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2023 (3) TMI 391 - AT - Income TaxTP Adjustment Transaction of slump sale between the subsidiaries of Foreign Holding Company - To be considered as an international transaction or not - HELD THAT - The agreement for purchase of asset on the basis of slump sale is between two resident companies/AEs. It is an admitted fact that both the aforesaid companies are subsidiaries of Foreign Holding Company i.e. MWH Europe Ltd. A bare reading of section 92B defining international transaction would show that there is no such condition that the transaction between two resident companies subsidiary of a Foreign Holding Company shall be deemed as international transaction for the purpose of section 92C - Since the asset purchase agreement is between two resident companies such transaction cannot be regarded as international transaction. The meaning of international transaction contained in section 92B of the Act is plain and clear. It does not envisage that if a resident AE is a subsidiary of a foreign holding company the transaction between such Indian subsidiary and another Indian company would fall within the ambit of international transaction as defined u/s. 92B of the Act. Thus we do not agree with the findings of authorities below that the transaction of slump sale between the assessee and MWH ResourceNet (India) Pvt. Ltd. is an international transaction. Valuation of assets u/s 50B - HELD THAT - Another facet of slump sale transaction is that the assessee has not furnished Form 3CEA along with the return of income. The assessee purportedly filed form 3CEA on 23/03/2013 before AO during draft assessment proceedings. However the draft assessment order was already passed on 22/03/2013 i.e. a day prior to the filing of form 3CEA. The assessee pointed this fact during the course of objection raised before the DRP. No finding was given by the DRP on this issue. It is relevant to mention here that filing of Form 3CEA was a mandatory requirement for determining the value of the asset. The assessee has furnished the same at a belated stage. Taking into consideration entirety of facts we deem it appropriate to restore this issue back to the file of AO for the limited purpose of ascertaining the value of transaction for the purpose of section 50B of the Act. Addition on account of unbilled receivables - DRP and AO have treated the aforesaid amount reflected in the Balance Sheet as the income of the assessee and AO made addition of the aforesaid amount - HELD THAT - . Assessee on instructions from the assessee stated at Bar that aforesaid amount has already been offered to tax . Assessee we deem it appropriate to restore this issue to the file of Assessing Officer for the limited purpose of verification of the fact whether the amount has been offered to tax by the assessee. If it is so no addition on this account is warranted. The ground No.7 of the appeal is allowed for statistical purpose in the terms aforesaid. Denial of deduction u/s 10A - DRP not satisfied with the nature of documentation accounts maintained by the assessee upheld rejection of books of account of the assessee - HELD THAT - We find that the DRP after holding that the accounts of the assessee are not proper erred in coming to the conclusion that assessee did not earn any profit from eligible undertaking. - there is no link between the first conclusion about unreliable nature of the books of account of the assessee and denial of deduction u/s.10 A - deduction u/s.10 A of the Act is allowable on the profit of eligible undertaking. Therefore assuming that the accounts of the assessee are not reliable it cannot be held that assessee did not earn any profit from the eligible undertaking. The assessee is eligible for deduction u/s. 10A of the Act to the extent of profit of eligible unit are determinable. The ground No. 8 to 10 of the appeal are restored to the file of AO to determine correct profit eligible for deduction u/s.10A - The assessee is directed to furnish necessary documents before the Assessing Officer to substantiate and determine eligible profit for deduction u/s 10 A of the Act. AO is directed to decide the issue afresh in accordance with the law. The ground No. 8 to 10 of appeal are allowed for statistical purpose with above directions. Claim of depreciation on Pune unit - This ground is consequent to disallowance of deduction u/s. 10 A - As we have already set-aside the issue of allowability of deduction u/s.10 A of the Act to the file of Assessing Officer this ground is also required to be restored to the file of the Assessing Officer. Non consideration of revised computation of income filed during the course of assessment proceedings - assessee pointed that the DRP had directed the Assessing Officer to consider revised computation of income - HELD THAT - As Assessing Officer has not given effect to the direction DRP. This issue is restored back to the file of Assessing Officer to comply with the direction of DRP to consider revised computation of income. The ground No.12 of the appeal is allowed for statistical purpose.
Issues Involved:
1. Adjustment of fees receivable for engineering and design services. 2. Adjustment on account of payment of management charges. 3. Treatment of slump sale transaction as an international transaction. 4. Addition on account of unbilled receivables. 5. Denial of deduction under section 10A of the Income Tax Act. 6. Non-consideration of revised computation of income. Detailed Analysis: 1. Adjustment of Fees Receivable for Engineering and Design Services and Payment of Management Charges: The assessee challenged the adjustments made by the Transfer Pricing Officer (TPO) concerning fees receivable for engineering and design services (Rs. 93,75,271) and payment of management charges (Rs. 74,05,940). Although the TPO proposed these adjustments and the Dispute Resolution Panel (DRP) confirmed them, the final assessment order did not include these adjustments. The Tribunal held that since the adjustments were not made in the final assessment order, they could not be given effect. The Tribunal dismissed these grounds as premature, granting liberty to the assessee to raise the issue again if such additions are made in the future. 2. Treatment of Slump Sale Transaction as an International Transaction: The assessee contended that the transaction of slump sale with MWH ResourceNet (India) Pvt. Ltd. was not an international transaction as both companies involved were Indian residents. The Tribunal agreed, stating that for a transaction to be considered an international transaction under section 92B, it must involve at least one non-resident entity. Since both companies were Indian subsidiaries of a foreign holding company, the transaction did not qualify as an international transaction. The Tribunal, however, noted the late filing of Form 3CEA by the assessee and restored the issue to the Assessing Officer for determining the value of the transaction under section 50B. 3. Addition on Account of Unbilled Receivables: The assessee challenged the addition of Rs. 3,62,89,386 on account of unbilled receivables, asserting that this amount had already been offered to tax. The Tribunal restored this issue to the Assessing Officer for verification. If the amount was indeed offered to tax, no further addition would be warranted. 4. Denial of Deduction under Section 10A: The assessee contested the denial of deduction under section 10A for other income (Rs. 8,35,191) and depreciation of the Pune unit (Rs. 56,51,407). The DRP had rejected the books of account, leading to the complete denial of the section 10A deduction. The Tribunal found that the DRP erred in denying the entire deduction based on unreliable accounts, as it was undisputed that the assessee had an eligible unit. The Tribunal restored the issue to the Assessing Officer to determine the correct profit eligible for deduction under section 10A, directing the assessee to provide necessary documents. 5. Non-Consideration of Revised Computation of Income: The assessee claimed that the Assessing Officer did not consider the revised computation of income as directed by the DRP. The Tribunal restored this issue to the Assessing Officer to comply with the DRP's direction. Conclusion: The Tribunal partly allowed the appeal, restoring several issues to the Assessing Officer for reconsideration and verification, while dismissing premature grounds related to adjustments not included in the final assessment order.
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