Tribunal upholds CIT(A) decision on arm's length price adjustment & expense disallowances

The Tribunal upheld the CIT(A)'s decision to delete the adjustment of Rs. 81,44,959/- related to the arm's length price, as suggested by the Transfer Pricing Officer. The Tribunal also supported the deletion of disallowances of Rs. 2,00,000/- each on traveling expenses and legal and professional charges. The Revenue's appeal was dismissed, and the cross-objection by the assessee was deemed infructuous and dismissed as well. The Tribunal's decision was pronounced on 11th October 2018.

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Issues Involved:
1. Deletion of adjustment of Rs. 81,44,959/- pertaining to arm’s length price as suggested by the Transfer Pricing Officer (TPO).
2. Deletion of disallowance of Rs. 2,00,000/- on account of traveling expenses.
3. Deletion of disallowance of Rs. 2,00,000/- on account of legal and professional charges.

Issue-Wise Detailed Analysis:

1. Deletion of Adjustment of Rs. 81,44,959/- Pertaining to Arm’s Length Price:
The primary issue was whether the CIT(A) erred in deleting the adjustment of Rs. 81,44,959/- related to the arm’s length price (ALP) as suggested by the TPO. The assessee, a private limited company engaged in the export of Iron Ore Fines, had international transactions with its Associate Enterprise (AE) in Singapore. The TPO used the Transaction Net Margin Method (TNMM) and Comparable Uncontrolled Price (CUP) method to determine the ALP. The TPO found discrepancies in the pricing of two vessels, "THEOSKEPASTI" and "GOA," and proposed an upward adjustment of Rs. 81,44,959/-.

The CIT(A) observed that the TPO accepted the TNMM for freight charges and the CUP method for Iron Ore Fines, except for the two vessels. The CIT(A) noted that the TPO rejected the benefit of a ±5% deviation as per the second proviso of Sec. 92C(2). The CIT(A) held that the benefit of ±5% should be allowed, making the transactions within ALP. The CIT(A) also found that the prices quoted by the Steel Index were publicly available and sufficiently demonstrated by the assessee. Therefore, the upward adjustment of Rs. 81,44,959/- was deleted, and the CIT(A)'s decision was upheld by the Tribunal.

2. Deletion of Disallowance of Rs. 2,00,000/- on Account of Traveling Expenses:
The second issue was the deletion of a Rs. 2,00,000/- disallowance made by the Assessing Officer (AO) on account of traveling expenses. The AO disallowed the amount, stating that some expenses were not properly supported and complete details were not available. The CIT(A) reviewed the details filed by the assessee, which included information about the person who incurred the expenses, the place, ticket details, and hotel details. The CIT(A) found that the AO did not point out any specific instance of unsubstantiated expenditure and concluded that the disallowance was uncalled for. The Tribunal agreed with the CIT(A) and dismissed the Revenue's appeal on this ground.

3. Deletion of Disallowance of Rs. 2,00,000/- on Account of Legal and Professional Charges:
The third issue was the deletion of a Rs. 2,00,000/- disallowance made by the AO on account of legal and professional charges. The assessee incurred approximately Rs. 65 lakhs towards these charges and provided detailed information to the CIT(A). The AO did not present any evidence to prove that the expenses were not related to the business or point out any specific instance of unsubstantiated claims. The CIT(A) found no reason to sustain the disallowance made by the AO on an ad-hoc basis and deleted it. The Tribunal upheld the CIT(A)'s decision, finding it reasoned and proper.

Cross Objection by the Assessee:
The cross-objection filed by the assessee was in support of the CIT(A)'s order. Since all grounds raised by the Revenue were dismissed, the cross-objection became infructuous and was also dismissed.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and the cross-objection filed by the assessee, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the Open Court on 11th October 2018.

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