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2024 (5) TMI 162 - AT - Income TaxTP Adjustment - adjustment made by the AO u/s 92BA r.w. Section 92CA r.w. Section 80IA(10) is in question which has the effect of reduction of quantum of deduction u/s 80IC/80IE - existence of arrangement between the eligible units and AEs merely on the basis of higher operating profits of the eligible units - HELD THAT - The assessee in the instant case has attempted to demonstrate that the transaction between eligible unit and AEs were carried out on market price by producing the bills and tabulations in the shape of additional evidences. As noted in the preceding paragraphs, the primary onus was on the AO to call for such documents as may be considered necessary to scrutinize whether higher profits in eligible units are on account of any arrangement per se. AO has not discharged such onus but has made bald allegation on the grounds of relatively higher profits earned by the eligible units vis- -vis non eligible units. As greatly assisted on behalf of the assessee to gather understanding that the transaction with connected entities are at market price. When seen in totality, we are inclined to agree with the plea of the assessee on first principles that rigours of Section 80IA(10) are not applicable in a case where neither the AO has discharged its onus to establish existence of arrangement nor such arrangement is demonstrable on factual analysis. The findings of the TPO/AO holding existence of arrangement between the eligible units and AEs merely on the basis of higher operating profits of the eligible units cannot be upheld on first principles in the instant case. The assessee has placed additional evidences to rebut the unsupported finding of the TPO/AO to dislodge existence of arrangement and transactions between the eligible units and AEs to be at market price. Hence, to the limited extent of verification of additional evidences, we deem it appropriate to remit the matter back to the file of the AO. AO shall be at liberty to verify the correctness of the claim of the assessee that transactions of purchase undertaken by the eligible units with its AEs are at ordinary and comparable market price to justify ALP. The assessee shall also be entitled to benchmark transaction of the eligible unit by applying CUP method as most appropriate method to justify lack of any arrangement contemplated under Section 80IA(10) of the Act. To this limited extent, the matter is set aside to the file of the AO. The assessee shall be entitled to adduce such evidences as may be considered expedient to support its plea on comparability of purchase transactions carried out by eligible units with its AE viz. uncontrolled transactions. As regards sale transactions by eligible units with its AEs, we do not consider it necessary to beset with further burden of proof on assessee towards aspects of ALP having regard to nominal percentage of sale transactions carried out with AEs owing to miniscule effect, if any, on the overall profitability when seen in the context. AO shall pass a reasoned order towards presence of arrangement contemplated u/s 80IA(10), if any while determining the issue. AO may make reference to TPO for determination of ALP of the controlled transactions as per CUP method in the event the prima facie existence of arrangement is discovered by him in the factual matrix. Disallowance of deduction u/s 80G - deduction on CSR expenses - deductibility of donations and contributions to Funds/bodies registered u/s 12A of the Act on the counters of s. 80G where CSR contributions are not eligible for deduction under s. 37 of the Act - HELD THAT - The exclusions provided in 80G (2)(a)(iiihk) (iiihl) qua certain specific contributions such as Swachh Bharat Kosh and Clean Ganga Fund rather exhibits the legislative intent loud and clear. Thus on a plain reading, it is evident that the assessee would be ordinarily entitled to deduction on contributions made to funds and bodies registered u/s 12A of the Act regardless of stipulations made in s. 37(1) of the Act barring the exclusion codified in s. 80G(2)(a)(iiihk) (iiihl). As a corollary to delineations made in the preceeding paragraphs, s. 37 and S. 80G, appear mutually exclusive subject to exceptions provided in sub-clause (2)(a)(iiihk) (iiihl) of S. 80G of the Act. Hence, the exception carved out by way of Explanation 2 to s. 37 (1) prohibiting claim of CSR expenses as business