2018 (5) TMI 2084 - AT - Income Tax

Assessee's Appeal Partly Allowed for AY 2007-08: Delay Condoned, Transfer Pricing Remanded, Deductions Recomputed

Flowserve India Controls Private Limited Versus Dy. Commissioner of Income Tax, Circle 11 (3)

Flowserve India Controls Private Limited Versus Dy. Commissioner of Income Tax, Circle 11 (3) - TMI Issues Involved:1. Condonation of Delay in Filing Appeal2. Transfer Pricing Adjustments3. Deduction under Section 10A/10B of the Income Tax Act4. Charging of Interest under Sections 234B and 234DIssue-wise Detailed Analysis:1. Condonation of Delay in Filing Appeal:The assessee filed an appeal with a delay of 20 days, attributing the delay to the serious illness of the employee responsible for tax matters, which led to the assessment order being overlooked. The Tribunal considered the reasons provided, including medical certificates and attendance records, and emphasized the principles laid down by the Hon'ble Apex Court in MST Katiji, which favor substantial justice over technical considerations. The Tribunal found no malafide intent and deemed the delay as caused by sufficient and reasonable cause. Thus, the delay was condoned, and the appeal was admitted for consideration and adjudication.2. Transfer Pricing Adjustments:The assessee, a subsidiary of Flowserve Corporation, USA, contested the adjustments made by the TPO to the Design Services Segment and management charges. The TPO had characterized the design services as ITES, leading to an adjustment of Rs. 68,31,724. The Tribunal noted that the TPO had accepted the services as Design and Engineering Services in previous years and that the characterization as ITES was inconsistent. The Tribunal remanded the matter back to the TPO for a fresh examination, directing that the characterization be done in accordance with law, considering the submissions and evidence provided by the assessee.3. Deduction under Section 10A/10B of the Income Tax Act:The assessee challenged the recomputation of deductions under Sections 10A and 10B, particularly the exclusion of foreign travel and freight expenses from export turnover. The Tribunal referred to the jurisdictional High Court's decision in Tata Elxsi Ltd., which mandates that if certain expenses are excluded from export turnover, they must also be excluded from total turnover. The Tribunal directed the Assessing Officer to recompute the deduction by reducing the expenses from both export and total turnover, allowing the assessee's appeal on this ground.4. Charging of Interest under Sections 234B and 234D:The assessee contested the levying of interest under Sections 234B and 234D. The Tribunal upheld the Assessing Officer's action, citing the Hon'ble Apex Court's ruling in Anjum H. Ghaswala, which states that charging interest is consequential and mandatory. However, the Assessing Officer was directed to recompute the interest while giving effect to the Tribunal's order.Conclusion:The Tribunal partly allowed the assessee's appeal for Assessment Year 2007-08, condoning the delay in filing, remanding the transfer pricing issue for fresh examination, directing recomputation of deductions under Sections 10A/10B, and upholding the charging of interest under Sections 234B and 234D, subject to recomputation.