9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (5) TMI 498 - AT - Income TaxTransfer pricing adjustment - segmental Transactional Net Margin Method analysis adopted by the Appellant rejected & entity level approach adopted by dept. - Disallowing the deduction claimed under section 10B - Held that - Based on the audited report for the purpose of claim of deduction under section 10A & 10B the assessee furnished segmental accounts with reference to each of the activity undertaken by the assessee company therefore, when assessee has submitted segmental reports, with out rejecting them the AO was not correct in adopting the entity level approach of making the transfer pricing adjustments. Unable to support the TPO's weighted average method of arriving at the profit margins, which is not supported by any methodology prescribed or Rules prescribed. Further, in arriving at the segment-wise profit margin, the AO does not give any information except the percentage of profit in two columns against the company's names. There is no analysis of each company's business activity, why they are selected as comparable and what are the functions of the company, operating margins, etc. There is no discussion, whatsoever, in TPO's order as to why the comparables of the assessee are rejected or why other comparables are accepted. Thus, the approach of the TPO cannot be verified by any data available on record. DRP did not address this issue except rejecting the objections on the reason that the assessee did not furnish any details. The assessee is opposing selection of comparables by the TPO. Therefore it is the responsibility of the TPO to furnish necessary details. The onus cannot be shifted to the assessee when it is contending that proper data is not available in public domain in this regard. Therefore, the issue is to be set aside to the file of the AO for obtaining fresh TP report after doing proper analysis and verifying the rules and guidelines in this regard. Treatment of software expenditure as capital expenditure - Held that - AO examined the nature of software and determined that purchase of software, whose life is more than two years, is considered as capital and disallowed only an amount of ₹ 5,67,500/-. Thus there is no need to disturb the findings of the AO who examined the same consequent to the direction of the DRP and restricted the disallowance to the above amount. Therefore, the ground is rejected. The AO is, however, directed to allow the depreciation as applicable, if not allowed. Non-granting of depreciation on the written down value (WDV) of software expenses disallowed in earlier years - Held that - The DRP has already directed the AO on this issue, who is bound to allow depreciation consequent to capitalization of software purchases in earlier years. It seems that the AO has not given effect to this direction of the DRP thus the AO agains directed to allow the depreciation on software expenditure disallowed as capital expenditure in earlier years by working out the WDV. This ground is considered allowed. Adjustments under section 145A - adjustments in the opening stock by the relevant amount of unutilised Modvat credit of last year denied - Held that - Both the parties fairly admitted that this issue is to be restored to the file of the AO consequent to the direction given in earlier years as relying on Mahaveer Almn Ltd (2007 (11) TMI 41 - HIGH COURT, DELHI) considering the decision in the case of CIT v. Ahmedabad New Cotton Mills Co. Ltd. 1929 (11) TMI 1 - PRIVY COUNCIL that a mistake in the method of valuation cannot be rectified by refusing the valuation of closing stock only but the valuation of opening and closing stock had to be revised. In the case of Mahalaxmi Glass Works Pvt Ltd., (2009 (4) TMI 182 - BOMBAY HIGH COURT) the issue related to closing stock valuation of adjustment of unutilized modvat credit. The Tribunal allowed the adjustment. Therefore, the issue is covered in favour of the assessee by this decision - thus direct the AO to make necessary adjustments in the opening stock by the relevant amount of unutilised Modvat credit of last year. With these directions, the grounds are considered allowed. Disallowance of entire loss incurred by Kalwe unit - whether eligible for deduction under section 10B under section 14A and not allowing carry forward of loss - reopening of assessment - Held that - AO has while reopening the assessment ex facie proceeded on the erroneous premise that section 10B is a provision in the nature of an exemption. Plainly, section 10B as it stands is not a provision in the nature of an exemption but provides for a deduction. Prior to the substitution of the provision was in the nature of an exemption but after the substitution it now stands provides for a deduction consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. AO was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B.Thus provisions of section 14A are not attracted in the case of the unit suffering losses eligible for deduction under section 10B and further the assessee is entitled to set off of loss of STP unit under section 10B against other business income - in favour of the assessee.
Issues Involved:
1. Transfer pricing adjustment. 2. Corporate tax adjustments. 3. Disallowance of software expenses. 4. Non-grant of depreciation on software expenses disallowed in earlier years. 5. Adjustment under section 145A of the Act. 6. Invoking the provisions of section 14A of the Act. 7. Disallowing the deduction claimed under section 10B of the Act. 8. Levy of interest under section 234B and section 234D of the Act. 9. Initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Transfer Pricing Adjustment: The assessee contested the transfer pricing adjustment of Rs.97,19,43,002/-. The AO/TPO erred by not providing an opportunity of being heard, rejecting the economic analysis undertaken by the assessee, not accepting the segmental approach, making adjustments to transactions with non-AEs, aggregating international transactions, rejecting comparables identified by the assessee, considering inappropriate comparables, using single-year data, inaccurately computing margins, not considering +/- 5% variation, and undertaking a double adjustment in respect of reimbursement transactions. The Tribunal found that the TPO/DRP's approach was incorrect as the segmental accounts were not properly considered, and the weighted average method used by the TPO was not supported by any rule. The Tribunal directed the AO to re-examine the segmental accounts and comparables, and to provide a fresh TP report after proper analysis and verification. 2. Corporate Tax Adjustments: The AO disallowed software expenses of Rs.5,67,500/- considering them as capital expenditure. The Tribunal upheld the AO's decision but directed to allow depreciation as applicable. The Tribunal also directed the AO to grant depreciation on the written down value of software expenses disallowed in earlier years, as per the DRP's direction. 3. Adjustment under Section 145A of the Act: The Tribunal restored the issue to the file of the AO for necessary adjustments in the opening stock by the relevant amount of unutilized Modvat credit of the last year, following the earlier orders of the Tribunal in the assessee's own case. 4. Invoking the Provisions of Section 14A of the Act: The Tribunal held that the provisions of section 14A are not attracted in the case of the unit suffering losses eligible for deduction under section 10B, and the assessee is entitled to set off the loss of the STP unit under section 10B against other business income. The AO was directed to do accordingly. 5. Disallowing the Deduction Claimed Under Section 10B of the Act: The Tribunal followed the jurisdictional High Court's decision, holding that section 10B is a deduction provision and not an exemption. Therefore, the loss incurred by the Kalwe unit, eligible for deduction under section 10B, should be set off against other business income. 6. Levy of Interest Under Section 234B and Section 234D of the Act: The Tribunal noted that the levy of interest under sections 234B and 234D is consequential and does not require fresh adjudication. 7. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Act: The Tribunal held that since the issues are restored to the file of the AO for fresh consideration, the question of deciding on the initiation of penalty proceedings does not arise at this stage and treated the ground as premature. Conclusion: The appeal was partly allowed for statistical purposes, with several issues being restored to the file of the AO for fresh consideration and proper analysis. The Tribunal stressed the need for providing a proper opportunity to the assessee and passing a detailed and reasonable order.
|
