2021 (10) TMI 403 - AT - Income Tax

TP adjustment - ALP Adjustment including Duty Entitlement Pass Book (DEPB) and Focus Products Scheme (FPS) on export of Ferro Alloys - HELD THAT - Inclusion of assessee's Duty Entitlement Pass Book (DEPB) and Focus Products Scheme (FPS) on export of Ferro Alloys; as an adjustment in computing Arm's Length Price (ALP) adjustment as per Rule 10B(1)(a)(2) and (3) is found to be no more res integra as Revenue's appeal 2021 (7) TMI 948 - ITAT HYDERABAD as held that assessee's argument seeking to include DEPB as an adjustment for ALP computation because it is in the nature of an operating income, ought not be accepted as it tends to have an overriding effect on application of chapter-X of the Act as per stricter interpretation rule.We thus adopt judicial consistency to adopt the above extracted reasoning mutatis mutandis to affirm the CIT(A)'s action affirming the impugned ALP adjustment in assessee's appeal. Delayed employees contribution to ESI/PF - amount had been deposited beyond the due date prescribed under corresponding statute but before that of filing return u/s. 139(1) - HELD THAT - Amount had been paid before the due date of filing sec. 139(1) return and after the due date prescribed in the corresponding statutes; respectively. We notice in this factual backdrop that the legislature has not only incorporated necessary amendments in Sections 36(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the foregoing legislative amendments have proposed employers contributions; disallowances u/s. 43B as against employee u/s. 36 (va) of the Act; respectively. However, keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, we hold that the impugned disallowance is not sustainable - As relying on GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT and M/S MERCHEM LIMITED 2015 (9) TMI 560 - KERALA HIGH COURT the impugned ESI/PF disallowance is directed to be deleted Transfer Pricing Adjustment - TPO making corporate guarantee adjustment @ 2% commission as against assessee's behest @ 0.875% - HELD THAT - Tribunal's order has already upheld the CIT(A)'s action deleting similar ALP adjustment on assessee's corporate guarantee declared @ 0.875% in A.Y. 2013-14 2021 (7) TMI 948 - ITAT HYDERABAD - No distinction on law and facts has emerged during the course of hearing. We thus affirm the CIT(A)'s lower appellate action under challenge deleting the impugned corporate guarantee adjustment. Revenue's appeal rejected.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Ferro Alloys.
2. Corporate Guarantee Adjustment.
3. Disallowance of Employee's Contribution to ESI/PF.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on Ferro Alloys:

The assessee's appeal challenged the addition of ?5,18,12,581 made by the Assessing Officer on account of Transfer Pricing in the selling prices of Ferro Alloys. The CIT(A) confirmed this addition without providing a detailed explanation on why the assessee's submissions were not accepted. The assessee argued that Duty Entitlement Pass Book (DEPB) and Focus Products Scheme (FPS) benefits should be considered when comparing the selling prices of Ferro Alloys to its Associated Enterprises (AE) with the prices quoted in the Asian Metal Exchange.

The Tribunal noted that the issue regarding the inclusion of DEPB and FPS benefits in computing Arm's Length Price (ALP) adjustment is not new. The Revenue's appeal in ITA No. 634/Hyd/2018 had already accepted that such benefits should be considered for adjustment under Rule 10B of the Income Tax Rules. However, the Tribunal emphasized that Chapter-X of the Income Tax Act, which deals with special provisions relating to the avoidance of tax, must be strictly construed. The Tribunal cited various precedents and legal principles, concluding that the assessee's arguments to include DEPB as an adjustment for ALP computation should not be accepted. Therefore, the Tribunal affirmed the CIT(A)'s action, confirming the impugned ALP adjustment in the assessee's appeal ITA 1501/Hyd/2017.

2. Corporate Guarantee Adjustment:

The Revenue's cross appeal challenged the CIT(A)'s deletion of the corporate guarantee adjustment of ?3,51,06,335. The CIT(A) had previously decided in favor of the assessee, noting that the Transfer Pricing Officer (TPO) had charged a corporate guarantee commission at 2%, which was higher than what the assessee had charged (0.875%). The Tribunal observed that the assessee had itself recorded a comparable guarantee commission at 8.75%, which was higher than the rate allowed by the Tribunal in previous cases. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, adopting judicial consistency.

3. Disallowance of Employee's Contribution to ESI/PF:

The Revenue's cross appeal also contested the CIT(A)'s deletion of the disallowance of the assessee's employees' contribution to ESI/PF of ?12,281. The Assessing Officer had disallowed this amount because it was deposited beyond the due date prescribed under the corresponding statute but before the due date of filing the return under Section 139(1) of the Income Tax Act. The Tribunal noted that legislative amendments in Sections 36(va) and 43B, introduced by the Finance Act, 2021, clarified that such disallowances apply prospectively from 1.4.2021. Therefore, the Tribunal held that the impugned disallowance was not sustainable and directed its deletion, rejecting the Revenue's ground.

Conclusion:

The Tribunal dismissed both the assessee's appeal ITA 1501/Hyd/2017 and the Revenue's cross appeal ITA 1603/Hyd/2017. The Tribunal upheld the CIT(A)'s decisions on the ALP adjustment for Ferro Alloys and the deletion of the corporate guarantee adjustment and ESI/PF disallowance. The order was pronounced in the open court on 29th September 2021.