2021 (9) TMI 130 - AT - Income Tax

TP Adjustment - non granting of adjustment on import duty - HELD THAT - This issue was considered by this Tribunal in assessee's own case in A.Y 2013-14 2021 (7) TMI 36 - ITAT DELHI and has decided this issue against the assessee and in favour of the Revenue to hold as necessary consumption of the material is only booked in the profit and loss account for which the materials are imported for onward sale/manufacturing whose revenue has been booked in the profit and loss account, the above adjustment cannot be granted. This is so for the reason that the duty structure of the material imported by the assessee and the sale price of the assessee takes into consideration all these commercial aspects of the trading or operation of the business of the assessee. Refusal of capacity adjustment as asked by the assessee - HELD THAT - As in assessee's own case in A.Y 2013-14 2021 (7) TMI 36 - ITAT DELHI to hold that as assessee has submitted complete details of the employees stating their name, designation, experience, educational qualification, role and responsibility and the amount of salary paid, more particularly when there is a disproportionate difference between the salary expenditure incurred by the comparable companies with the salary expenditure of the assessee and there are seconded employees who are necessarily deputed to the assessee for the purpose of development of the business, the claim the assessee needs to be re-examined with the details furnished. This is more so when learned dispute resolution panel accepted that there is a higher depreciation claim in the case of assessee compared to the comparable companies. Computation of transfer pricing adjustment - AO allocating the entire difference between the arm's length operating profit and actual operating profit to the controlled transactions of the appellant - HELD THAT - As relying on KEIHIN PANALFA LTD. 2016 (5) TMI 203 - DELHI HIGH COURT we direct the Assessing Officer to accept the computation of proportionate TP adjustment as computed by the assessee and as exhibited elsewhere in this order

Summary

Issues:
1. Transfer pricing adjustment on international transactions.
2. Import duty adjustment.
3. Capacity adjustment.
4. Allocation of operating profit difference in transfer pricing adjustment.
5. Penalty proceedings under Sec 271(1)(c).

Transfer Pricing Adjustment on International Transactions:
The assessee appealed against the transfer pricing adjustment made by the TPO under section 92CA of the Income Tax Act. The appellant argued that the adjustment was made on illegal and erroneous grounds. The TPO accepted some adjustments but denied others. The DRP affirmed the TPO's order, leading to the final assessment under consideration. The Tribunal analyzed the facts, considering the appellant's business of manufacturing CNG assembly parts. The appellant followed an Aggregated Transactions Approach to determine the Arm's Length Price (ALP). The Tribunal upheld the TPO's adjustments, dismissing the appellant's contentions.

Import Duty Adjustment:
The appellant sought an adjustment for import duty costs, which was denied by the TPO and DRP. The Tribunal referred to a previous case involving the same issue, where it was decided against the appellant. Following the previous decision, the Tribunal dismissed the appellant's claim for import duty adjustment.

Capacity Adjustment:
The appellant requested a capacity adjustment, which was refused by the DRP. The DRP directed the appellant to provide evidence of underutilization of capacity compared to comparables. The Tribunal noted that the DRP's decision was based on a previous case. However, the Tribunal referred to a different case where a similar claim was allowed. As no distinguishing fact was presented, the Tribunal allowed the capacity adjustment for statistical purposes.

Allocation of Operating Profit Difference in Transfer Pricing Adjustment:
The appellant contested the allocation of the entire difference between the arm's length operating profit and actual operating profit to controlled transactions. The Tribunal referred to a High Court decision that supported the appellant's claim for a proportionate adjustment based on the value of international transactions. Following the High Court's findings, the Tribunal directed the Assessing Officer to accept the computation of proportionate TP adjustment as claimed by the appellant.

Penalty Proceedings under Sec 271(1)(c):
The appellant challenged the penalty proceedings initiated under Sec 271(1)(c), arguing that there was no concealment of income or submission of inaccurate particulars. However, the Tribunal did not delve into this issue, deeming it premature and dismissing it.

In conclusion, the Tribunal partially allowed the appeal filed by the assessee, granting adjustments in capacity and the allocation of operating profit difference in transfer pricing adjustment. The Tribunal upheld the decisions regarding transfer pricing adjustment on international transactions and import duty adjustment. The issue of penalty proceedings was deemed premature and dismissed.