2023 (11) TMI 751 - AT - Income Tax

TP adjustments - Arm''s length price - Benchmark analysis on Deduction u/s 80IC - Profit split method - inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/80IC - whether the assessee has claimed deduction u/s 8IC for the present year or not? - HELD THAT - TPO has returned a finding that Unit V is eligible for deduction u/s 80IC as per claim of the assessee and its inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/80IC of the Income Tax Act, 1961 and there cannot be any dispute in this regard. TPO has noticed that the assessee has declared profit of Rs. 8,45,95,489/- for Unit V which has been adjusted by brought forwarded earlier years' losses of Rs. 10,65,85,348/- and carried forward loss of Rs. 2,19,89,859/- as per the information filed and any downward adjustment made in the present order u/s 92CA(3)/80- lA(8)/80IC would lead to reduction in profit for the current year and increase in carried forward of loss for the purpose of deduction u/s 80IC. TPO thereafter has proposed an adjustment and which has been upheld by the DRP. The effect of such an adjustment would therefore be reduction in profits of the Unit V for the current year and increase in its carried forward losses by equivalent amount. Further, given that there are past accumulated losses and no profits available for the year after such setoff, there is no claim which has been made by the assessee u/s 80IC in the return of income prior to such adjustment. Even post such adjustment, no profits will become available which has been considered by the AO for allowing deduction u/s 80IC - Thus, the adjustment so made by the TPO and upheld by the DRP cannot lead to enhancement by way of addition to the returned income as has been done by the AO while passing the final assessment order. The adjustment will lead to increase in carry forward of losses to the subsequent years. In light of aforesaid discussions, we agree with the contention advanced by the ld AR in this regard and the addition is hereby directed to be deleted.

Summary

Issues Involved:
1. Rejection of the Assessee's Benchmarking Analysis and Application of Profit Split Method.
2. Adjustment of Rs. 5,63,07,963/- under Section 80IC.
3. Consideration of Addition as Deemed Income under Section 115BBE.

Summary:

Condonation of Delay: The Tribunal noted a delay of one day in filing the appeal, which was condoned after considering the condonation application and affidavit from the Managing Director of the assessee company. The appeal was admitted for adjudication.

Issue 1: Rejection of the Assessee's Benchmarking Analysis and Application of Profit Split Method: The assessee contended that the Dispute Resolution Panel (DRP) and the Transfer Pricing Officer (TPO) erred in rejecting its benchmarking analysis and applying the profit split method. However, this issue became academic as the Tribunal did not adjudicate on the merits of the benchmarking analysis due to the resolution of the primary issue regarding the adjustment under Section 80IC.

Issue 2: Adjustment of Rs. 5,63,07,963/- under Section 80IC: The assessee argued that no deduction under Section 80IC was claimed due to losses in the respective units, and therefore, the transfer pricing adjustment should not lead to an addition. The Tribunal observed that the TPO's adjustment would reduce the profits of Unit V and increase its carried forward losses, but since no deduction under Section 80IC was claimed, the adjustment should not result in an addition to the returned income. The Tribunal directed the deletion of the addition of Rs. 5,63,07,943/-.

Issue 3: Consideration of Addition as Deemed Income under Section 115BBE: This ground was not pressed during the hearing and was dismissed as not pressed.

Conclusion: The appeal was partly allowed, with the Tribunal directing the deletion of the addition of Rs. 5,63,07,943/- and leaving other grounds of appeal open and not adjudicated upon.

Order pronounced in the open Court on 05/09/2023.