2023 (10) TMI 43 - HC - Income Tax

TP adjustment - international transactions made on account of import of paper, aluminium foil, K Film, purchase return of imported paper, etc. - TPO made certain adjustments to the operating profit by excluding certain items of income from the scope of operating profit of the Assessee - TPO held that out of the operating profits of the Assessee as declared in the books of accounts, six items should not constitute the operating profits and hence were excluded - CIT (A) held against the Assessee on interest on Fixed Deposit income tax, refund and profit on sale of assets etc., the Assessee had preferred an Appeal and to the extent CIT(A) accepted the submissions of the Assessee, the Revenue had preferred an Appeal. HELD THAT - As regard the credit to profit and loss account on account of liabilities written back, the details of the liabilities written back were made available to CIT(A) as well as ITAT. Both, on facts, and having considered those details, have come to conclusion accepting the Assessee s contention that those liabilities belong to earlier years and are directly relatable to the regular business operations of the Assessee and since these liabilities were no longer payable to business creditors should be allowed to be written back in the Assessment Year under consideration and the same was rightly offered to tax as business income u/s 41(1) of the Act. Therefore, on facts it was accepted that these liabilities written back were arising out of normal business operations and hence form part of operating income of the Assessee. As regards the writing back of doubtful debts CIT(A) came to a factual finding which has also been accepted by the ITAT that those doubtful debts were inextricably linked with the business operations and hence should be considered as operating income. Therefore, there are factual findings to that effect and both CIT(A) and ITAT have accepted the details submitted by the Assessee. No substantial question of law arises.

Summary

Issues involved:
The judgment involves issues related to transfer pricing adjustments, treatment of certain items as operating income, and the inclusion of specific amounts in the operating profits of the Assessee.

Transfer Pricing Adjustments:
The Assessee, engaged in manufacturing and sale of packaging machines, entered into international transactions with Associated Enterprises. The Transfer Pricing Officer proposed an upward adjustment of Rs. 9,44,58,219 on account of various international transactions. The Assessing Officer made additional adjustments, leading to Appeals before the CIT(A) and ITAT. Both Appeals were dismissed.

Treatment of Items as Operating Income:
The Assessee declared a loss but the TPO excluded certain items from the operating profits, resulting in an addition of Rs. 9,44,58,212. The CIT(A) confirmed that interest on Fixed Deposit, income tax refund interest, and profit on asset sale do not constitute operating income. However, liability written back, doubtful debts written back, and certain miscellaneous income were considered part of operating profits. The Appeals were filed based on these determinations.

Inclusion in Operating Profits:
The CIT(A) confirmed the inclusion of liability written back and doubtful debts written back in the operating profits, as they were linked to business operations. Both the CIT(A) and ITAT accepted that these items were part of the operating income. The judgments were based on factual findings and details submitted by the Assessee.

Conclusion:
The judgment dismissed the Appeal, stating that no substantial question of law arises based on the factual findings and acceptance of details by the CIT(A) and ITAT. The inclusion of liability written back and doubtful debts written back as operating income was upheld, as they were deemed to be directly related to the regular business operations of the Assessee.