2016 (7) TMI 1633 - AT - Income Tax

Tribunal quashes time-barred order, deletes transfer pricing adjustment, other grounds dismissed, pronouncement on 18/07/2016.

M/s. Asian Honda Motor Co. Versus DCIT, Intl Taxation, New Delhi

M/s. Asian Honda Motor Co. Versus DCIT, Intl Taxation, New Delhi - TMI Issues Involved:1. Assessment of income at Rs. 104,113,380/- against returned income of Rs. 20,698,486/-.2. Time-barred order passed by the TPO under section 153 read with section 92CA(3A).3. Existence of a Permanent Establishment (PE) in India.4. Taxability of profits from offshore supplies due to PE in India.5. Jurisdictional bar on adjustment made on account of interest.6. Adjustment on sale of raw material meeting ALP test.7. Jurisdiction to question commercial expediency of the transaction.8. Risk/reward matrix and business expediency in charging interest on business credit.9. Initiation of penalty under sections 271BA, 271AA, and 271G.10. Application of Proviso to section 92C for downward variation of 5 percent in determining ALP.Detailed Analysis:Issue 1: Assessment of IncomeThe assessee challenged the assessment of income at Rs. 104,113,380/- against the returned income of Rs. 20,698,486/-. This ground was general and no specific arguments were advanced, leading to its dismissal.Issue 2: Time-Barred OrderThe assessee contended that the order passed by the TPO was time-barred under section 153 read with section 92CA(3A). The reference to the TPO was received on 28.12.2011, and the order was passed on 31.12.2014, exceeding the limitation period. The Tribunal examined the provisions of section 92CA(3A) and section 153, concluding that the TPO's order should have been passed by 29.11.2014, making the order dated 31.12.2014 barred by limitation. The Tribunal relied on a similar case (Honda Trading Corporation Vs. DCIT) where the time limit specified under section 92CA(3A) was deemed mandatory. Consequently, the addition on account of transfer pricing adjustment amounting to Rs. 83,414,899/- was quashed.Issue 3: Permanent Establishment (PE)The TPO concluded that the assessee had a PE in India, which was contested by the assessee. This issue was not specifically addressed due to the quashing of the TPO's order on the ground of being time-barred.Issue 4: Taxability of Offshore SuppliesThe TPO's conclusion that profits from offshore supplies were taxable in India due to the existence of a PE was also not addressed due to the quashing of the TPO's order.Issue 5: Jurisdictional Bar on Interest AdjustmentThe assessee argued that the adjustment on account of interest was barred by jurisdiction under section 92(3) and Circular 14 of 2001. This issue was rendered moot due to the quashing of the TPO's order.Issue 6: Adjustment on Sale of Raw MaterialThe assessee contended that the transaction relating to the sale of raw material met the ALP test in the assessment of Indian associated enterprises. This issue was not addressed due to the quashing of the TPO's order.Issue 7: Jurisdiction to Question Commercial ExpediencyThe assessee argued that the TPO/DRP had no jurisdiction to question the commercial expediency of the transaction where SIBOR was applied instead of LIBOR. This issue was not addressed due to the quashing of the TPO's order.Issue 8: Risk/Reward Matrix and Business ExpediencyThe assessee contended that the TPO/DRP failed to appreciate the difference in the purpose of charging interest on business credit compared to typical financing transactions. This issue was not addressed due to the quashing of the TPO's order.Issue 9: Initiation of PenaltyThe assessee argued against the initiation of penalties under sections 271BA, 271AA, and 271G, stating that all necessary information was submitted. This issue was not addressed due to the quashing of the TPO's order.Issue 10: Application of Proviso to Section 92CThe assessee contended that the TPO/DRP failed to allow the benefit of downward variation of 5 percent in determining the ALP. This issue was not addressed due to the quashing of the TPO's order.ConclusionThe Tribunal quashed the TPO's order dated 31.12.2014 as time-barred under section 92CA(3A). Consequently, the addition on account of transfer pricing adjustment amounting to Rs. 83,414,899/- was deleted. Other grounds of appeal were dismissed as infructuous due to the quashing of the TPO's order. The order was pronounced on 18/07/2016.