2022 (12) TMI 865 - AT - Income Tax

TP Adjustment - rejecting the audited segmental accounts furnished by the Assessee by arbitrary allocating operating specific expenses on the basis of revenue earned by the assessee in each segment which were originally allocatd by the assessee on sound allocation keys - Whether AO/Ld. TPO erred in considering the margin of the assessee in contract manufacturing segment as 1.79% as against the actual margin of 7.70%? - HELD THAT - As there was no specific finding by Ld. DRP on this issue. Hence, in the interest of justice, it is appropriate to remit this issue to the file of Ld. DRP to give specific direction on the above issue raised by the assessee before Ld. DRP as well as before us. Inclusion and exclusion of certain comparables - HELD THAT - We remit this issue to the file of Ld. DRP to specify the specific comparables which are to be included or excluded before the lower authorities. The lower authorities has to decide the issue afresh giving opportunity of hearing to the assessee. Corrected margins of comparable companies submitted by the Appellant - HELD THAT - We have remitted the issue relating to the rejection of segmental financials and selection of comparables to the file of Ld. DRP for fresh consideration. This issue is also remitted to Ld. DRP to consider the correct margin of the comparables. Disallowance of expenditure towards Corporate Social Responsibility ( CSR ) u/s 80G - HELD THAT - After hearing both the parties, we are of the opinion that the claim of the assessee has to be examined by the Ld. DRP on production of the requisite details by the assessee. DRP also directed to consider the order of the Tribunal in the case of First America (India) Pvt. Ltd. 2020 (5) TMI 187 - ITAT BANGALORE wherein held that assessee cannot be denied benefit of claim of deduction under Chapter VIA of the Act in relation to payments, which form part of CSR expenses since that would lead to double disallowance, which is not the intention of legislature. Accordingly, this issue is remitted to the file of Ld. DRP for fresh consideration. Expenditure incurred on Voluntary Retirement Scheme - HELD THAT - The assessee has not furnished the full details other than name of the person to whom the payment has been made in accordance with Voluntary Retirement Scheme and not produced the terms and conditions of this scheme and documentary evidence. Hence, the claim of the assessee is rejected. In view of the above findings, we remit this issue to the file of Ld. DRP with the direction to the assessee to produce necessary details as sought by the Ld. DRP. Disallowance u/s 14A - HELD THAT - If there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules. Accordingly, we remit this issue to the file of Ld. DRP to examine the file of financials of the assessee and if there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules or if there is no exempted income, there cannot be any disallowance. Disallowance in respect of Indian Accounting Standard adjustment of preference shares - HELD THAT - The assessee has made claim on this count in revised return. The Ld. DRP has directed the AO to verify the validity of revised return so claimed to have been filed by the assessee and consider the same if the revised return is valid return as per the provisions of the Act for computing total income of the assessee. In our opinion, appellate authority could entertain the claim of assessee, even though no revised return is filed. Hence, we direct the Ld. DRP to examine this issue afresh.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) read with Sections 144C(13) and 144B.
2. Transfer Pricing adjustments and related economic analysis.
3. Computation of Tax Deducted at Source (TDS) credit.
4. Disallowance of Corporate Social Responsibility (CSR) expenditure under Section 80G.
5. Disallowance of Voluntary Retirement Scheme (VRS) expenditure under Section 35DDA.
6. Disallowance under Section 14A of the Income Tax Act.
7. Additional claim on Ind AS adjustment on Preference shares.
8. Initiation of penalty proceedings under Section 270A.

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order passed under Section 143(3) read with Sections 144C(13) and 144B was bad in law. However, this issue was not pressed during the proceedings and thus was dismissed as not requiring adjudication.

2. Transfer Pricing Adjustments:
- Economic Analysis Rejection: The Ld. AO/Ld. TPO/Ld. DRP enhanced the income of the appellant by INR 1,153,540,461 by rejecting the economic analysis undertaken by the appellant in its Transfer Pricing (TP) documentation.
- Fresh Comparability Analysis: The Ld. TPO conducted a fresh comparability analysis, applying additional/modified filters, which the Ld. DRP upheld.
- Segmental Financials: The Ld. AO/Ld. TPO redrew the segmental financials by arbitrarily allocating operating specific expenses based on revenue, reducing the appellant's margin in the contract manufacturing segment from 7.70% to 1.79%. This issue was remitted back to the Ld. DRP for specific direction.
- Inclusion/Exclusion of Comparables: The Ld. TPO included/excluded certain companies for benchmarking, which the appellant contested. The Tribunal remitted this issue back to the Ld. DRP to specify the comparables to be included or excluded.
- Corrected Margins and Economic Adjustments: The Tribunal remitted the issue regarding corrected margins and working capital adjustments back to the Ld. DRP for fresh consideration and proper adjustments.

3. Computation of TDS Credit:
The appellant argued that the Ld. AO erred in considering the TDS/TCS credit to be INR 42,392,755 instead of INR 96,255,133 as mentioned in the income tax return. This issue was not specifically addressed in the judgment summary provided.

4. Disallowance of CSR Expenditure under Section 80G:
The Ld. AO/Ld. DRP disallowed the CSR expenditure of INR 24,733,027 claimed under Section 80G. The Tribunal remitted this issue back to the Ld. DRP for fresh consideration, directing them to examine the details and consider relevant judicial pronouncements.

5. Disallowance of VRS Expenditure under Section 35DDA:
The Ld. AO/Ld. DRP disallowed the VRS expenditure of INR 22,04,576 claimed under Section 35DDA. The Tribunal remitted this issue back to the Ld. DRP, directing the appellant to produce necessary details and documentary evidence for examination.

6. Disallowance under Section 14A:
The Ld. AO/Ld. DRP enhanced the appellant's income by INR 62,500,000 under Section 14A read with Rule 8D. The Tribunal remitted this issue back to the Ld. DRP to examine whether there was any exempt income and if not, disallowance under Section 14A should not be made.

7. Additional Claim on Ind AS Adjustment on Preference Shares:
The appellant's additional claim of INR 5,41,28,664 on account of Ind AS adjustment on Preference shares was not allowed. The Tribunal directed the Ld. DRP to examine this issue afresh, even if no revised return was filed.

8. Initiation of Penalty Proceedings under Section 270A:
The Ld. AO proposed to initiate penalty proceedings under Section 270A mechanically on the additions made. This issue was not specifically addressed in the judgment summary provided.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remitted back to the Ld. DRP for fresh consideration and specific directions. The Tribunal emphasized the need for proper examination and application of relevant legal principles in each of the remitted issues.