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2023 (3) TMI 704 - AT - Income TaxTP Adjustment - MAM - CUP OR TNMM is the most appropriate method for the purpose of benchmarking of the international transactions - HELD THAT - Respectfully, following the decision of the Tribunal for A.Y. 2009-10 2021 (10) TMI 605 - ITAT HYDERABAD we are of the opinion that the international transactions of the assessee are required for benchmarking by applying TNMM method as most appropriate method instead of CUP method and accordingly TPO is directed to apply TNMM as most appropriate method for benchmarking. Further on perusal of the record, we found that the TPO had no occasion to benchmark the transactions by applying TNMM, and thereafter applied CUP method. We accordingly send back these issues to the file of AO / TPO with the direction to work out the international transactions by applying TNMM as most appropriate method and determine the ALP. Addition towards cash discounts - assessee has not filed any proof in respect of discounts given and in view of the same, the assessee s claim is disallowed - admission of the additional documents at this stage - HELD THAT - In our view, sufficient opportunities were given by the lower authorities however despite grant of opportunities, the assessee had failed to file any document/claim before the lower authorities, no for the first time the assessee had filed the document and sought to claim the deduction on account of cash discount. In our view such it plea at belated stage cannot be accepted more particularly when the assessee is a company and is run by the professionals and also advised by the professionals. The assessee has given the reasons for not filing the said document before the lower authorities and had submitted that this additional document be permitted to be file on record. As noted hereinabove the assessee was negligent in not following the claim before the lower authorities by seeking deduction on account of cash discount either before the AO or before the DRP and also failed to file any documentary evidence in support thereof before lower authorities. Records shows that DRP had passed directions on 25/11/2013 and Assessing Officer passed order on 30.1.2014 for Assessment Year -2009-10, however despite that nothing was done for the current assessment year by the assessee by way of bringing on record the document of cash discount before the lower authorities. Admittedly assessee had filed the application for admission of additional document on 9/5/ 2018 after passage of two years from the date of institution of the present appeal, therefore in our view the assessee was not able to make out a case for admission of the additional documents at this stage more particularly when no offered for made by the assessee either before the assessing officer or before the DRP at the first instance. Accordingly the application for admission of the additional document is rejected and hence the ground raised by the assessee is also rejected by relying upon the decision of the direction High Court in the case of A.K. Babu Khan 1974 (9) TMI 31 - ANDHRA PRADESH HIGH COURT Depreciation on goodwill - HELD THAT - The valuation report, which was filed by the assessee was required to be considered with respect to computation of valuation of the goodwill for the A.Y. 2007-08 i.e year of acquisition. However, it was informed to us that as the issue is pending for adjudication before the lower authorities and the same has not attained finality. In the light of the above, we deem it appropriate to remand back this issue to the file of Assessing Officer with a direction that if the Assessing Officer on consideration of the evidences filed on record for A.Y. 2007-08 comes to a definite figure of valuation of goodwill, then accordingly depreciation shall be allowed to the assessee for the year under consideration in accordance with law. However, with respect to the effect of amendment which changed the definition of tangible asset and depreciation on the tangible asset, we are of the opinion that the change in law has brought into book w.e.f 01.04.2022, as is clear from Explanation to the Budget at page 107 where it is categorically mentioned that the change in law will came into effect w.e.f. 01.04.2022 . There will not be any effect of the amendment in the Act for the current set of appeals as amendment will operate prospective, hence the valuation of the goodwill and depreciation thereon shall be computed on the basis of the existing law as applicable for the A.Y. 2007-08 and thereafter. In the light of the above, we deem it appropriate to remand back the issue of depreciation pertain to the goodwill to the file of jurisdictional Assessing Officer with a direction to give depreciation on the valuation of the intangible asset on the basis of valuation of goodwill if any for A.Y. 2007-08. Admission of additional grounds before DRP - HELD THAT - Once the additional grounds were raised by the assessee before DRP, then it is required to be adjudicated by the DRP. Accordingly, we are of the view that these grounds are required to be remanded back to the file of AO for passing an order in accordance with the law as provided under Chapter X of the I.T. Act. Needless to say that before passing an order, the AO shall pass a draft assessment order and thereafter, if the assessee is aggrieved with the draft assessment order, then assessee may prefer proceedings before DRP or in any forum as provided and thereafter, the final assessment order shall be passed by the Assessing Officer. Recover of salary expenses - benefit to the assessee with the deputation of technical expert - HELD THAT - On perusal of the orders of lower authorities, we had considered that there is no reason to interfere with the order passed by the DRP and we considered the view of the DRP whereby the DRP has mentioned that the deputation of the technical expert can only be for a definite purpose to benefit the AE and benefit from the expertise