Tribunal remits Rs. 91 crore adjustment, dismisses disallowances, directs fresh adjudication

The Tribunal allowed the appeal for statistical purposes, remitting the Rs. 91,23,91,013 adjustment issue back to the AO for fresh adjudication. Disallowances under Sections 40A(3) and 40(a)(ia) and the levy of interest under Sections 234B and 234D were dismissed as infructuous. The AO was directed to re-examine the overall losses claimed by the appellant and issue a speaking order after giving the appellant an opportunity to be heard.

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Issues Involved:
1. Reference to Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act.
2. Adjustment of Rs. 91,23,91,013 under Transfer Pricing provisions.
3. Disallowances under Section 40A(3) and 40(a)(ia) of the Income Tax Act.
4. Levy of interest under Section 234B and 234D of the Income Tax Act.

Detailed Analysis:

1. Reference to Transfer Pricing Officer (TPO) under Section 92CA:
The appellant contested the correctness of the assessment order dated 29th April 2011, challenging the reference to the TPO on the grounds that the Project Office and Head Office in China are not associated enterprises under Section 92A, and the domestic activities were incorrectly classified as international transactions under Section 92B. The Tribunal noted that the core issue was the Assessing Officer's (AO) stance that the revenues of the appellant's permanent establishment (PE) in India were understated by Rs. 91,23,91,013, which should be treated as part of onshore services rather than offshore supplies.

2. Adjustment of Rs. 91,23,91,013 under Transfer Pricing provisions:
The AO observed that the contracts for onshore services and supplies were shown at a lesser amount by inflating the value of offshore supplies to avoid tax liability in India. The AO rejected the appellant's books of accounts, suspecting manipulation to show disproportionate results. The TPO determined the arm's length price using the Cost Plus Method, resulting in an adjustment of Rs. 91,23,91,013. The Tribunal found that the AO failed to consider the appellant's claim of overall losses, both onshore and offshore, and remanded the issue back to the AO for fresh adjudication, emphasizing the need to examine the overall losses before making any adjustments.

3. Disallowances under Section 40A(3) and 40(a)(ia) of the Income Tax Act:
The appellant argued that disallowances under these sections should not apply when income is assessed on an estimated basis. However, since the quantum addition was remitted to the AO for fresh adjudication, this issue became academic and infructuous. The Tribunal did not adjudicate on this matter.

4. Levy of interest under Section 234B and 234D of the Income Tax Act:
The appellant contested the levy of interest under these sections. Given that the quantum addition was remitted for fresh adjudication, this issue also became academic and infructuous. The Tribunal did not adjudicate on this grievance.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the issue of the Rs. 91,23,91,013 adjustment back to the AO for fresh adjudication. The disallowances under Sections 40A(3) and 40(a)(ia) and the levy of interest under Sections 234B and 234D were dismissed as infructuous. The AO was directed to re-examine the overall losses claimed by the appellant and issue a speaking order after giving the appellant an opportunity to be heard.

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