2012 (9) TMI 67 - AT - Income Tax

Transfer pricing adjustment - adjustment on account of payments of Management Fees, selling commission and reimbursement of expenses - Held that - Considering submission of several documents to substantiate the actual rendition of services for which payment of management fee and sales commission was made by the Appellant Company to its associated enterprise depicts that the Appellant Company has actually received services from its associated enterprise for which management fee has been paid. Further, these documents also substantiate that the services received by the Appellant Company from its associated enterprise are substantial in nature. As the additional grounds of appeal filed by the assessee are admitted for adjudication and all these issues require thorough examination and verification of data filed and likely to be called for the additional evidence and connected issues be restored back to the file of the Assessing Officer for de novo consideration - in favour of assessee for statistical purposes.

Summary

Issues:
1. Transfer Pricing Related
2. Disallowance of inventory written off
3. Disallowance of expenses on computer software and license fees
4. Disallowance of technical assistance and training fees
5. Disallowance of expenditure during construction period
6. Charging of interest under sections 234B and 234D

Transfer Pricing Related:
The appeal concerned the Transfer Pricing adjustments made by the Assessing Officer, which were sustained by the Dispute Resolution Panel. The adjustments were related to international transactions, specifically payments of Management Fees, selling commission, and reimbursement of expenses. The Appellant challenged the approach of the authorities in rejecting their economic analysis and disregarding the conditions under section 92C(3) of the Income Tax Act. The Appellant argued that the adjustments made by the Transfer Pricing Officer were incorrect, highlighting issues with the application of methods, the assessment of benefits received, and the arm's length price determination. The Appellant presented additional evidence to support their case, leading to the Tribunal admitting the evidence for further examination by the Assessing Officer.

Disallowance of Inventory Written Off:
The authorities disallowed inventory written off as an unexplained expenditure under section 69C of the Act. The Appellant contested this disallowance, arguing that the written-off amount was justified and should not be treated as unexplained. The issue raised questions about the treatment of inventory write-offs and the criteria for allowing such expenses.

Disallowance of Expenses on Computer Software and License Fees:
The disallowance of expenses on computer software and license fees was challenged by the Appellant, who argued against treating these expenses as capital expenditure. Additionally, the Appellant sought depreciation at 60% under section 32 of the Act on the said capital expenditure. The issue involved the classification of expenses and the eligibility for depreciation benefits under the relevant sections of the Act.

Disallowance of Technical Assistance and Training Fees:
The authorities disallowed expenditure on technical assistance and training fees as capital expenditure. The Appellant contested this disallowance, highlighting the nature of the expenses and their relevance to the business operations. The issue raised questions about the treatment of specific expenses and their classification under capital expenditure.

Disallowance of Expenditure During Construction Period:
The disallowance of expenditure incurred during the construction period was challenged by the Appellant. The authorities treated the expenditure as capital expenditure, leading to the Appellant disputing this classification. The issue involved the timing of expenditure recognition and its treatment during the construction phase.

Charging of Interest under Sections 234B and 234D:
The Appellant raised concerns about the charging of interest under sections 234B and 234D of the Act. The issue involved the calculation and applicability of interest charges under the specified sections, with the Appellant seeking relief from the interest charges imposed by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal for statistical purposes, admitting additional evidence for further examination by the Assessing Officer to ensure a fair and just resolution of the Transfer Pricing-related issues and other challenges raised by the Appellant.