2024 (9) TMI 1096 - AT - Income Tax

Enhancing the income of the Appellant - Appellant has produced more than ordinary profits in u/s 80IA(10) - sale of goods through tax holiday unit to LPTPL, the Appellant wish to respectfully submit that during the course of proceedings before the Hon'ble DRP, Appellant had filed segmental financial statement before the Hon'ble DRP to substantiate that transaction with respect to sale of goods to LPTPL was undertaken at arm's length price - HELD THAT - We find that in the instant case, the assessee, for benchmarking the specified domestic transaction of purchase of goods by the assessee to its AE, Luminous Power Technologies Pvt Ltd (LPTPL), has considered internal TNMM as most appropriate method. The assessee has taken the operating profitability on cost for sale made to the third party Amar Raja Batteries Ltd (ARBL) for comparison. On the basis of the TPO report, the DRP held that the products sold by LPTPL to ARBL and to itself are different and that the segmental accounts of LPTPL is not reliable as it is not audited. Accordingly, the DRP rejected the application of internal TNMM method. It therefore emerges that the segmental financial statement being presented before us as additional evidence, was furnished by the assessee during the proceedings before the DRP. DRP had rejected the same on the ground that the segmental accounts of LPTPL with regard to ARBL segment and the assessee segment were not audited, and hence not reliable. This segmental financial statement has now been certified by an independent accountant and being produced before the Tribunal as additional evidence. We are of considered opinion that the segmental financial statement will facilitate proper appreciation and comparison of the transactions entered into with ARBL and itself. Rule 29 of the ITAT Rules, we are of the opinion that this segmental financial statement has direct bearing on the issue of deciding the method to be adopted to determine the Arms Length Price. Without considering the segmental analysis of the transaction for comparison of operating profitability on cost of sale made by company to LPTPL vis a vis third party ARBL, the rejection of internal TNMM method may not adhere to the principals of natural justice. Additional evidence, now being furnished, has a direct and important bearing to adjudicate the present controversy and hence admitted keeping in view the principles of natural justice. Application of the assessee for limited purpose of admitting the additional evidence is allowed for statistical purposes.

Summary

Issues:
Admission of additional evidence under Rule 29 of ITAT Rules for A.Y. 2013-14 regarding enhancing income under Section 80-IA(10) of the Income Tax Act, 1961.

Detailed Analysis:
The assessee filed an application for admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, in connection with Ground Nos. 4, 5, and 6 of the appeal. The application sought to present a segmental financial statement certified by an independent accountant to substantiate the arm's length price of goods sold to LPTPL. The DRP had rejected the segmental financial statement earlier, citing lack of reliability. The assessee argued the necessity of the evidence for proper adjudication of the case (para 2-4).

The assessee relied on various High Court cases to support the admission of additional evidence, emphasizing the importance of the segmental financial statement in determining ordinary profits under Section 80-IA(10) of the Act. The DR opposed the admission, citing the belated filing of the CA's report and Supreme Court decisions restricting the appellate court from considering new evidence. The AR countered, stating the need for additional evidence was realized after filing the appeal and argued in favor of admission based on relevant legal precedents (para 5-10).

After hearing both parties and examining the documentary evidence, the Tribunal considered the relevance of the segmental financial statement in benchmarking specified domestic transactions. The DRP had rejected the statement earlier due to lack of audit, but the current certification by an independent accountant added credibility. The Tribunal found the evidence essential for proper appreciation and comparison of transactions, leading to the admission of additional evidence under Rule 29 (para 11-13).

The Tribunal referred to legal precedents from various High Courts and the Supreme Court to justify the admission of additional evidence. The decisions highlighted the Tribunal's discretion to allow new evidence if it is crucial for deciding the appeal or serves substantial justice. The Tribunal concluded that the segmental financial statement had a direct bearing on the main issue and was necessary for proper adjudication, thus admitting the evidence in the interest of natural justice (para 14-19).

Ultimately, the Tribunal allowed the application of the assessee for admitting additional evidence for statistical purposes in ITA No. 6997/DEL/2017. The decision was based on the direct relevance of the evidence to the issue at hand and the principles of natural justice (para 20).