Employer contributions after grace period deductible under Section 43B; flexible ALP methods and restored depreciation favored assessee

ITAT Mumbai allowed employer's contributions to PF, ESIC, and superannuation funds paid after the grace period but before filing the return as deductible under section 43B, following SC precedent. Depreciation on plant and machinery used for non-manufacturing activities was restored, favoring the assessee. On transfer pricing, the Tribunal held that the most appropriate method for determining ALP depends on facts; even if TNMM was initially chosen, other methods like RPM could be considered if more reliable. Professional fees disallowance was deleted as liability crystallizes on bill receipt, and no excess payment was established. Regarding unsold toys purchased from the AE, the Tribunal accepted internal comparables (export sales to third parties) to determine ALP, directing reassessment considering segmental details. Overall, the ITAT ruled in favor of the assessee on all disputed issues.

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Issues Involved:
1. Disallowance under Section 43B for contributions to superannuation fund, PF, and ESIC.
2. Disallowance of depreciation on plant and machinery.
3. Upward adjustment of Arm's Length Price (ALP) for import of finished goods from Associate Enterprise (A.E.) and sale in the domestic market.
4. Deduction of professional fees.
5. ALP adjustment for import of finished goods from A.E. and export to other A.E.

Detailed Analysis:

1. Disallowance under Section 43B for Contributions to Superannuation Fund, PF, and ESIC:
The assessee challenged the disallowance of Rs. 25,12,877 for superannuation fund and Rs. 5,52,581 for PF and ESIC contributions under Section 43B. The Assessing Officer (A.O.) noted that some payments were made after the due date, leading to a total disallowance of Rs. 38,56,526. The Commissioner (Appeals) upheld the disallowance for payments made beyond the due date but within the grace period. However, the Tribunal, referencing the Supreme Court's judgment in Alom Extrusions Ltd., allowed the deductions for payments made before the return filing date, thus treating the ground as allowed.

2. Disallowance of Depreciation on Plant and Machinery:
The A.O. disallowed depreciation of Rs. 24,58,028 on plant and machinery not used during the relevant year. The Commissioner (Appeals) upheld this disallowance. The Tribunal noted that the manufacturing activities ceased, and the machinery was not used or intended for future use. However, it agreed with the alternative plea that depreciation should be allowed on machinery used for non-manufacturing purposes. The issue was remanded to the A.O. for verification, treating the ground as partly allowed for statistical purposes.

3. Upward Adjustment of ALP for Import of Finished Goods from A.E. and Sale in Domestic Market:
The assessee, a subsidiary of Mattel Inc., challenged the TPO's adjustment of Rs. 3,35,07,547 to the ALP. The TPO used TNMM, but the assessee argued for RPM due to high administrative costs. The Commissioner (Appeals) upheld the TPO's method. The Tribunal, however, found RPM more appropriate for the distribution activities and remanded the issue to the TPO for fresh comparables and adjudication, treating the ground as partly allowed for statistical purposes.

4. Deduction of Professional Fees:
The A.O. disallowed Rs. 18,66,369 paid to a firm where a director was a partner, arguing services were rendered in the previous year. The Commissioner (Appeals) allowed the deduction, noting the liability crystallized upon receiving the invoice in the current year. The Tribunal upheld this decision, dismissing the Revenue's ground.

5. ALP Adjustment for Import of Finished Goods from A.E. and Export to Other A.E.:
The TPO made an adjustment of Rs. 2,02,42,317 for transactions with A.E. The Commissioner (Appeals) deleted this adjustment, noting it was a return of obsolete stock. The Tribunal remanded the issue to the TPO to verify internal comparability between sales to A.E. and third parties, treating the ground as partly allowed for statistical purposes.

Conclusion:
The Tribunal allowed the assessee's appeal partly, remanding certain issues for further verification and adjudication, while dismissing the Revenue's appeal on professional fees and remanding the ALP adjustment issue for further analysis.

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