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2013 (1) TMI 212 - AT - Income TaxAddition on account of TP adjustments - reimbursement/allocation of COE3 Common Operating Environment System related expenses - Held that - As fresh details were furnished by the assessee for the first time before the CIT(Appeals) giving complete details of the said expenses as well as the basis of allocation thereof. The said details were forwarded by the CIT(Appeals) to the AO/TPO and on verification of the same, the TPO accepted in his remand report that allocation/reimbursement of COE3 expenses to the extent of Rs. 2,20,83,188/- was in order. Keeping in view this finding recorded by the TPO in the remand report, the addition made on this issue to the extent of Rs. 2,20,83,188/- has been deleted by the CIT(Appeals) and has quite rightly so - revenue appeal dismissed. No justification in the action of the TPO in taking the ALP of the relevant transactions at Nil & ignoring all these details - assessee appeal - Held that - It is incumbent upon the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot be disallowed by taking the ALP at Nil keeping in view the facts and circumstances of the case and the relevant details furnished by the assessee. The exercise of ascertaining ALPs has to be done by the TPO keeping in view the well laid down scheme in the relevant provisions of the Act and addition, if any, on account of TP adjustment, has to be made only after doing such exercise. Therefore, restore this issue to the file of the AO/TPO with a direction to do such exercise and make addition - in favour of assessee for statistical purposes. Disallowance of depreciation of unit located at Silvassa - Held that - Assessee s appeal is squarely covered against the assessee and in favour of the Revenue as decided in the case of Plastiblends Ltd. v. Addl. CIT 2009 (10) TMI 39 - BOMBAY HIGH COURT wherein held that for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under section 30 to 43D of the Act, including depreciation allowable under section 32. Deduction u/s 80-IB - disallowance of Other Income directly linked to Silvassa Unit,Interest received, Miscellaneous Income,Reversal of excess provision of Doubtful debts - Held that - This issue is covered against the assessee relying on decision of Liberty India v. CIT 2009 (8) TMI 63 - SUPREME COURT wherein held that the provisions of section 80-IB are code by themselves as they contain both substantive as well as procedural provisions. The word derived from is narrower in connotation as compared to the words attributable to . The assessee has claimed deduction u/s 80IB in respect of receipts which are incidental to the business and so beyond the first degree. Thus uphold the order of the CIT(Appeals) on confirming the disallowance - against assessee. Deduction u/s 80-IB in respect of insurance claim - Held that - As decided in J.K. Aluminium Co. v. ITO 2011 (4) TMI 90 - ITAT NEW DELHI refund of excise duty being refund of assessee s own money cannot be regarded as separate income at all and the AO, therefore, was not justified in denying the relief u/s 80-IB on that amount. Insurance claim received by the assessee inasmuch as the same being reimbursement/recovery of expenses actually incurred by the assessee, it has no effect on the final income of the assessee so as to warrant exclusion thereof while computing deduction u/s 80-IB - in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustment for Export of Lubricants 2. Transfer Pricing Adjustments for COE3 Related Expenses 3. Disallowance of Depreciation for Silvassa Unit 4. Deduction under Section 80-IB for Other Income Issue-Wise Detailed Analysis: 1. Transfer Pricing Adjustment for Export of Lubricants: The assessee disputed an addition of Rs. 5,40,294/- made by the AO and confirmed by the CIT(A) on account of transfer pricing adjustment for transactions involving the export of lubricants. The assessee's counsel did not press this ground during the hearing, leading to its dismissal as not pressed. 2. Transfer Pricing Adjustments for COE3 Related Expenses: The main issue in both the assessee's and the Revenue's appeals was the addition of Rs. 3,99,63,865/- made by the AO on account of TP adjustments for reimbursement/allocation of COE3 related expenses, which the CIT(A) sustained to the extent of Rs. 1,68,80,675/-. The assessee, part of the BP group, incurred significant IT costs related to the COE3 system. The AO referred the matter to the TPO, who determined the ALP of various international transactions at NIL due to lack of supporting documents. The TPO's assessment was based on the absence of proper invoices and allocation details. Upon appeal, the assessee provided additional details to the CIT(A), who sought a remand report from the AO/TPO. The TPO, in his remand report, accepted the allocation of COE3 expenses to the extent of Rs. 2,20,83,188/- but maintained the addition of Rs. 1,68,80,675/- due to insufficient evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2,20,83,188/- based on the TPO's remand report. However, for the remaining Rs. 1,68,80,675/-, the Tribunal found that the TPO's determination of ALP at NIL was unjustified. The Tribunal directed the AO/TPO to reassess the ALP using an authorized method and make necessary adjustments accordingly. 3. Disallowance of Depreciation for Silvassa Unit: The assessee claimed depreciation of Rs. 15,84,40,030/- for the Silvassa Unit, which had not been claimed in earlier years. The AO recomputed the depreciation at Rs. 6,13,74,121/- by considering depreciation allowed in earlier years, resulting in a disallowance of Rs. 9,70,65,909/-. The CIT(A) confirmed the disallowance, relying on the Bombay High Court's decision in Plastiblends Ltd. v. Addl. CIT. The Tribunal upheld the CIT(A)'s order, agreeing that the issue was covered against the assessee by the cited High Court decision. 4. Deduction under Section 80-IB for Other Income: The AO and CIT(A) disallowed the assessee's claim for deduction under Section 80-IB for various items of other income, including directly linked income, interest received, miscellaneous income, reversal of excess provision of doubtful debts, and insurance claims. The Tribunal upheld the disallowance for the first four items, citing the Supreme Court's decision in Liberty India v. CIT, which held that Section 80-IB deductions apply only to income directly derived from industrial activities. However, the Tribunal allowed the deduction for the insurance claim of Rs. 54,02,609/-, referencing the coordinate bench's decision in J.K. Aluminium Co. v. ITO, which treated such reimbursements as not affecting final income and thus eligible for deduction under Section 80-IB. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing detailed directions for reassessment of certain transfer pricing adjustments and upholding or reversing disallowances based on established legal precedents.
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