2022 (12) TMI 846 - AT - Income Tax

TP Adjustment - provisions of section 92BA(i) relating to expenditure referred in section 40A(2)(b) - As argued since clause (i) of section 92BA of the Act was omitted payments made by the assessee U/s. 40A(2)(b) of the Act cannot be considered as specified domestic transaction - As stated since the provisions of clause(i) to section 92BA of the Act has been omitted by the Finance Act 2017 w.e.f 1/4/2017 and hence it would be deemed that clause (i) of section 92BA of the Act was never in the statute - HELD THAT - Where a particular provision in a statute is omitted with a saving clause in favour of the pending proceedings then it can be reasonably inferred that the intention of the Legislature is that pending proceedings shall not continue. Therefore the omission of clause (i) of section 92BA w.e.f 1/42017 shall render the pending proceedings invalid. However in this case the assessment was completed on 27/12/2016 much before the amendment came into effect by the Finance Act 2017. We therefore find no merit in the argument of the Ld. AR and hereby dismiss the additional ground raised by the assessee. TPO while considering the comparables have not considered the entrepreneurial companies which are engaged in the Palm Tree Plantation as well as production - HELD THAT - As on perusal of the GOs submitted by the Ld. AR that 3F Oil Palm sells at a price lower than the notified rates to the assessee and hence we are of the considered view that there is no over-charging of price of the Oil Palm by 3F Oil Palm to the assessee. Similarly we also note that the price charged to third parties ie. Non-Associated Enterprises is more than the price charged to the assessee by 3F Oil Palm. Further from the financials submitted by the Ld. AR we find that 3F Oil Palm has sold Rs. 7.68 Crs worth goods / services to the assessee as against the total sales of goods by 3F Oil Palm aggregating to Rs. 88.51 Crs. From the above we find that the sales made by 3F Oil Palm to the assessee by less than 10% of the total sales of 3F Oil Palm. We are inclined to remit the matter back to the file of the Ld. TPO to verify the claim made by the assessee-company with respect to price chart to third parties vis- -vis price supplied to the assessee. Similarly the Ld. TPO may also verify the price charged by 3F Oil Palm to the assessee as against the notified rates by the Government of Andhra Pradesh vide its Government Orders on Monthly basis. We therefore direct the Ld. TPO to compare the rates and decide the matter in accordance with law after affording a reasonable opportunity of being heard to the assessee. Disallowance of Miscellaneous Expenditure - HELD THAT - As we could not accept the arguments of the Ld. AR that it is wholly and exclusively for the purpose of business or profession. The Ld. CIT(A) in his order in para 6.1 has considered this issue and has disallowed the gift expenses and Vaastu expenses which do not constitute as wholly and exclusively for the purpose of business or profession. In our considered view since the Ld. CIT(A) has rightly considered the issue we find no infirmity in the order of the Ld. CIT(A) and hence this ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Rejection of Comparable Uncontrolled Price (CUP) method and application of Transactional Net Margin Method (TNMM).
2. Failure to undertake an objective FAR (Functions, Assets, and Risks) analysis.
3. Incorrect selection of comparable companies.
4. Rejection of entrepreneurial companies as comparables.
5. Disallowance of miscellaneous expenditure.
6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Rejection of CUP and Application of TNMM:
The assessee contested the rejection of the CUP method for determining the Arm's Length Price (ALP) of specified domestic transactions and the application of TNMM by the Transfer Pricing Officer (TPO). The TPO had made an adjustment of Rs. 61,64,747/- on the international transactions and specific domestic transactions. The Tribunal noted that the Government of Andhra Pradesh had notified the prices of Crude Palm Oil (CPO) and found that the prices at which the assessee procured Oil Palm from 3F Oil Palm Agrotech Pvt Ltd. were lower than the government-notified prices. Therefore, the Tribunal remitted the matter back to the TPO to verify the prices charged to third parties vis-à-vis the prices supplied to the assessee and compare them with the government-notified rates.

2. FAR Analysis:
The assessee argued that an objective FAR analysis was not undertaken by the TPO for 3F Oil Palm Agrotech Private Limited and the comparable companies. The Tribunal directed the TPO to consider the right comparables and conduct a proper FAR analysis, taking into account companies engaged in similar activities.

3. Selection of Companies:
The assessee objected to the selection of companies by the TPO, arguing that the selected companies were not engaged in the same or similar activities as the tested party. The Tribunal found that the TPO had selected a mixed bunch of traders and manufacturers as comparables. The Tribunal directed the TPO to re-evaluate the selection of comparables, ensuring that they are engaged in similar activities as 3F Oil Palm Agrotech Pvt Ltd.

4. Rejecting of Entrepreneurial Companies:
The assessee contended that the TPO had rejected entrepreneurial companies engaged in palm tree plantation and production as comparables. The Tribunal instructed the TPO to consider entrepreneurial companies engaged in similar activities for a proper comparative analysis.

5. Disallowing Miscellaneous Expenditure:
The assessee challenged the disallowance of miscellaneous expenditure amounting to Rs. 64,895/-. The Tribunal upheld the disallowance, agreeing with the CIT(A) that the expenses on gifts and Vaastu did not constitute expenses wholly and exclusively for the purpose of business or profession.

6. Initiating Penalty Proceedings U/s. 271(1)(c):
The assessee contested the initiation of penalty proceedings under Section 271(1)(c) of the Act. The Tribunal noted that the penalty proceedings are consequential and did not require adjudication at this stage.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remitting the matter back to the TPO for a detailed verification of the prices and comparables, and upheld the disallowance of miscellaneous expenditure. The initiation of penalty proceedings was deemed consequential and not adjudicated.