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2015 (11) TMI 275 - AT - Income TaxTransfer pricing adjustment - Held that - Transfer pricing study made by the TPO is far away from reality. If the erroneous presumptions of the TPO are excluded, we find that the price disclosed by the assessee is comparable and compatible to ALP and no adjustment is called for in the present case. Since the facts in assessment year 2007-2008 are identical, we are inclined to confirm the order of the Commissioner of Income Tax (Appeals) on this issue by placing reliance on the above order of the Tribunal - Decided in favour of assessee. Disallowance u/s. section 40(a) (i) - interest payments to Andhra Pradesh Mineral Development Corporation - CIT(A) deleted the addition - Held that - The impugned payment which has direct link or immediate nexus with the trading liability being connected with the purchase payment and it will not fall under the category of interest as defined in Sec. 2(28A) of the Act. Payment made by the assessee in the present appeal cannot be termed as interest and accordingly we are in agreement with the findings of the Commissioner of Income Tax (Appeals). Without entering into the controversy so as to whether the payment is within the ambit of interest in Sec. 2(28A), the assessee is also bound to succeed in its alternative argument that the entire payment if made during the previous year relevant to the assessment year under dispute no disallowance would be made u/s.40(a)(ia) of the Act - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition towards adjustment on account of transfer pricing relating to Barite Lumps. 2. Deletion of addition towards disallowance under Section 40(a)(i) relating to interest payments to Andhra Pradesh Mineral Development Corporation (APMDC). Issue-Wise Detailed Analysis: 1. Deletion of Addition Towards Adjustment on Account of Transfer Pricing Relating to Barite Lumps: The Revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 17,03,792 towards adjustment on account of transfer pricing relating to Barite Lumps. The Assessing Officer (AO) had compared the assessee's export prices with data obtained from the customs department and made adjustments based on these comparisons. The Commissioner of Income Tax (Appeals) observed that the AO's comparison was flawed as it did not consider the nature of the transactions comprehensively. The AO had compared the assessee's FOB sales with the CIF sales of competitors without giving due weightage to the higher investment and risks involved in CIF sales. The Commissioner of Income Tax (Appeals) noted that the AO's approach was merely arithmetic and did not reflect the true arm's length nature of the transactions. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, noting that the AO's method of comparison was not appropriate. The Tribunal referenced its previous decision in the assessee's case for the assessment year 2006-07, where it was held that the AO's comparison method was erroneous and did not account for various factors such as volume, frequency, and quality variations. The Tribunal concluded that the transfer pricing study made by the AO was far from reality and confirmed the deletion of the addition. 2. Deletion of Addition Towards Disallowance Under Section 40(a)(i) Relating to Interest Payments to Andhra Pradesh Mineral Development Corporation (APMDC): The Revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 28,55,313 made by the AO towards disallowance under Section 40(a)(i) relating to interest payments to APMDC. The AO had disallowed the interest payments on the grounds that the assessee failed to deduct TDS on these payments. The Commissioner of Income Tax (Appeals) observed that the payments made to APMDC were compensatory charges for the credit period utilized by the assessee and not interest on borrowed money. The Commissioner of Income Tax (Appeals) held that such compensatory charges did not fall under the definition of interest as per Section 2(28A) of the Income Tax Act and hence, the disallowance was not warranted. The Tribunal agreed with the Commissioner of Income Tax (Appeals)'s findings, noting that the payments were directly linked to the trading liability and were part of the purchase consideration. The Tribunal emphasized that the payments could not be termed as interest and thus, were not subject to TDS under Section 194A. The Tribunal also referenced the decision of the Ahmedabad Bench of ITAT in the case of Income Tax Officer vs. Parag Mahasukhlal Shah, which held that compensatory payments not related to any deposit/debt/loan were outside the ambit of Section 194A. Additionally, the Tribunal addressed the alternative argument that if the payments were made during the previous year, no disallowance would be made under Section 40(a)(ia) in light of the decision by the Allahabad High Court in CIT vs. Vector Shipping Services (P) Ltd. The Tribunal concluded that the Commissioner of Income Tax (Appeals) was justified in deleting the addition and dismissed the Revenue's appeal. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the deletion of the additions made by the AO towards transfer pricing adjustments and disallowance under Section 40(a)(i). The Tribunal upheld the Commissioner of Income Tax (Appeals)'s findings that the AO's methods were flawed and that the payments in question did not constitute interest subject to TDS. Order Pronounced: The appeal of the Revenue in ITA No.422/Mds/2013 is dismissed. The order was pronounced on Thursday, the 29th day of October, 2015, at Chennai.
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