and productivity of these experts while depriving the assessee of their services. Therefore, we conclude that there should be some benefit to the assessee with the deputation of technical expert and therefore, we do not find any reason to interfere with the decision of learned lower authorities. Accordingly, this ground is dismissed. Disallowance of forex loss - assessee has not claimed the forex loss in the return of income or in the revised return of income, therefore, this claim is not sustainable - HELD THAT - In our view, this issue of adjudication of fresh grounds by the appellate authority / Tribunal is no more res integra as the Hon ble Supreme Court recently in the case of Wipro 2022 (4) TMI 694 - SUPREME COURT - Thus we have no doubt that the lower authorities are duty bound to decide the issue even if the claim has not been filed in the return of income or in the revised return of income. We deem it appropriate to remand the matter back to the file of Assessing Officer with a direction to examine the case afresh after considering the decision of Hon ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd 2009 (4) TMI 4 - SUPREME COURT as well as the decision of Wipro 2022 (4) TMI 694 - SUPREME COURT and also the provision of section 43A of the Income Tax Act. Disallowance of provision for site restoration fund - HELD THAT - As the assessee willing to provide the necessary scientific information to show that the expenditure was incurred by it in reclaiming and rehabilitating the affected land. In the light of the above, we remand back this issue to the file of Assessing Officer with a direction to the assessee to provide all the information, documents / evidences showing the actual expenditure incurred for restoration / reclaiming of the site. Addition of rendering of services u/s 37(1) - actual rendition of services - HELD THAT - Once the TPO/AO benchmarked the transactions by applying TNMM then this alternative ground / disallowance would not survive as it will be subsumed in TP bench marking and therefore, no separate addition u/s 37 can be made by the Assessing Officer. However, in case, the AO / TPO concludes otherwise, then the Assessing Officer may examine the issue under section 37 of the Act and in that eventuality the assessee will provide all the documentary evidence etc to demonstrate that the services were provided wholly and exclusively for the purpose of carrying out the international transactions. We are of the opinion that this issue is required to be remand back to the file of Assessing Officer with a direction to the assessee to provide the necessary evidence for rendering of services etc to the satisfaction of Assessing Officer. Accordingly, this issue is allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Grounds (TPO Grounds) 2. Non-Transfer Pricing Grounds (Non-TPO Grounds) Detailed Analysis: Transfer Pricing Grounds (TPO Grounds): 1. Rejection of TNMM Method: The assessee used the Transactional Net Margin Method (TNMM) to benchmark its international transactions, concluding they were at arm's length. The TPO rejected TNMM, opting instead for the Comparable Uncontrolled Price (CUP) method, leading to a proposed adjustment of Rs. 55,20,26,837/-. 2. DRP's Endorsement of TPO's Approach: The Dispute Resolution Panel (DRP) upheld the TPO's rejection of TNMM, endorsing CUP as the most appropriate method for benchmarking. 3. Tribunal's Previous Rulings: The Tribunal had previously ruled in favor of the assessee for AY 2009-10, rejecting the TPO's CUP method in favor of TNMM. The Tribunal reiterated that TNMM should be used for benchmarking in the current appeal, directing the TPO to apply TNMM and reassess the transactions. 4. Application of TNMM for Subsequent Years: The Tribunal extended its ruling to subsequent assessment years (2012-13, 2013-14), directing the TPO to apply TNMM for these years as well. Non-Transfer Pricing Grounds (Non-TPO Grounds): 1. Disallowance of Cash Discounts: The AO disallowed Rs. 9,56,82,000/- claimed as cash discounts due to lack of evidence. The Tribunal rejected the assessee's late submission of additional evidence, upholding the disallowance. 2. Depreciation on Goodwill: The Tribunal remanded the issue of depreciation on goodwill back to the AO for re-evaluation, directing the AO to consider the valuation of goodwill from AY 2007-08 and apply the correct depreciation rate. 3. Disallowance of Provision for Obsolete Stock: The Tribunal remanded the issue back to the AO to verify if the provision for obsolete stock was already offered as income by the assessee, directing the AO to re-examine the evidence. 4. Disallowance of Forex Loss: The Tribunal remanded the issue of forex loss back to the AO for fresh examination, directing the AO to consider the Supreme Court's rulings in Woodward Governor and Wipro cases, and section 43A of the Act. 5. Reimbursement of Salary Expenses: The TPO added a markup to the salary expenses reimbursed by the assessee to its AE, leading to an adjustment of Rs. 7,81,482/-. The Tribunal upheld the TPO's adjustment, agreeing that the services rendered had a value beyond mere cost reimbursement. 6. Disallowance of Provision for Site Restoration Fund: The Tribunal remanded the issue back to the AO, directing the assessee to provide scientific evidence and actual expenditure incurred for site restoration. 7. Additional Grounds Raised Before DRP: The Tribunal remanded additional grounds raised by the assessee (e.g., provision for site restoration, obsolescence of spares, community development expenses) back to the AO for re-evaluation, directing the AO to follow due process. Conclusion: The Tribunal allowed the appeals partly for statistical purposes, directing the AO/TPO to reassess various issues based on the Tribunal's guidance and the principles of natural justice. The appeal for ITA No. 2169/Hyd/2018 was dismissed, while the remaining appeals were remanded for further consideration.
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