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2018 (4) TMI 41 - AT - Income TaxNon providing opportunity to the assessee before reference of the matter to the Transfer Pricing Officer - Held that - We find that in the case of Vodafone India Services P. Ltd. (2015 (10) TMI 2487 - HIGH COURT OF BOMBAY), the Hon ble jurisdictional High Court has expounded that the grant of personal hearing before referring the matter to TPO has to be read into section 92CA(1) in cases where the jurisdiction to tax under Chapter X has been challenged by the assessee. It was further expounded that in case no objection is raised by the assessee to the applicability under Chapter X, then the prima facie view of the Assessing Officer would be sufficient before referring the matter to the Transfer Pricing Officer for determination of the AMP. The additional ground raised by the assessee cannot be sustained. It is not at all the case of the assessee that there is any objection to the applicability of Chapter X of the I. T. Act. Hence, on the anvil of the above said Hon ble jurisdictional High Court decision, this additional ground raised by the assessee deserves to be dismissed. Adjustment to the international transactions relating to export of goods - MAM selection - TNMM or CUP method - rejecting the TNMM method in the present year - Held that - ransfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm s length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP method without assigning any cogent reason whatsoever. By no means it is justified to keep on finding a method for addition by trial and error method. Accordingly, we hold that there was no justification in rejecting the TNMM method applied by the assessee as in the preceding year. Since as per the same computation the assessee s margin was found to be at arm s length, we set aside the order of authorities below and decide the issue in favour of the assessee. Adjustment to the international transaction relating to corporate guarantee - Held that - DRP has carefully examined the issue and passed a reasonable order. A downward adjustment to the naked quotes of the rates of bank Guarantee has been done in this year, while benchmarking the transaction. It is seen that the bank guarantee rates vary generally between 1% to 3% giving an average of about 2.0%. Accordingly, it would be appropriate to charge a corporate guarantee of 1.5% from the AE. Disallowance u/s 14A - whether no exempt income has been earned? - Held that - In the present case, the assessee s contention is that it has not earned any dividend income from its subsidiary company in India. As regards the income from foreign subsidiary it has been submitted that the same is subject to tax u/s. 115BBD of the Act. We find that principally we are in agreement with the above said submissions of the ld. Counsel of the assessee. However, since the above requires factual examination of the contention that no dividend income has been received from the subsidiary companies in India and dividend income from foreign subsidiary are already subject to tax, the issue is remitted to the file of the Assessing Officer. The Assessing Officer shall examine the veracity of the above submissions and thereafter grant the assessee necessary relief, as per law. Disallowance u/s. 35(2AB) - benefit of weighted deduction - assessee submitted that the said certificate could not be produced before the authorities below as the same was received late - Held that - As the assessee has made additional submissions, which needs to be verified at the Assessing Officer s level. Hence, we remit this issue to the Assessing Officer to consider the same afresh in light of submission being made by the assessee.
Issues Involved:
1. Adjustment to the international transaction relating to export of goods. 2. Adjustment to the international transaction relating to corporate guarantee. 3. Disallowance under section 14A of the Income-tax Act, 1961. 4. Disallowance under section 35(2AB) of the Income-tax Act, 1961. 5. Legality of the reference made to the Transfer Pricing Officer without giving the assessee an opportunity of being heard. Detailed Analysis: 1. Adjustment to the International Transaction Relating to Export of Goods: The primary issue was the upward adjustment of ?13,55,73,433/- and ?13,16,87,917/- for the assessment years 2012-13 and 2013-14 respectively. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) rejected the Transactional Net Margin Method (TNMM) used by the assessee and instead applied the Comparable Uncontrolled Price (CUP) method, citing discrepancies in the sale prices to Associated Enterprises (AE) and non-AE entities. The assessee argued that TNMM had been consistently used and accepted in previous years, and no cogent reason was provided for the change. The Tribunal found that the AO and DRP did not justify the switch from TNMM to CUP method, noting that consistency should be maintained unless there is a change in facts or law. Consequently, the Tribunal decided in favor of the assessee, reinstating the use of TNMM and dismissing the adjustment. 2. Adjustment to the International Transaction Relating to Corporate Guarantee: For the assessment years 2012-13 and 2013-14, the AO made upward adjustments of ?1,19,960/- and ?5,44,243/- respectively, arguing that the corporate guarantee provided by the assessee to its AE was not at arm's length. The DRP reduced the corporate guarantee rate from 2.25% to 1.5%. The Tribunal upheld the DRP’s decision, agreeing that the adjustments were reasonable and in line with the prevailing guidelines and judicial precedents. 3. Disallowance Under Section 14A of the Income-tax Act, 1961: For the assessment year 2012-13, the AO disallowed ?7,41,654/- under section 14A r.w.r. 8D, which was over and above the sum of ?4,86,322/- disallowed by the assessee suo-moto. The DRP directed the AO to verify the facts and adjust the disallowance accordingly. The Tribunal noted that no disallowance under section 14A is required when no exempt income has been earned, remitting the issue back to the AO for factual verification. 4. Disallowance Under Section 35(2AB) of the Income-tax Act, 1961: For the assessment year 2013-14, the AO disallowed ?6,66,30,953/- claimed by the assessee under section 35(2AB) due to the absence of necessary certificates in Form 3CL and Form 3CM. The DRP upheld the disallowance, stating that statutory approvals were required. The Tribunal remitted the issue back to the AO for fresh consideration, allowing the assessee to submit the necessary certificates. 5. Legality of the Reference Made to the Transfer Pricing Officer Without Giving the Assessee an Opportunity of Being Heard: The assessee claimed that the AO’s reference to the Transfer Pricing Officer (TPO) without an opportunity of being heard violated section 92CA of the Income-tax Act. The Tribunal admitted this additional ground but found no merit in the assessee's claim. It noted that the assessee did not object to the transactions being treated as international transactions and that the AO’s prima facie view was sufficient for referring the matter to the TPO. The Tribunal dismissed the additional ground, emphasizing that the requirement for a hearing applies only when the jurisdiction to tax under Chapter X is challenged by the assessee. Conclusion: The Tribunal partly allowed the assessee’s appeals, setting aside the adjustments related to the export of goods and remitting the issues related to section 14A disallowance and section 35(2AB) deduction back to the AO for further examination. The adjustments related to the corporate guarantee were upheld. The additional ground regarding the legality of the reference to the TPO was dismissed.
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