2016 (8) TMI 815 - HC - Income Tax

High Court of Gujarat tax appeal: allocation of expenses, amalgamation expenses, transfer pricing adjustment.

The High Court of Gujarat considered three issues in a tax appeal. Firstly, it admitted the appeal to determine if the Tribunal was justified in reversing ... Allocation of selling and distribution expenses for the purpose of deduction under section 80IB - Tribunal reversing the view of the Assessing Office - Held that:- Tribunal relied on the decision of the Supreme Court in case of Bombay Dyeing & Manufacturing Co. Ltd. [1996 (2) TMI 8 - SUPREME Court ] which was squarely applicable in the present case. No question of law arises Transfer pricing adjustment - Assessing Officer had made additions on the ground that the commission paid by the assessee to associated enterprise was not at arm's length - Held that:- The entire issue was based on facts and appreciation of record. The Tribunal noted that the assessee had given justification for the payment of the commission and why it was at arm's length. It was pointed out that the commission paid by the assessee to the Associated Enterprise was at the rate of 7.84% as against 11% paid to unrelated party. It was found that the rate of commission ranged from 0.38% to 33.33% whereas the assessee's rate came to 3%. The Tribunal noted that the Revenue authority did not bring any comparable case on record to show that the payment of commission by the assessee to the associated enterprise was not at arm's length. Issues:1. Consideration of Tribunal's decision on allocation of selling and distribution expenses for deduction under section 80IB.2. Disallowance of amalgamation expenses.3. Transfer pricing adjustment and setting aside of Commissioner of Income Tax (Appeals) findings.Issue 1: Allocation of Selling and Distribution Expenses for Deduction under Section 80IBThe Revenue appealed against the Income Tax Appellate Tribunal's judgment, questioning the reliance on a previous decision and the reallocation of expenses for deduction under section 80IB. The High Court admitted the appeal, reframing the substantial question of law to determine if the Tribunal was justified in reversing the Assessing Officer's view on the allocation of expenses. The Court found that only this question required consideration, leading to the admission of the tax appeal.Issue 2: Disallowance of Amalgamation ExpensesThe Revenue suggested an additional question regarding the disallowance of amalgamation expenses by the Assessing Officer. However, the High Court noted that the Tribunal had relied on a Supreme Court decision, rendering the question irrelevant as no legal issue arose. Consequently, the Court did not consider this question.Issue 3: Transfer Pricing Adjustment and Commissioner of Income Tax (Appeals) FindingsThe third issue involved the Tribunal setting aside the findings of the Commissioner of Income Tax (Appeals) regarding transfer pricing adjustments. The Tribunal observed that the Assessing Officer had made additions due to commission payments to an associated enterprise not being at arm's length. After analyzing the facts and the Tribunal's decision, the High Court concluded that the issue was fact-based, with justification provided for the commission payment being at arm's length. The Court noted discrepancies in rates and lack of comparable cases presented by the Revenue authorities, leading to the Tribunal's decision to delete the transfer pricing adjustment. Consequently, the Court did not consider this issue further.In summary, the High Court of Gujarat addressed the three issues raised in the appeal comprehensively. The Court focused on the justification and reasoning behind the Tribunal's decisions, emphasizing the factual basis and legal principles involved in each issue. The judgment provided a detailed analysis of the questions raised by the Revenue, ultimately leading to the Court's decision on each issue based on the applicable laws and precedents.