2012 (3) TMI 132 - AT - Income Tax

Transfer Price - International transaction - Additional Evidences - Documents could not be produced before lower authorities - Held That - In view of Anaikar Trade and Estates (1990 - TMI - 23190 - MADRAS High Court), tribunal can consider additional evidences. Once additional evidence are taken up they have to be considered to decide the matter therefore we remand case back to AO for fresh adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Income assessed as mentioned in the appellate order.
2. Transfer Pricing Adjustment.
3. Assets costing less than Rs. 5,000.
4. Prior period expenditure - Information Technology Support & System implementation charges.
5. Income earned during construction period.
6. Repairs and Maintenance Charges.
7. R&D Cess relating to the Export Oriented Unit (EOU).
8. Short grant of TDS refund.

Detailed Analysis:

1. Income assessed as mentioned in the appellate order:
The assessee contended that the CIT(A) erroneously mentioned the assessed loss as Rs. 162,190,210 instead of Rs. 166,540,744 as per the assessment order under section 143(3) of the Income-tax Act, 1961. However, the AO corrected this while passing the order giving effect to the CIT(A)'s order dated October 21, 2010. Consequently, this ground was not pressed.

2. Transfer Pricing Adjustment:
The appellant argued that the international transaction pertaining to the provision of technical assistance and engineering fee to its AEs should be benchmarked using an internal CUP based on a similar arrangement between Toyota Motor Corporation (TMC) and Kirloskar Systems Limited (KSL). The CIT(A) failed to consider the nascent stage of the appellant's operations during the financial year 2003-04 and the fact that the loss was due to initial operational stages. The CIT(A) also erred in the allocation of fees and disregarded the Transfer Pricing study for the financial year ended 31st March 2004. The department's appeal challenged the deletion of Rs. 19,99,86,000 under technical assistance fees and Rs. 1,14,96,326 for traveling and conveyance expenses, arguing that these were related to the EOU, which had not commenced operations during the year.

3. Assets costing less than Rs. 5,000:
The AO allowed the amount of Rs. 2,847,328, being the amount doubly disallowed towards the fixed assets costing less than Rs. 5,000 fully depreciated in the books of accounts. Therefore, this ground was not pressed.

4. Prior period expenditure - Information Technology Support & System implementation charges:
The CIT(A) upheld the disallowance of system implementation charges debited to the Profit and Loss account, not adjudicating the double disallowance of prior period expenditure. The appellant argued that these charges were for the administrative functioning of the business and did not create any asset or advantage of enduring nature. Alternatively, if considered capital in nature, the appellant should be granted depreciation.

5. Income earned during construction period:
The CIT(A) erred in considering income earned during the construction period as income from other sources. The appellant argued that the receipts were from funds employed attributable to the EOU, which was in the construction period.

6. Repairs and Maintenance Charges:
The CIT(A) upheld the disallowance of repairs and maintenance charges. The appellant contended that the entire cost of construction was capitalized, and only the dismantling and repair charges were claimed as revenue expenditure. Alternatively, if disallowed as revenue expenditure, depreciation should be granted.

7. R&D Cess relating to the Export Oriented Unit (EOU):
The CIT(A) disallowed R&D Cess, stating it was not an allowable expenditure under the Act. The appellant argued that R&D Cess is an impost by a State in its sovereign power of taxation and is allowable under section 43B of the Act. If considered capital in nature, depreciation should be granted.

8. Short grant of TDS refund:
The CIT(A) did not adjudicate on the short grant of TDS refund amounting to Rs. 638,425 as per the revised return of income filed by the appellant.

Admission of Additional Evidence:
The Tribunal admitted additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. The additional evidence included:
1. Technical Assistance Agreement between TMC/AISIN TAKAOKA CO., LTD. and KSL.
2. Order dated 25.3.2010 for the succeeding financial year 2006-07, concluding that the international transactions of the assessee with TMC were at arm's length.
3. Documents related to interest income and exchange gain during the construction period of the EOU.

Tribunal's Decision:
The Tribunal set aside the impugned order and remanded the issue back to the AO for fresh adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. The Tribunal emphasized the importance of natural justice and the need to consider the additional evidence.

Conclusion:
The appeals by the assessee and the department were allowed for statistical purposes. The Tribunal directed the AO to re-examine the issues considering the additional evidence and provide a fresh decision.