2022 (7) TMI 1532 - AT - Income Tax

Procedure of assessment for certain category of assessees specified in section 144C - Period of limitation to pass final order - applicable from 01/10/2009 or from assessment year 2010-11 - HELD THAT - We find that both, the Division Bench of the Hon ble Andhra Pradesh High Court and Single Bench of the Hon ble Madras High Court in the case of Vedanta Limited. 2020 (1) TMI 168 - MADRAS HIGH COURT has given contrary finding and so the issue before us is which findings should be followed. We find that there is no decision on the issue of the jurisdictional High Court. The judicial discipline demand that decision of the higher forum should be followed. Since the decision of the Hon ble Andhra Pradesh High Court is of the division bench whereas the decision of the Hon ble Madras High Court in the case of Vedanta Ltd (supra) is of the single bench, and therefore we are inclined to follow the decision of the Hon ble Andhra Pradesh High Court in the case of Zuari Cement Ltd. wherein it is held that procedure of issuing draft assessment order laid down in the section 144C is to be followed with effect from 01/10/2009. In the instant case, though the assessment year involve is 2009-10, the draft assessment order has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore we do not find any violation of the law by the Assessing Officer in issuing the draft assessment order on 28/03/2013 and passing of the final assessment order dated 26/02/2014 by the AO. Therefore, the final assessment order passed by the Assessing Officer is well within the limitation provided in law. Thus, the additional grounds raised by the assessee are accordingly dismissed. TP adjustment on the total manufacturing turnover of the assessee - whether the transfer pricing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the Associated Enterprises? - HELD THAT - In our opinion, the entire exercise of determination of arm s-length price is in respect of the international transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also should be limited to the international transactions carried out with the Associated Enterprises and cannot be applied over the transactions with unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions. We set aside the finding of the Assessing Officer on the issue in dispute and restore the matter back to him for comparison of export segment of the assessee with the export segment of comparable companies and then determine the arm s-length price of the international transactions with AE applying the mean margin of the comparables. The ground No. 2 of the appeal of the assessee is accordingly allowed for statistical purposes. Additions of purchase expenses - in the draft assessment order the Assessing Officer has made addition on the basis of the response of the notice under section 133(6) issued to those purchase parties - HELD THAT - We find that, in the case matter is of verification of the parties and the Ld. DRP has provided opportunity to assessee and after taking into consideration the additional evidence submitted by the assessee and calling for remand report from the assessee has sustained addition in respect of the two parties only, particularly where the assessee failed to substantiate purchase amount recorded in its books of accounts. In our opinion, the exercise of the verification has already been done during the proceeding before the DRP. Assessee has not provided any justified reasons for restoring the matter back to the file of the AO. DRP has duly considered the submission of the assessee and wherever the assessee has failed to substantiate with evidence in that case only additional is sustained. Therefore, the ground No. 6 and 7 of the appeal of assessee are dismissed.

Summary

Issues Involved:
1. Adjustment related to international transaction of export of finished goods.
2. Application of adjustment to total turnover versus controlled transactions.
3. Use of multiple methods for calculating Arm's Length Price (ALP).
4. Computation of alternative Transfer Pricing adjustment.
5. Revised calculation of adjustment based on Dispute Resolution Panel (DRP) directions.
6. Additions under Section 69C of the Income-tax Act.
7. Invocation of Section 69C.
8. Set-off of short-term capital loss against long-term capital gain.
9. Credit for tax deducted at source.
10. Effect to rectification application letters.
11. Validity of draft assessment order under Section 144C.
12. Time-barred assessment order under Section 153.

Detailed Analysis:

1. Adjustment Related to International Transaction of Export of Finished Goods:
The assessee contested an adjustment of Rs. 5,96,53,388/- made by the AO/TPO in relation to the international transaction of exporting finished goods. The Tribunal upheld the adjustment, noting that the TPO had used the Transaction Net Margin Method (TNMM) and Comparable Uncontrolled Price Method (CUP) to compute the ALP.

2. Application of Adjustment to Total Turnover Versus Controlled Transactions:
The assessee argued that the adjustment should apply only to controlled transactions, not the total turnover. The Tribunal agreed, directing the AO to limit the adjustment to international transactions with Associated Enterprises (AEs) and not the entire manufacturing turnover.

3. Use of Multiple Methods for Calculating Arm's Length Price (ALP):
The assessee argued against using multiple methods (TNMM and CUP) for calculating the ALP. The Tribunal did not specifically address this issue as it was rendered academic due to the decision on the second issue.

4. Computation of Alternative Transfer Pricing Adjustment:
The TPO had computed an alternative adjustment using the CUP method but did not consider it for making the adjustment. The Tribunal did not address this issue separately as it was academic following the decision on the second issue.

5. Revised Calculation of Adjustment Based on DRP Directions:
The assessee argued that the AO did not provide a revised calculation of the adjustment based on the DRP's directions. The Tribunal did not address this issue separately as it was academic following the decision on the second issue.

6. Additions Under Section 69C of the Income-tax Act:
The AO made additions of Rs. 55,44,990/- under Section 69C for unexplained expenditure. The Tribunal upheld the DRP's decision to sustain the addition for two parties where the assessee failed to substantiate the purchase amount recorded in its books.

7. Invocation of Section 69C:
The assessee argued against the invocation of Section 69C for the addition of Rs. 55,44,990/-. The Tribunal upheld the DRP's decision, noting that the AO had verified the evidence and found the addition justified for two parties.

8. Set-off of Short-term Capital Loss Against Long-term Capital Gain:
The assessee argued that the AO erred in not allowing the set-off of short-term capital loss of Rs. 55,25,462/- against long-term capital gain of Rs. 5,27,20,000/-. The Tribunal restored this issue to the AO for verification and fresh decision.

9. Credit for Tax Deducted at Source:
The assessee argued that the AO did not grant credit for tax deducted at source of Rs. 7,62,232/-. The Tribunal restored this issue to the AO for verification and fresh decision.

10. Effect to Rectification Application Letters:
The assessee argued that the AO did not give effect to rectification application letters regarding the set-off of capital loss and credit for tax deducted at source. The Tribunal rendered this issue infructuous as it had already restored the related issues to the AO.

11. Validity of Draft Assessment Order Under Section 144C:
The assessee argued that the draft assessment order was void ab initio as Section 144C was applicable only from AY 2010-11 onwards. The Tribunal, following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd., held that the procedure of issuing a draft assessment order under Section 144C is applicable from 01/10/2009, thus validating the draft assessment order.

12. Time-barred Assessment Order Under Section 153:
The assessee argued that the assessment order was time-barred. The Tribunal held that the final assessment order was within the limitation provided in law, dismissing the assessee's additional grounds.

Conclusion:
The Tribunal allowed the assessee's appeal partly for statistical purposes, directing the AO to limit the transfer pricing adjustment to international transactions with AEs and to verify the issues related to the set-off of capital loss and credit for tax deducted at source. The Tribunal dismissed the Revenue's appeal, upholding the DRP's decision on the verification of purchase expenses.