2013 (11) TMI 152 - AT - Income Tax

Tribunal directs fresh transfer pricing assessment, upholds deduction deletion, and remands for readjudication.

The Appellate Tribunal directed the Assessing Officer to refer the matter to the Transfer Pricing Officer again for fresh determination, treating the ... Addition on account of Arm’s Length Price – Held that:- The TPO wrongly considered that the assessee is engaged in the business of IT/IT enabled services – CIT(A) has not allowed any opportunity to AO/TPO to rebut the comparables given by the assessee – According to assessee his business was of engineering, drawing and designing services - The issue was set aside for fresh adjudication. Disallowance on account of deduction u/s 80HHE – Held that:- The relevant provisions of Section 80HHC total turnover includes anything which has nexus with sale proceeds and excludes everything which has no such nexus - Turnover should be restricted only to such receipts which have an element of profit in it – Provisions of section 80HHC relevant in this context are analogous to the provisions of Section 80HHE – Keeping in view the setting aside of the first issue of the case the enhancement by TPO’s order will have no impact - The proviso to Section 92C(4) prohibits any deduction under Chapter VI-A to be allowed on the enhancement made as per the TPO’s order - No effect is to be given to the addition made by the Assessing Officer as per the TPO’s order while computing deduction under Chapter VI-A – Decided against Revenue. Issues involved:1. Deletion of addition on account of Arm's Length Price.2. Disallowance of deduction under Section 80HHE of the I.T. Act.3. Restriction of addition made on account of Arm's Length Price.Issue 1: Deletion of addition on account of Arm's Length Price:The appeal by the Revenue challenged the deletion of an addition of Rs. 6,93,21,169 made on account of Arm's Length Price for the AY 2004-05. The assessee argued that the business involved designing engineering projects, not IT/IT-enabled services. The CIT(A) accepted the assessee's contention, but the Revenue sought a set-aside to the TPO for a fresh determination. The Tribunal set aside the orders, directing the Assessing Officer to refer the matter to the TPO again, treating the assessee as involved in engineering, design, and drawing services.Issue 2: Disallowance of deduction under Section 80HHE of the I.T. Act:The Revenue's appeal contested the deletion of disallowance of Rs. 11,95,737 under Section 80HHE. The Assessing Officer recalculated the deduction by increasing the total turnover based on adjustments by the TPO and reimbursement of expenses. The Tribunal held that the Assessing Officer unjustly enhanced the total turnover, as Section 92C(4) prohibits deductions under Chapter VI-A for income enhancements. The Tribunal relied on a previous decision for AY 2001-02 & 2002-03, supporting the exclusion of reimbursement of expenses from turnover. The Tribunal upheld the CIT(A)'s decision on this point, dismissing the Revenue's appeal.Issue 3: Restriction of addition made on account of Arm's Length Price:The Revenue's appeal for AY 2005-06 challenged the restriction of an addition to Rs. 4,58,56,978 against the initial addition of Rs. 9,36,70,152 on account of Arm's Length Price. The Tribunal found the facts similar to AY 2004-05 and restored the matter to the Assessing Officer for readjudication, ensuring adequate opportunity for the assessee to be heard. The Tribunal deemed the Revenue's appeal for AY 2004-05 partly allowed, dismissed the assessee's cross-objection, and allowed both the Revenue's and assessee's appeals for AY 2005-06 for statistical purposes.This detailed analysis of the judgment from the Appellate Tribunal ITAT DELHI covers the issues related to the deletion of additions on account of Arm's Length Price, disallowance of deductions under Section 80HHE, and the restriction of additions made for AY 2005-06.