2014 (5) TMI 69 - AT - Income Tax

ITAT allows appeals for fresh adjudication on cost allocation & recharges, consultancy charges set aside for re-examination

The ITAT allowed the appeals for statistical purposes, restoring the issues of cost allocation and cost recharges to the TPO for fresh adjudication. The ... Transfer pricing adjustment - Manufacturing assembling of automotive seating systems and interior, and in the design and development of automotive seating systems and interiors – Held that:- As decided in assessee’s own case for the previous year, the respective stand and the material available on record qua the cost allocation issue which is the only issue in 2005-06 and 2006-07 assessment year set aside - The issue as such is restored back to the TPO with the direction to decide the same afresh in accordance with law – there was merit in the arguments advanced that the transfer pricing issues being still new as such not only qua the representation but even qua the orders there is scope of tremendous improvement - The issue which is a continuous issue arising in every year because of the nature of the transaction to our minds cannot be allowed to be glossed over for want of representation - Being a continuous issue over the years full and correct facts need to be taken into consideration - The order has ignored significant material findings of the TPO – the matter is remitted back to TPO for fresh adjudication – Decided against Revenue. Cost allocation – Held that:- While admitting the fresh evidence sought to be relied upon, the issue of merit of the evidence sought to be placed on record open to the TPO for his consideration is left open – thus, the matter is remitted back to the TPO for fresh admission of the evidences as it is necessary to consider the relevance and impact of the same for deciding the issue – Decided in favour of Revenue. Cost recharges – Held that:- The appeal for the year has been segregated as it is stay granted appeal accordingly paying heed to the stand of the CIT - the issue is restored to the TPO with the direction to decide the same in accordance with the view taken in 2007-08 assessment year – Decided in favour of Revenue. Disallowance of claim as revenue expenses – Case law applied without appreciating the facts - Held that:- The DRP without discussing the facts has decided the issue relying upon judgments which proceed on a specific set of facts - the approach followed by the DRP cannot be upheld - Before applying the case law it is first primarily and necessarily important to set out the full and correct facts which necessarily require the marshalling of relevant facts - From the facts on record it is necessary to address whether the project ultimately translated into a unit being setup or was the project abandoned - On this aspect there is no discussion in the orders nor has the assessee considered it necessary to address this aspect - the ratio of judgements applies to a given set of facts and without setting out the material facts the principles laid down on the issue by various Courts would have no meaning or relevance - As each judgements operates on the facts of its case – thus, the matter is remitted back to the AO for re-adjudication – Decided in favour of Assessee. Issues Involved:1. Transfer Pricing Adjustments2. Cost Allocation from Associated Enterprises3. Cost Recharges from Associated Enterprises4. Disallowance of Consultancy Charges as Capital Expenditure5. Levy of Interest under Sections 234B and 234D6. Initiation of Penalty Proceedings under Section 271(1)(c)Detailed Analysis:1. Transfer Pricing Adjustments:The appeals pertain to the assessment years 2005-06, 2006-07, and 2008-09. The primary issue involves the Transfer Pricing Officer (TPO) making adjustments to the income of the assessee on account of Transfer Pricing (TP) adjustments. The TPO observed that the assessee, engaged in the business of manufacturing and assembling automotive seating systems, had undertaken several international transactions. The TPO questioned the arm's length nature of these transactions, particularly focusing on cost allocations and recharges from associated enterprises (AEs).2. Cost Allocation from Associated Enterprises:The TPO disallowed the cost allocations claimed by the assessee, stating that the assessee failed to provide a basis for apportionment of costs and evidence that the benefit of expenditure had accrued to it. The TPO concluded that the arm's length price of the international transaction was zero. The CIT(A) deleted the addition, but the ITAT restored the issue to the TPO for fresh adjudication, allowing the departmental appeal. The ITAT noted that the transfer pricing issues were new and required a thorough review of the facts and evidence.3. Cost Recharges from Associated Enterprises:In the 2008-09 assessment year, the TPO also questioned the cost recharges from AEs, proposing an addition on the grounds that the assessee failed to justify the arm's length price for these transactions. The ITAT restored this issue to the TPO for fresh consideration, directing that it be decided in accordance with the view taken in the 2007-08 assessment year, the base year for this issue.4. Disallowance of Consultancy Charges as Capital Expenditure:The AO and the DRP disallowed consultancy charges paid for assessing the feasibility of opening another unit, treating it as capital expenditure. The ITAT set aside the issue to the AO for re-adjudication, directing a thorough examination of whether the project translated into a unit being set up or was abandoned. The ITAT emphasized the need for marshalling relevant facts before applying legal principles.5. Levy of Interest under Sections 234B and 234D:The assessee contested the levy of interest under Sections 234B and 234D. The ITAT noted that these grounds were consequential and did not require separate adjudication.6. Initiation of Penalty Proceedings under Section 271(1)(c):The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The ITAT dismissed this ground as premature, noting that it did not arise in the present proceedings.Conclusion:The ITAT allowed the appeals for statistical purposes, restoring the issues of cost allocation and cost recharges to the TPO for fresh adjudication. The consultancy charges issue was also set aside to the AO for re-examination. The levy of interest and initiation of penalty proceedings were deemed consequential or premature, respectively. The order was pronounced on December 18, 2013.