2024 (12) TMI 904 - AT - Income Tax

TP Adjustment - international transactions relating to sale of goods - assessee adopted other method as the most appropriate method - goods are sold on Bill To Ship To Model basis i.e., the billing is done to TCIPL and the goods are sold directly to third party i.e., Adama Agan Ltd AAL - HELD THAT - The undisputed fact is that the assessee was selling goods directly to AAL. The credit period was between 150-180 days and the assessee was bearing the cost of bill discounting, credit risk arising from non-payment of dues by customers and also market risk where the prices keep on fluctuating in the international market. Post 29th August, when the assessee started selling its goods through its AE, TCIPL, the actual days of credit were between 5-21 days with no credit risk and no market risk as both have been shifted to the AE, TCIPL. As per the chart exhibited the assessee has clearly demonstrated the benefit in saving of interest. From the chart, it can be seen that the actual difference of credit when the sales are made by AE to AAL, is much less than the credit period when sales were made by the assessee directly to AAL. Since all the apprehensions of the DRP has been explained in the chart exhibited the impugned TP adjustment was uncalled for on the facts mentioned hereinabove. Therefore, we direct the AO/TPO to delete the impugned TP adjustment. Ground Nos. 1 to 4 are allowed. Disallowance u/s 14A r.w.r. 8D - The undisputed fact is that the assessee has own interest free funds and has earned cash profits during the year under consideration. The interest free own funds are far more in excess of the investments and the cash flow statement already on record suggest that no borrowings have been invested in purchasing of investments. We further find that nowhere the AO has recorded his dis-satisfaction insofar as the suo moto disallowance of Rs. 18.61 Lakhs is concerned. AO has simply stated that some expenses need to be disallowed for earning exempt income without pointing out why the suo moto disallowance made by the assessee is not sufficient for earning the exempt income. Thus no merit in the impugned disallowance made u/s 14A. Decided in favour of assessee. Denial of deduction u/s 35(2)(ab) - AO noticed that the assessee has not filed certificate from DSIR in Form 3CL for claiming the above expenditure - As explained that under Rule 6 of the Income Tax Rules, 1962, the Department of Scientific Industrial Research (DSIR), is required to submit its report to the Income Tax Authorities in Form 3CL and there is no requirement of the assessee to file the said Form but From No. 3CL is required to be submitted by the DSIR, therefore, failure to file the same cannot be attributed to the assessee. As relying on decision of Astec Lifesciences Ltd. 2023 (8) TMI 1079 - BOMBAY HIGH COURT allegation of failure to file the said Form cannot be attributed to petitioner. Thus taking a leaf out of the decision of Sun Pharmaceuticals Industries Ltd. 2017 (8) TMI 933 - GUJARAT HIGH COURT in principle we accept the contention that, communication is between the prescribed authority and the Department and for the default in same, the assessee cannot be made to suffer. However, it would be open for the AO to verify the actual expenditure incurred by the assessee. With these directions, Ground Nos. 11 to 15 are allowed.

Issues Involved:

1. Transfer Pricing Adjustments
2. Disallowance under Section 14A
3. Deduction under Section 35(2AB)
4. MAT Credit Restriction
5. Interest Liability under Sections 234A, 234B, and 234C
6. Non-granting of Credit for TDS and Advance Tax

Detailed Analysis:

1. Transfer Pricing Adjustments:

The primary issue was the adjustment of Rs. 5,66,00,731/- made by the authorities concerning the Transfer Pricing (TP) of transactions between the assessee and its Associated Enterprise (AE), Tata Chemicals International Pte Ltd (TCIPL). The assessee argued that the TP study conducted was appropriate and justified the use of the "other method" for determining the arm's length price (ALP) due to savings in interest costs. The authorities initially disagreed, asserting that if the goods were sold directly to Adama Agan Ltd (AAL), a higher value would have been realized, thus resulting in a loss when routed through TCIPL. However, the Tribunal found the assessee's explanation regarding working capital savings and risk mitigation convincing, noting a net benefit of Rs. 69,09,987/-. Consequently, the Tribunal directed the deletion of the TP adjustment, allowing the assessee's grounds.

2. Disallowance under Section 14A:

The assessee contested the disallowance of Rs. 1,83,46,780/- under Section 14A, arguing that the Assessing Officer (AO) did not record any "objective satisfaction" regarding the necessity of the disallowance, nor did the AO consider the suo moto disallowance of Rs. 18,61,000/- made by the assessee. The Tribunal, referencing precedents from the Bombay High Court and the Supreme Court, agreed with the assessee, emphasizing that the AO failed to demonstrate dissatisfaction with the assessee's computation. The Tribunal directed the deletion of the disallowance, thus allowing the assessee's grounds.

3. Deduction under Section 35(2AB):

The authorities denied the deduction under Section 35(2AB) due to the non-submission of Form 3CL by the Department of Scientific Research. The Tribunal, guided by decisions from the Bombay and Gujarat High Courts, held that the failure to submit Form 3CL should not be attributed to the assessee, as it is an interdepartmental communication. The Tribunal allowed the deduction, permitting the AO to verify the actual expenditure incurred by the assessee.

4. MAT Credit Restriction:

The Tribunal did not specifically address the issue of MAT credit restriction from Rs. 27.14 crores to Rs. 19.97 crores, as it was not pressed by the assessee.

5. Interest Liability under Sections 234A, 234B, and 234C:

The Tribunal directed the AO to levy interest as per the provisions of law, allowing the assessee's ground concerning the erroneous levy of interest under Sections 234A, 234B, and 234C.

6. Non-granting of Credit for TDS and Advance Tax:

The assessee claimed non-granting of credit for TDS and advance tax paid. The Tribunal instructed the AO to verify the claims from the challan and the income-tax portal and allow the credits accordingly.

In conclusion, the appeal was partly allowed, with the Tribunal providing relief on several grounds while directing verification and appropriate action on others.

← Previous Next →