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2021 (8) TMI 908 - AT - Income TaxTP Adjustment - international transaction pertaining to purchase of capital goods from AE - AO made adjustment by denying the 8% markup charged by the AE on the supply of capital goods and disallowed the depreciation also to that extent - assessee contested that the purchase of capital goods cannot be benchmarked separately. The main argument was the depreciation do form a component of operating cost and hence cannot be given separate treatment - HELD THAT - Since, the assessee has been denied proper opportunity, the TPO and the ld. DRP did not have the benefit of examining the purchase of capital goods, the issue of allowability or not of the markup of 8% charged by the AE has not been determined as per the approved methods, we hereby deem it fit to remand the matter to the file of the ld. DRP to determine the ALP as per the approved methods after giving an opportunity to the assessee to make their submissions. The assessee is also hereby directed to comply with the directions of the ld. DRP in furnishing the complete details and substantiating their case. Addition of liquidated damages incurred by the assessee pursuant to breach of contractual arrangements - HELD THAT - As decided in ow case 2019 (12) TMI 667 - ITAT DELHI the charges pertain to contractual obligation which was not complied with but the AO held it as penalty. The matter has been remanded back to the file of the AO for fresh examination in the assessment year 2014 -15 as well as 2013014. We have given due consideration to the observations of the ld. DRP, the expense also do not pertain to the year in question. Hence, the AO is hereby directed to examine the issue afresh with regard to the allowability of the expenses per se and also the year to which the expenses belong to. Interest on Foreign Term Loan - AO disallowed the interest paid on foreign term loan as no TDS was deducted by the assessee - AO disallowed it on the grounds that the assessee failed to deduct TDS on the interest credited in the books whereas the assessee submitted that only an amount of ₹ 5,06,995/- has been accrued on the loan received - HELD THAT - As DRP referred the matter to the AO for factual verification. Since, it is a matter of factual verification, we decline to interfere with the order of the ld. DRP. Reconciliation of amounts in 26AS - HELD THAT - The revenue as per the books of accounts of the assessee was ₹ 2,39,74,386/- against the revenue as per 26AS of ₹ 5,73,39,416/- thus, reflecting a difference of ₹ 3,33,65,030/- the sum which has been treated as income of the assessee by the Assessing Officer and the ld. DRP. The assessee is hereby directed to submit the reconciliation statement and the accounting principles used with reference to the continuity of treating the various receipts. Effect of order u/s 154 - HELD THAT - AO failed to take into consideration the order u/s 154 passed by the TPO on 26.03.2021 reducing the TP addition. The same is hereby directed to be rectified.
Issues Involved:
1. Adjustment on account of capital goods purchased from AE. 2. Disallowance of liquidated damages. 3. Disallowance of interest on foreign term loan. 4. Addition based on revenue discrepancy in Form 26AS. 5. Consideration of order u/s 154 reducing TP addition. Detailed Analysis: 1. Adjustment on Account of Capital Goods Purchased from AE: The primary issue raised by the assessee pertains to the adjustment made by the AO regarding the purchase of capital goods from AE, amounting to ?48,01,62,130/-. The AO disallowed ?3,84,12,970/- being the 8% markup on the capital goods and also disallowed depreciation of ?57,61,945/-, totaling an adjustment of ?4,41,74,915/-. The assessee argued that the purchase of capital goods cannot be benchmarked separately and that the depreciation forms a component of operating cost. The DRP upheld the AO's decision, stating that the purchase of capital goods constitutes a separate international transaction and needs to be benchmarked separately. The DRP noted the absence of evidence from the assessee to substantiate the purchases and the markup. The ITAT, referencing the case of Honda Motorcycle & Scooters India Pvt. Ltd., held that each international transaction can be benchmarked separately. Due to the lack of opportunity given to the assessee and the absence of evidence, the matter was remanded to the DRP for a fresh determination of the ALP after giving the assessee an opportunity to present its case. 2. Disallowance of Liquidated Damages: The AO disallowed liquidated damages incurred by the assessee due to breach of contractual arrangements. The DRP confirmed the disallowance on the grounds that the liquidated damages did not pertain to the relevant year. The ITAT referred to its decision in the assessee's own case for AY 2014-15, where similar issues were remanded for fresh examination. Consequently, the AO was directed to re-examine the allowability and the relevant year of the expenses. 3. Disallowance of Interest on Foreign Term Loan: The AO disallowed ?13,57,00,000/- as interest on foreign term loan due to non-deduction of TDS by the assessee. The assessee contended that only ?5,06,995/- had accrued. The DRP referred the matter to the AO for factual verification. The ITAT declined to interfere with the DRP's order, emphasizing the need for factual verification. 4. Addition Based on Revenue Discrepancy in Form 26AS: The AO added ?3,33,65,030/- to the income of the assessee due to a discrepancy between the revenue as per the books of accounts (?2,39,74,386/-) and Form 26AS (?5,73,39,416/-). The ITAT directed the assessee to submit a reconciliation statement and the accounting principles used to address the discrepancy. 5. Consideration of Order u/s 154 Reducing TP Addition: The AO failed to consider the order u/s 154 passed by the TPO on 26.03.2021, which reduced the TP addition. The ITAT directed the AO to rectify this oversight. Conclusion: The appeal of the assessee was partly allowed, with specific directions for re-examination and factual verification on various issues. The ITAT emphasized adherence to principles of natural justice and proper benchmarking methods for determining the ALP of international transactions.
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