2025 (1) TMI 1178 - AT - Income Tax

TP Adjustment - allocation of expenses and the segmental report prepared by the assessee based on the accepted method of allocation - benchmarking the transactions of purchase of books from its AEHELD THAT - Since the books of account maintained by the assessee are exactly similar it is only a re-appreciation of facts and allocation of expenses following allocation key of respective sales. In our considered view the above additional evidences are relevant and accepted. We are inclined to remit this issue to the file of AO/TPO to verify the allocation of expenses and the segmental report prepared by the assessee based on the accepted method of allocation in AY 2021-22 and also the details of discount offered by its AE and may be compared with the discount offered by the AE in the uncontrolled transactions and directed to compare the internal CUP available in this case to benchmark the transactions of purchase of books from its AE. We direct the AO/TPO to benchmark the international transactions based on the additional evidences brought on record by the assessee as per law after giving proper opportunity of being heard to the assessee. Accordingly ground no.3 raised by the assessee is allowed for statistical purposes. Sundry creditors outstanding shows that there is an enhancement in the trade payables/creditors from the preceding years - We observed that the relevant confirmations and explanations were not readily available during assessment proceedings. However it is brought to our notice that all the confirmations and other details are available accordingly ld. AR of the assessee prayed that the same may be accepted and remitted the same before the Assessing Officer to verify the relevant information available on record. In this view of the matter we remit the issue to the file of the AO to verify the relevant information available on record and then decide the issue as per law after giving proper opportunity of being heard to the assessee. Accordingly ground no.4 raised by the assessee is allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the foreign exchange gain/loss related to international transactions should be treated as operating income/expense.
Whether the selection of comparables for computing the arm's length price using the Transactional Net Margin Method (TNMM) was appropriate.
Whether the addition to total income due to an increase in sundry creditors was justified.
Whether the interest charged under sections 234B, 234C, and 234D of the Income Tax Act was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of Foreign Exchange Gain/Loss

Relevant Legal Framework and Precedents: The issue pertains to whether foreign exchange gains/losses should be included in operating income/expenses for transfer pricing purposes.
Court's Interpretation and Reasoning: The court did not explicitly address this issue as it was not pressed by the assessee.
Conclusion: The issue was not adjudicated upon as it was not pursued by the appellant.

Issue 2: Selection of Comparables for Transfer Pricing

Relevant Legal Framework and Precedents: The determination of the arm's length price using TNMM requires selecting appropriate comparables that are functionally similar to the assessee's business operations.
Court's Interpretation and Reasoning: The court considered the comparables selected by the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The TPO initially rejected certain comparables selected by the assessee and proposed others. The DRP accepted some of the assessee's comparables but upheld the TPO's selection for others.
Key Evidence and Findings: The court noted the revised segmental accounts prepared by the assessee, which provided a more precise allocation of expenses and profits between segments.
Application of Law to Facts: The court found that the revised segmental accounts showed the operating profit margin within the arm's length range determined by the TPO.
Treatment of Competing Arguments: The court considered the additional evidence submitted by the assessee, which demonstrated a more accurate allocation of expenses and profits.
Conclusion: The court remitted the issue back to the TPO/AO for verification of the revised segmental accounts and benchmarking based on the additional evidence provided.

Issue 3: Addition Due to Increase in Sundry Creditors

Relevant Legal Framework and Precedents: The addition was made due to an increase in sundry creditors without adequate confirmation from creditors.
Court's Interpretation and Reasoning: The court noted that the assessee had not provided confirmations during the assessment proceedings but now claimed to have them.
Key Evidence and Findings: The court acknowledged the availability of confirmations and explanations that were not submitted earlier.
Application of Law to Facts: The court decided to remit the issue back to the AO for verification of the confirmations and explanations now available.
Treatment of Competing Arguments: The court considered the assessee's request to submit additional evidence and the Revenue's lack of objection to remitting the issue.
Conclusion: The issue was remitted back to the AO for verification of the additional evidence, with instructions to decide the issue as per law.

Issue 4: Interest Charged Under Sections 234B, 234C, and 234D

Relevant Legal Framework and Precedents: These sections pertain to interest for defaults in payment of advance tax and excess refund.
Court's Interpretation and Reasoning: The court did not provide a detailed analysis of this issue, as it was not specifically addressed in the judgment.
Conclusion: The issue was not separately adjudicated in the judgment.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "For the sake of complete justice, we are inclined to remit this issue to the file of AO/TPO to verify the allocation of expenses and the segmental report prepared by the assessee based on the accepted method of allocation in AY 2021-22."
Core Principles Established: The court emphasized the importance of accurate segmental reporting and the need for verification of additional evidence to ensure fair assessment.
Final Determinations on Each Issue: The appeal was allowed for statistical purposes, with instructions to remit the issues regarding transfer pricing and sundry creditors back to the AO/TPO for further verification and assessment.

← Previous Next →