Royalty payments to associate enterprise upheld after transfer pricing adjustment deleted under section 92CA

Indian Explosives Private Ltd Versus Deputy Commissioner of Income Tax, Circle-11 (1), Kolkata

Indian Explosives Private Ltd Versus Deputy Commissioner of Income Tax, Circle-11 (1), Kolkata - TMI Issues involved:
1. Transfer Pricing Adjustment
2. Provision for leave encashment
3. Disallowance u/s 40A(9)
4. Interest levy u/s 234B
5. Premature dismissal of Ground No. 11

Transfer Pricing Adjustment:
The appeal was against the order of the Assessing Officer under the Income Tax Act for Assessment Year 2013-14. The Assessing Officer made several additions, including Transfer Pricing Adjustment, Provision for leave encashment, Disallowance u/s 40A(9), and Employees' Contribution to PF/ESI. The Transfer Pricing Adjustment was related to royalty payment to an Associated Enterprise (A.E.). The ALP determined by the revenue was 1.67% of net revenue, resulting in an adjustment of Rs.1,93,83,735. The ITAT considered the same issue for the Assessment Year 2012-13 and ruled in favor of the assessee, deleting the ALP adjustment. The ITAT emphasized that the TPO cannot sit in judgment on a taxpayer's business expediency and that the transfer pricing regime focuses on the price paid by an independent enterprise. The Tribunal allowed the grounds of the assessee, following judicial consistency.

Provision for leave encashment:
The appeal also contested the provision for leave encashment. The Tribunal had dealt with a similar issue for the Assessment Year 2012-13 and directed the Assessing Officer to reconsider the matter after a final verdict from the apex court. The Tribunal restored this issue to the Assessing Officer following the same approach as in the previous year. The grounds were allowed for statistical purposes.

Disallowance u/s 40A(9):
Another issue was the disallowance made under section 40A(9) for a subsidy paid to a club. The assessee argued that the payment was for the employees' recreational benefits due to the remote location lacking facilities. Previous orders had allowed similar expenditures for other assessment years. Citing precedents, the Tribunal deleted the disallowance based on consistency and legal principles, allowing the ground raised by the assessee.

Interest levy u/s 234B:
The Tribunal dismissed the ground related to the levy of interest under section 234B as it was considered consequential in nature.

Premature dismissal of Ground No. 11:
Ground No. 11 was dismissed as premature, without detailed discussion.

In conclusion, the appeal was partially allowed by the ITAT Kolkata on various issues including Transfer Pricing Adjustment, Provision for leave encashment, and Disallowance u/s 40A(9), while dismissing the interest levy ground and a premature ground. The Tribunal relied on judicial consistency, legal principles, and previous precedents to make its decisions.