2014 (2) TMI 651 - AT - Income Tax

Transfer pricing addition on account of Arms s Length Price - Held that - For this year also, the assessee adopted Profit Level Indicator (PLI) of cash profit to sales by applying transactional net margin method (TNMM) in respect of the Tooling Division. The Ld. CIT(A) deleted the addition by giving the same reason as were given by him for the preceding year. No difference in the facts and circumstances for the instant year has been shown vis- -vis that for the assessment year 2003-04. We have allowed this ground of the Revenue for the immediately preceding year. Following the view taken for such earlier year, this ground is allowed. Disallowance of deduction u/s 80HHC of the Act Held that - The decision in Ajanta Pharma Ltd. Vs CIT 2010 (9) TMI 8 - SUPREME COURT followed - Clause (iv) of the Explanation to s. 115JB covers full export profits of 100 per cent as eligible profits and the same cannot be reduced to 80 per cent by relying on s. 80HHC(1B) - 100% of the export profit should be allowed to be reduced from the book profits for the purpose of computation u/s 115JB - thus, the order on this issue set aside and the matter remitted back to the AO for fresh adjudication. Deletion on account of transfer pricing adjustment made by the TPO Held that - The assessee adopted Cash profit to sales as PLI in respect of Tooling Division, which was not accepted by the TPO, who proceeded to compute ALP with the PLI of OP to sales thus the addition of ₹ 1.11 crore restored Decided partly in favour of Assessee.

Summary

Issues:
1. Depreciation rate on molds used in plastic business.
2. Transfer pricing adjustment on Arms's Length Price.
3. Disallowance of deduction u/s 80HHC.
4. Disallowance of training expenses.
5. Rate of depreciation on molds for plastic business.
6. Transfer pricing adjustment by the TPO.

Analysis:
1. For the assessment year 2004-05, the first issue pertains to the depreciation rate on molds used in the plastic business. The Revenue's appeal challenges the allowance of depreciation at 40% instead of 25%. The Tribunal did not allow this ground based on a similar decision made for the preceding year 2003-04.

2. The second issue involves the deletion of transfer pricing addition on Arms's Length Price amounting to Rs. 2,28,66,074 for the same assessment year. The CIT(A) deleted this addition by adopting the Profit Level Indicator (PLI) of cash profit to sales through the transactional net margin method (TNMM) for the Tooling Division. The Tribunal allowed this ground following a similar decision taken for the preceding year.

3. The third issue concerns the disallowance of deduction u/s 80HHC. The Revenue raised this issue against the deletion of the deduction by the CIT(A). The Tribunal admitted this ground as a legal issue and remitted the matter back to the AO for fresh consideration in light of a relevant judgment by the Hon'ble Supreme Court.

4. Moving to the assessment year 2005-06, the first issue is the deletion of disallowance of training expenses. The Tribunal upheld the CIT(A)'s decision on a similar issue from the assessment year 2003-04, thereby dismissing the Revenue's ground.

5. The second issue for 2005-06 is the increase in the rate of depreciation on molds used for the plastic business from 25% to 40%. The Tribunal dismissed this ground based on a similar decision made for the assessment year 2003-04.

6. The final issue relates to the deletion of the addition of Rs. 1,11,41,680 on account of transfer pricing adjustment made by the Transfer Pricing Officer (TPO). The Tribunal restored this addition, following the AO's stand and confirming the addition that was initially deleted by the CIT(A).

In conclusion, the Tribunal partly allowed the Revenue's appeal for both assessment years, with specific decisions made on each issue raised, either allowing or dismissing the grounds based on the facts and legal considerations presented.