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2023 (2) TMI 553 - AT - Income TaxTP Adjustment - export of finished goods to the associated enterprises wherein an upward TP adjustment was made - AR submitted that the products sold to the AE was one time export and did not constitute and a regular business activity of the assessee - HELD THAT - We appreciate the argument advanced by the Ld.DR however there are various documents filed by the assessee in support of the products that are submitted to be remodified and was made to be fit for consumption. However, such modification did not fit into the strict criteria of verification as per the FDA norms and therefore stood rejected and destroyed. We note that these details and evidences filed by assessee the summary of which are reproduced hereinabove in a tabulated form has not been considered by the Ld.AO/TPO. It is also admitted fact that margin of assessee at 12% was compared with the comparables being 4% for the year under consideration and therefore some value has been received by assessee as submitted by the Ld.AR against such destroyed products by the US customs which deserves to be bench marked. We direct the Ld.AO to reconsider the claim of assessee in the light of the evidences filed and to compute the margin of assessee in accordance with law by following the principles of transfer pricing regulations. Administrative service fee paid by the assessee - assessee has also furnished the total cost incurred by the AE towards the common group services and the basis of allocating some among various group entities - HELD THAT - As decided in assessee own case 2015 (10) TMI 2794 - ITAT BANGALORE There is no dispute that the transaction has been reported by the assessee as international transaction which was also accepted by the AO and the TPO as an international transaction. Thus, once a particular transaction is admitted as international transaction then the same falls in the ambit of the provisions of X chapter of the Act which are specific provisions to deal with such transactions between the assessee and its AE. Therefore, once the transaction is undisputedly subject matter of Chapter X of the IT Act, then the other general provisions of the Act cannot be applied simultaneously. The AO, having considered the transaction being international transaction and making a reference to the TPO for determination of the ALP cannot go back to the provisions of sec.40A(2) for determining the reasonableness of the price paid by the assessee. Our attention was invited by the learned authorised representative of the assessee that for the assessment year 2001-02 to 2002-03 the payment in question was subjected to MAP and only 25% is charged to tax. Therefore, it was accepted by the department that the services were rendered by the AE to the assessee in India. We further note that the AO has not conducted any inquiry or investigation to find out the excessiveness of the payment made by the assessee to its AE. Disallowance of inventory written off - HELD THAT - The Tribunal for A.Y. 2002-03 in assessee s own case 2022 (2) TMI 284 - ITAT BANGALORE observed AO took the view that the inventory has been actually written off in the succeeding year and not during the year under consideration. Accordingly, the AO expressed the view that the assessee, if at all is required to write off the inventory, should have written off in the succeeding year, i.e., in the financial year 2002-03 relevant to the assessment year 2003-04. Accordingly, the AO held that the claim of the assessee is not allowable. Accordingly he disallowed the claim of write off of inventory - Based on the above submission, we deem it fit and proper to remand this issue to the Ld.AO for verification and to consider it in accordance with law. Appeal filed by assessee stands allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment for AY 2003-04 2. Corporate Tax Disallowance for AY 2003-04 3. Transfer Pricing Adjustment for AY 2005-06 Detailed Analysis: 1. Transfer Pricing Adjustment for AY 2003-04 Issue: The assessee challenged the addition of INR 12,59,12,420 to its total income due to adjustments in the arm's length price (ALP) for international transactions. Analysis: - Export of Finished Goods to AE: The Tribunal noted that the products exported to the Associated Enterprise (AE) were not a regular business activity but a one-time transaction due to low demand in the Indian market. The goods were later found unfit for human consumption by the US FDA and destroyed. The Tribunal directed the Assessing Officer (AO) to reconsider the claim in light of the evidence provided and compute the margin in accordance with transfer pricing regulations. - Administrative Fees to AE: The Tribunal observed that the AO disallowed the administrative fees paid to the AE, amounting to INR 4,83,50,378, due to lack of evidence of services rendered. The Tribunal remanded the issue back to the AO for verification based on the Tribunal's previous decisions in similar cases, directing the AO to carry out necessary verification and consider the evidences filed by the assessee. 2. Corporate Tax Disallowance for AY 2003-04 Issue: The assessee challenged the non-consideration of inventory write-off amounting to INR 12,54,31,371, which was disallowed in AY 2002-03 but was supposed to be considered in AY 2003-04. Analysis: - The Tribunal noted that the inventory write-off was disallowed in AY 2002-03 because the authorization memo for the write-off was dated six days before filing the return, implying it should be considered in the succeeding year, AY 2003-04. The Tribunal remanded the issue back to the AO for verification and to consider it in accordance with the law. 3. Transfer Pricing Adjustment for AY 2005-06 Issue: The assessee challenged the addition of INR 4,38,20,000 to its total income due to adjustments in the ALP for the payment of administrative fees to the AE. Analysis: - The Tribunal noted that the facts and issues were identical to those in AY 2003-04. The Tribunal remanded the issue back to the AO for de novo verification based on the evidence filed by the assessee, following the principles laid down in previous Tribunal decisions. Conclusion: The Tribunal allowed the appeals for both AY 2003-04 and AY 2005-06 for statistical purposes, remanding the issues back to the AO for reconsideration and verification based on the evidence and principles of transfer pricing regulations. The Tribunal emphasized the need for proper opportunity of being heard to be granted to the assessee in accordance with the law.
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