2023 (2) TMI 1003 - AT - Income Tax

Transfer pricing - Adjustment made to software development segment - modified return filled - Appellant has signed an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes ('CBDT') - additional income offered in the Modified Return of Income filed within statutory timeline revising its income - HELD THAT - Unfortunately in this case, the A.O has retained original transfer pricing adjustment without considering the modified return filed as per the mandate of section 92CD(4) - modified return was filed on 17-03-2022 and the ld. D.R.P has given their findings on 25-04-2022. Thereafter, the final assessment order was completed by the A.O on 30-05- 2022 which means that already the modified return was before the A.O., but he has not considered the same violating the provisions of section 92CD(4) - assessee submitted before us, at the time of hearing that this ground may be remanded back to the file of the A.O for giving appropriate consideration to the modified return filed by the assessee. D.R did not raise any objection if the ground is remanded back to the file of the A.O - thus in the interest of justice, therefore, this ground should be remanded back to the file of the A.O for re-adjudication. Addition u/s 37 - lease rental paid which was held as inadmissible expenses - office of the assessee has not started functionin g - Counsel submitted that the assessee was unable to submit evidences regarding merits of this issue before the A.O and also before the ld. D.R.P. due to covid pandemic prevailing at that point of time - HELD THAT - The contentions raised by the ld. Counsel for the assessee are valid and true. The evidences on the issue of lease rental paid could not be submitted by the assessee due to the circumstances prevailing at that point of time viz. covid pandemic. In the interest of justice, therefore, we admit the evidences as additional evidences and remand this ground to the file of the A.O for readjudication as per law complying with the principles of natural justice while considering the evidences furnished by the assessee. Ground No. 2 is allowed for statistical purposes. Disallowance of Primary Rate Interface (PRI) line charges paid to telecom companies - HELD THAT - This ground is covered in favour of the assessee in assessee‟s own case for A.Y. 2016-17 2022 (11) TMI 444 - ITAT PUNE relied on the decision of Lee Murihead (P) Ltd. 2019 (4) TMI 1871 - BOMBAY HIGH COURT and Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT while providing relief to the assessee - Ground allowed in favour of the assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustments
2. Disallowance of Finance Lease Rentals
3. Disallowance of Primary Rate Interface (PRI) Line Charges
4. Levy of Interest under Section 234B
5. Initiation of Penalty Proceedings under Section 270A
6. Non-Consideration of Directions for Risk Adjustment

Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee contested the retention of transfer pricing adjustments for software development and IT-enabled service segments despite having signed an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes (CBDT). The APA covered the assessment year (A.Y.) 2017-18, and the assessee had filed a modified return within the statutory timeline. The Tribunal observed that the Assessing Officer (A.O.) failed to consider the modified return as mandated under Section 92CD(4) of the Income-tax Act. Therefore, the Tribunal remanded this issue back to the A.O. for re-adjudication, ensuring compliance with the principles of natural justice.

2. Disallowance of Finance Lease Rentals:
The assessee challenged the disallowance of finance lease rentals under Section 37 of the Act, citing inability to submit evidence due to the COVID-19 pandemic. The Tribunal admitted additional evidence and remanded the issue to the A.O. for re-adjudication, emphasizing the need to comply with natural justice principles.

3. Disallowance of Primary Rate Interface (PRI) Line Charges:
The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years (A.Y. 2012-13 to 2016-17). Citing the decision of the Hon'ble Bombay High Court in Pr. CIT-2 Vs. Lee & Murihead (P) Ltd. and the Hon'ble Supreme Court in CIT Vs. Kotak Securities Ltd., the Tribunal directed the A.O. to delete the addition on PRI line charges. Consequently, this ground was allowed in favor of the assessee.

4. Levy of Interest under Section 234B:
The Tribunal noted that this issue was consequential to the primary adjustments made. Therefore, the levy of interest under Section 234B was also remanded to the A.O. for reconsideration in light of the revised assessments.

5. Initiation of Penalty Proceedings under Section 270A:
The initiation of penalty proceedings was contested on the grounds that the adjustments were due to differences in opinion regarding the application of selection criteria for comparable companies. The Tribunal did not provide a specific ruling on this issue but indicated it was consequential to the primary adjustments.

6. Non-Consideration of Directions for Risk Adjustment:
For A.Y. 2008-09, the assessee contested the non-consideration of risk adjustment directions given by the Tribunal in earlier remand proceedings. The Tribunal had previously directed the A.O./T.P.O. to compute risk adjustments, but these directions were not followed. The Tribunal expressed concern over the A.O./T.P.O.'s failure to comply with its directions and remanded the matter back to the A.O./T.P.O. to re-adjudicate the issue as per the Tribunal's previous instructions, ensuring compliance with natural justice principles.

Combined Result:
The appeals for A.Y. 2017-18 and A.Y. 2018-19 were partly allowed for statistical purposes, while the appeal for A.Y. 2008-09 was allowed for statistical purposes. The Tribunal emphasized the need for the A.O. to follow its directions and ensure compliance with the principles of natural justice in all remanded matters.