expenditure, by itself, will not serve as any kind of impediment for the purposes of claim of deduction under s. 80G of the Act. The contribution made in question are not shown to be falling in exclusions provided in (iiihk) or (iiihl) of sub-section 2 clause (a) of S. S. 80G of the Act. The action of the Revenue Authorities is thus not sustainable in law. The claim of deduction on CSR expenses on the touchstone of Section 80G is thus allowed. Eligibility towards weighted deductions u/s 35(2AB) - amount of weighted deduction to the extent of approval by prescribed authority - HELD THAT - The quantification of eligible expense for weighted deduction is procedural or a machinery exercise. Hence, there is no warrant to negate the effect of the substituted Rule which seeks to limit the amount of weighted deduction to the extent of approval by prescribed authority supposedly carrying domain expertise in the field. The observations made by the Co-ordinate Bench in Natural Remedies 2020 (1) TMI 1361 - ITAT BANGALORE are merely in the nature of obiter while adjudication of the case relating to A.Y. 2016-17 where the substituted Rule had not come into force. The observations made thus do not carry any precedent value per se. Similarly, the coordinate bench in USV P. Ltd. 2023 (10) TMI 1128 - ITAT MUMBAI has applied the decision rendered in assessee s own case in earlier year without any discussion on effect of amendment in Rule 6(7A) of I.T. Rules. Hence, the view expressed in USV P. Ltd. is not entitled to great weight. We thus see little merit in the plea raised on behalf of the assessee to ignore the substituted law expressly provided in Rule 6(7A) of the Act and to ignore the quantification carried out by the prescribed authority for the purposes of deduction under Section 35(2AB) of the Act. The contention of the assessee to avail weighted deduction on unapproved amount is thus devoid of any merit. The aspect is thus adjudicated against the assessee and in favour of the Revenue.
Issues Involved:
1. Transfer Pricing Adjustment in relation to Arms' Length Price (ALP) of Specified Domestic Transactions (SDTs). 2. Disallowance of Deduction under Section 80G. 3. Disallowance of Deduction under Section 35(2AB). Summary: 1. Transfer Pricing Adjustment in relation to Arms' Length Price (ALP) of Specified Domestic Transactions (SDTs): The assessee-company, engaged in manufacturing pharmaceutical and healthcare products, contested the transfer pricing adjustment of Rs. 21,92,40,676/- made by the TPO. The TPO alleged an arrangement between the eligible units and AEs resulting in higher than ordinary profits to eligible units, invoking Section 80IA(10) r.w.s 92CA(3) of the Act. The Tribunal admitted additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, to demonstrate that transactions between eligible units and AEs were at arm's length. The Tribunal remitted the matter back to the AO for verification of the additional evidence to determine the ALP of the transactions. The AO was directed to pass a reasoned order regarding the presence of an "arrangement" under Section 80IA(10). 2. Disallowance of Deduction under Section 80G: The AO disallowed the deduction of Rs. 6,38,13,601/- claimed under Section 80G, citing it as CSR expenditure not allowable under Section 37(1). The Tribunal held that Section 37 and Section 80G are mutually exclusive, and there is no bar on claiming deduction under Section 80G for CSR contributions, except for specific exclusions under Section 80G(2)(a)(iiihk) & (iiihl). The Tribunal allowed the deduction under Section 80G, reversing the AO's decision. 3. Disallowance of Deduction under Section 35(2AB): The assessee claimed a weighted deduction of Rs. 112,92,10,780/- under Section 35(2AB) for expenditure on scientific research. The AO restricted the deduction to Rs. 100,90,68,000/- based on DSIR's approval. The Tribunal held that while the AO's disallowance of Rs. 8,00,95,000/- under Section 35(1) was incorrect, the weighted deduction under Section 35(2AB) could be limited to the approved amount by DSIR. The Tribunal allowed the normal deduction under Section 35(1) but upheld the AO's decision on the weighted deduction under Section 35(2AB). Conclusion: The Tribunal partly allowed the appeal, remitting the transfer pricing issue back to the AO, allowing the deduction under Section 80G, and granting partial relief under Section 35(2AB).
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