2013 (12) TMI 1590 - AT - Income Tax

Tribunal directs AO to reconsider comparables, compute ALP & deductions. Community welfare expenses allowed.

The Tribunal allowed the appeal for statistical purposes, directing the AO to reconsider the exclusion of Vakrangee Software Ltd. from the comparables and ... TPA - determination of ALP - comparable selection - Held that:- Tax payer is not stopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. It has further held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Further the other side cannot claim to have a vested right in injustice being done due to some mistakes on its part. In view of the aforesaid facts and considering the peculiarity of the facts of the present case we are of the view that Vakrangee Software should be excluded while working out the OP/TC%. We therefore restore the matter to the file of AO for fresh consideration after considering the foregoing and thereafter decide the issue as per law and after giving a reasonable opportunity of hearing to the Assessee. Thus this ground of the Assessee is allowed for statistical purposes. Expenditure incurred by the assessee as community welfare expenses is allowable. Computation of deduction u/s 10B - brokerage on sea freight and insurance claim non considered to be part of profit for deduction u/s 10B - Held that:- It is seen that the respected Special Bench of the Tribunal in Maral Overseas Ltd. case [2012 (4) TMI 345 - ITAT INDORE] has held that once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking and will be eligible for deduction. Respectfully following the aforesaid Special Bench decision, we are of the view that the Assessee is eligible for deduction on the brokerage on sea freight and insurance claim which it has credited to its profit and loss account. Thus this ground of the Assessee is allowed. Issues Involved:1. Determination of Arm's Length Price (ALP) for international transactions.2. Disallowance of community welfare expenses.3. Computation of deduction under section 10B of the Income-tax Act.4. Computation of short interest under section 244A.5. Initiation of penalty proceedings under section 271(1)(C).Detailed Analysis:1. Determination of Arm's Length Price (ALP):The Assessee, engaged in the manufacture of Cassia Gum Powder and Guar Gum Powder, filed its return of income for A.Y. 2006-07. The Transfer Pricing Officer (TPO) made an upward adjustment of Rs. 19,45,136/-. The Assessee's main contention was against the inclusion of four additional comparables by the TPO and the rejection of multiple year data.- Comparables Selection: The TPO added four comparables not initially selected by the Assessee. The Dispute Resolution Panel (DRP) directed the exclusion of these four additional comparables as the TPO failed to provide a search process for their selection. The Tribunal upheld this exclusion, noting that the Assessee is not estopped from pointing out mistakes even if the comparables were initially selected by them.- Multiple Year Data: The Tribunal supported the use of single-year data for benchmarking, aligning with Rule 10B(4) of the Income-tax Rules, which mandates the use of data for the financial year in which the international transaction took place. The Tribunal referenced multiple judicial decisions affirming this stance.- +/- 5% Range Benefit: The Tribunal rejected the Assessee's claim for the +/- 5% range benefit, citing that this benefit is not a standard deduction but an option available only when multiple prices are determined by the most appropriate method.2. Disallowance of Community Welfare Expenses:The Assessee incurred Rs. 5,06,950/- on community welfare expenses, which was disallowed by the AO on the grounds that these expenses were not for business purposes and had no contractual obligation.- The Tribunal allowed the expenses, citing the decision in Mysore Kirloskar Ltd. v. CIT, which held that voluntary expenses for promoting business, even without necessity, are allowable under section 37(1). The Tribunal emphasized that such expenses for better relationships with employees and their families are for business purposes.3. Computation of Deduction under Section 10B:The AO excluded brokerage on sea freight charges (Rs. 1,00,318/-) and insurance claim refunds (Rs. 64,125/-) from the eligible profits for computing deduction under section 10B.- The Tribunal, referencing the Special Bench decision in Maral Overseas Ltd. v. Addl. CIT, held that once an income forms part of the business of the undertaking, it should be included in the profits of the business for deduction under section 10B. Thus, the Assessee was eligible for deduction on these amounts.4. Computation of Short Interest under Section 244A:This issue was noted as consequential and did not require separate adjudication.5. Initiation of Penalty Proceedings under Section 271(1)(C):The Tribunal did not provide a detailed analysis on this issue, implying that it was not a primary focus of the appeal.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to reconsider the exclusion of Vakrangee Software Ltd. from the comparables and to recompute the ALP and the deductions accordingly. The community welfare expenses were allowed, and the brokerage and insurance claim refunds were included in the eligible profits for deduction under section 10B.