2023 (5) TMI 107 - AT - Income Tax

TP Adjustment - TPO rejected the aggregation approach followed by the assessee and benchmarked the transactions separately - AO passed the the draft assessment order incorporating the above adjustment - DRP on its own enhanced the adjustment made in the sale of finished goods products by stating that the TPO has considered only the transactions with AE whereas the transactions have to be considered in total - HELD THAT - AO has, in the final assessment order retained the TP adjustment at the same amount without considering the above directions of the DRP. The final assessment order passed by the AO is not in accordance with the directions of the DRP. See case of Toyota Tsusho P. India Ltd 2022 (11) TMI 179 - ITAT BANGALORE . We notice that the assessee s case is similar where the AO had not given effect to the directions of the DRP in the final assessment order and has retained the same adjustment as in the draft assessment order. Respectfully the above decision of the coordinate Bench, we quash the TP adjustment and hold the legal contentions raised in favour of the assessee. Since the TP adjustment is quashed on the basis of legal issue, we are not adjudicating the grounds raised with regard to TP adjustment on merits leaving them open. It is ordered accordingly. Disallowance of difference in 26AS - difference between the amount remitted as per Form 26AS and the revenue declared by the assessee in the Profit Loss account - HELD THAT - AR submitted that the difference between the revenue as per Form 26AS and the P L account were reconciled and made the relevant submissions before the DRP (Ground No.10 in Form 35) and these submissions have not been considered on merits by the lower authorities and therefore prayed for remitting this issue back to the AO. DR did not have any objection. Accordingly, we remit this issue back to the AO to consider the reconciliation submitted by the assessee and decide the issue in accordance with law after giving reasonable opportunity of being heard. This ground is allowed for statistical purposes. Disallowance of TDS credit - HELD THAT - We are of the considered view that the fact of whether tax is claimed as deduction in the year in which the income is offered needs to be examined based on evidence submitted by the assessee. We therefore remit the issue back to the AO to consider the issue on merits as per above directions, after giving reasonable opportunity of being heard.

Issues Involved:
1. Transfer Pricing Adjustment
2. Corporate Tax Disallowance
3. Disallowance of TDS Credit

Detailed Analysis:

1. Transfer Pricing Adjustment:

The primary issue in this case revolves around the Transfer Pricing (TP) adjustment made by the TPO. The assessee, a joint venture, had aggregated its international transactions for benchmarking purposes using the cost-plus method. However, the TPO rejected this method and adopted the Transaction Net Margin Method (TNMM), making an adjustment of Rs. 3,29,82,771. The AO incorporated this adjustment in the draft assessment order. The assessee filed objections before the DRP, which directed the TPO/AO to rework the TP adjustment, especially concerning Engineering Design services and the sale of finished goods to AE. Despite these directions, the AO retained the same TP adjustment in the final assessment order, leading to the appeal.

The Tribunal noted that the AO's final assessment order did not conform to the DRP's directions. The DRP had directed the exclusion of certain comparable companies and reworking of the TP adjustment. The Tribunal quashed the TP adjustment, citing that the AO had not given effect to the DRP's directions. The Tribunal relied on precedents, including the case of Toyota Tsusho India Pvt. Ltd., where a similar issue was adjudicated. Consequently, the Tribunal did not adjudicate the merits of the TP adjustment, leaving those grounds open.

2. Corporate Tax Disallowance:

The assessee contended against an addition of Rs. 1,03,61,430 due to the difference between the revenue as per Form 26AS and the Profit & Loss account. The AO had made this adjustment, and the DRP sustained it, stating that the assessee could not offer income assessable in a particular year in any subsequent year as per its convenience.

The Tribunal remitted this issue back to the AO for reconsideration, directing the AO to consider the reconciliation submitted by the assessee and decide the issue in accordance with the law after giving a reasonable opportunity of being heard.

3. Disallowance of TDS Credit:

The AO observed that the assessee claimed TDS credit of Rs. 31,59,801 without offering the corresponding income to tax. The DRP confirmed this disallowance. The assessee argued that the tax credit was claimed in the year the tax was deducted and reflected in Form 26AS, and there might be a timing difference in accounting.

The Tribunal remitted this issue back to the AO to examine whether the tax was claimed as a deduction in the year the income was offered. The AO was directed to consider the issue on merits based on the evidence submitted by the assessee, ensuring a reasonable opportunity of being heard.

Conclusion:

The appeal was partly allowed, with the Tribunal quashing the TP adjustment due to non-compliance with DRP directions and remitting the corporate tax disallowance and TDS credit issues back to the AO for reconsideration. The judgment emphasized adherence to procedural directions and the need for a thorough examination of evidence in tax matters.

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