2023 (3) TMI 1020 - AT - Income Tax

TP Adjustment - MAM selection - rate of gross margin on cost of sales made by the Appellant to Non-AEs in Europe as the basis for determining ALP of the sales made to AEs in USA by using cost plus method as the most appropriate method - HELD THAT - For Assessment Year 2005-06, the TPO has adopted same approach as adopted in the AY 2004-05 with stands rejected by the above order of the Tribunal. The Tribunal had, for the immediately preceding Assessment Year 2004-05, accepted the contentions raised on behalf of the Appellant and remanded the issue back for fresh de-novo adjudication. Therefore, we find merit in the contentions of the Ld. Authorised Representative for the Appellant that for the Assessment Year 2005-06 the issue relating to transfer pricing adjustment can also be remanded back. Treatment of unsecured loans as unexplained cash credit in terms of Section 68 - HELD THAT - Appellant had discharged the onus cast upon the Appellant in terms of Section 68 of the Act to prove genuineness of the aforesaid loan transactions and therefore, in absence of any material/information the CIT(A) was not justified in confirming the additions under Section 68 of the Act in respect of unsecured loan. Accordingly, we delete the addition. Assessee appeal is partly allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Confirmation of transfer pricing addition of INR 1,79,98,287/-.
3. Confirmation of addition of unsecured loans of INR 18,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Appellant sought condonation of a 10-day delay in filing the appeal, citing the absence of the Director of the Appellant-Company from India at the relevant time. The tribunal accepted the explanation and condoned the delay, allowing the appeal to proceed on merits.

2. Confirmation of Transfer Pricing Addition of INR 1,79,98,287/-:
The Appellant challenged the CIT(A)'s order confirming the transfer pricing addition of INR 1,79,98,287/-. The TPO had noted a difference in gross margins between sales to Associated Enterprises (AEs) and Non-Associated Enterprises (Non-AEs), attributing a lower margin to sales made to AEs. The Appellant argued that the difference was due to varying market conditions and contractual terms, as AEs in the USA incurred promotional expenses and assumed risks for rejected products, unlike Non-AEs in Europe.

The tribunal observed that a similar issue for the Assessment Year 2006-07 had been remanded back to the TPO for a de-novo order. Given the unchanged facts and circumstances, the tribunal deemed it appropriate to remand the issue for the Assessment Year 2005-06 back to the TPO/AO for fresh adjudication, directing a de-novo determination of the Arm's Length Price (ALP) after providing the Appellant a reasonable opportunity of being heard. Consequently, the transfer pricing adjustment of INR 1,79,98,287/- was set aside, and the related grounds were allowed for statistical purposes.

3. Confirmation of Addition of Unsecured Loans of INR 18,00,000/- as Unexplained Cash Credit under Section 68:
The Appellant contested the addition of INR 18,00,000/- confirmed by the CIT(A) under Section 68 of the Act. The loans in question were INR 15,00,000/- from Rawmet Commodities Pvt. Ltd. and INR 3,00,000/- from Radhika Woolen & Silk Mills Pvt. Ltd. The Appellant provided balance confirmations, ledger accounts, and bank statements to substantiate the genuineness of these transactions. However, the CIT(A) had doubted the genuineness based on the perceived lack of motive for the lenders to provide the loans.

The tribunal noted that the CIT(A) had accepted the identity and creditworthiness of the lenders but questioned the genuineness of the transactions without any adverse material or comments from the Assessing Officer. The tribunal found that the Appellant had discharged the onus under Section 68 by providing sufficient documentary evidence showing that the loans were returned through banking channels within the relevant year. Therefore, the tribunal deleted the addition of INR 18,00,000/- under Section 68, allowing the related grounds in the appeal.

Conclusion:
The appeal was partly allowed. The tribunal remanded the transfer pricing issue for de-novo determination and deleted the addition of INR 18,00,000/- under Section 68.