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2023 (2) TMI 109 - AT - Income TaxTP adjustment - Determining the Arm's Length Price of international transactions in respect of advisory services - HELD THAT - As decided in assessee's appeal 2023 (1) TMI 1113 - ITAT PUNE for A.Y. 2009-10 assessee has sufficiently proved to have received advisory services from its group entity(ies) and the learned lower authorities have erred in law and on facts in rejecting the same in entirety. We, accordingly, delete the impugned adjustment in these peculiar facts and circumstances. The assessee succeeds in its first and foremost grievance. We further note that for academic purposes, the only distinction herein is stated that to be correctness of assessee's Comparable Uncontrolled Price CUP method is nowhere in dispute in A.Y. 2011-12, whereas in the preceding assessment year 2009-10, the Transfer Pricing Officer TPO had adopted the Transactional Net Margin Method ( TNMM). This is indeed coupled with the fact that his findings in para 25 page 23 have nowhere completely ruled out the assessee having actually availed services to certain extent . Be that as it may, we adopt judicial consistency in the absence of any clinching distinction in both these assessment years involving the very issue of correctness of arm's length price adjustment in respect of advisory services. We accordingly delete the impugned transfer pricing adjustment. Disallowing of provision for slow moving inventory - HELD THAT - Assessee's impugned claim pertains to its two units at Chennai and Ranjangaon out of which it had already filed its finance department's recommendations for Rs. 24,74,561/-. This is followed the assessee's detailed remarks regarding all these items involving a total sum of Rs. 56,96,434/-. And that it had already claimed Rs. 32,21,872/- in the earlier financial year. Learned counsel has further invited our attention to the assessee's detailed statements regarding its provision for slow moving inventories created from assessment years 2011-12 to 2015-16 vis- -vis opening balances, reversals and closing balance; as the case may be. Faced with the situation, we quote hon'ble apex court's landmark decision Chainrup Sampatram 1953 (10) TMI 2 - SUPREME COURT that such a liability by way of provision would indeed be recognized at the first sign of probability itself and delete the impugned disallowance - The assessee succeeds in its instant third substantive ground thereof. Ad hoc disallowance of travelling and conveyance expenses - Assessing Officer had rejected 5% of the assessee's claim - CIT-A restricted to Rs. 1,00,000/- only on account of its alleged failure in filing of the relevant details - HELD THAT - We hardly see any reason to interfere with the impugned disallowance in very terms. The assessee fails in the instant last substantive ground.
Issues Involved:
1. Transfer Pricing Adjustment for Advisory Services 2. Restriction of Transfer Pricing Adjustment to Transactions between Associated Enterprises 3. Disallowance of Provision for Slow Moving Inventory 4. Ad Hoc Disallowance of Travelling and Conveyance Expenses Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Advisory Services: The assessee contested the transfer pricing adjustment of Rs. 3,74,85,331/- made while determining the Arm's Length Price (ALP) of international transactions concerning "advisory services." The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the Assessing Officer (AO) and Transfer Pricing Officer's (TPO) view that the international transactions with the Associated Enterprise (AE) were not at arm's length, determining the ALP to be Rs. 35,48,420/- against the Rs. 4,10,33,751/- paid by the assessee. The CIT(A) followed his findings from A.Y. 2009-10, where he had directed the AO to work out the ALP of advisory services based on evidence and to determine the ALP at 50% of the remaining amount after excluding unauthorized payments and payments for which no evidence was furnished. The Tribunal noted that a recent coordinate bench had decided a similar issue in favor of the assessee for A.Y. 2009-10, where the TPO had rejected the assessee's CUP method and adopted the Transactional Net Margin Method (TNMM). The Tribunal found that the assessee had sufficiently proved the receipt of advisory services from its group entities and deleted the transfer pricing adjustment of Rs. 3,35,16,306/- in A.Y. 2009-10. Following judicial consistency, the Tribunal deleted the impugned transfer pricing adjustment of Rs. 3,74,85,331/- for A.Y. 2011-12. 2. Restriction of Transfer Pricing Adjustment to Transactions between Associated Enterprises: The assessee argued that the CIT(A) erred in not restricting the transfer pricing adjustment to the value of international transactions. The Tribunal did not specifically address this issue separately, as the primary issue of transfer pricing adjustment for advisory services was resolved in favor of the assessee. Consequently, the second substantive ground was not pressed by the learned counsel and was rejected accordingly. 3. Disallowance of Provision for Slow Moving Inventory: The assessee challenged the disallowance of the provision for slow-moving inventory amounting to Rs. 29,81,185/-. The CIT(A) affirmed the AO's disallowance, stating that the assessee did not furnish quantitative details or a reasonable estimate as required by the Supreme Court's decisions in Bharat Earth Movers Ltd. v. CIT and Rotork Controls Ltd. v. CIT. The CIT(A) noted discrepancies in the provision amount and the lack of historical trends. The Tribunal, however, found merit in the assessee's detailed submissions and historical trends provided for its units at Chennai and Ranjangaon. Referring to the Supreme Court's decision in Chainrup Sampatram vs. CIT, the Tribunal held that such a liability by way of provision should be recognized at the first sign of probability and deleted the disallowance of Rs. 29,81,185/-. 4. Ad Hoc Disallowance of Travelling and Conveyance Expenses: The assessee contested the ad hoc disallowance of Rs. 1,00,000/- out of the total claim of Rs. 3,99,50,873/- for travelling and conveyance expenses. The AO had rejected 5% of the claim due to the assessee's failure to provide relevant details. The Tribunal saw no reason to interfere with the AO's disallowance and upheld the impugned disallowance. Conclusion: The Tribunal partly allowed the assessee's appeals for A.Y. 2011-12 and A.Y. 2013-14. The transfer pricing adjustment for advisory services was deleted, while the disallowance of the provision for slow-moving inventory was also deleted. However, the ad hoc disallowance of travelling and conveyance expenses was upheld. The second substantive ground concerning the restriction of transfer pricing adjustment was not pressed and was rejected accordingly.
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