case for A.Y. 2006-07, which was upheld by the Bombay High Court. Conclusion: The assessee's appeals were partly allowed, the cross objection was dismissed, and the Revenue's appeals were dismissed. The Tribunal pronounced the order under Rule 34(4) of ITAT Rules by placing the pronouncement list on the notice board.
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