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of <h1>Tribunal rules in favor of assessee on Modvat credit & interest</h1> <h3>BASF Coatings (India) P. Ltd (Since Merged with Basf India Ltd.) Versus ACIT CIT CIR 6 (1), Mumbai</h3> BASF Coatings (India) P. Ltd (Since Merged with Basf India Ltd.) Versus ACIT CIT CIR 6 (1), Mumbai - TMI Issues Involved:1. Addition of Rs. 17,84,41,000/- under section 92CA(3) of the Act.2. Non-implementation of the certificatory order dated 22/12/2010 under section 92CA(5) r.w.s 154 of the Act.3. Restriction of transfer pricing adjustment to Rs. 4,18,04,000/-.4. Addition of Rs. 9,49,968/- on account of Modvat under section 145A of the Act.5. Deduction in respect of Modvat credit relating to opening inventory.6. Addition of Rs. 8,16,19,125/- under section 40(a)(ia) of the Act.7. Addition on account of Interest free deposit/advance of Rs. 2,50,000/-.Detailed Analysis:1. Addition of Rs. 17,84,41,000/- under section 92CA(3) of the Act:The assessee, BASF Coatings (India) Pvt. Ltd. (BCIL), engaged in manufacturing and supplying coil coatings, undertook a Transfer Pricing (TP) study using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) included Asian Paints Ltd. and Goodlas Nerolac Paints Ltd. as comparables, which the assessee objected to on qualitative grounds. The TPO rejected these objections, leading to a TP adjustment of Rs. 17,84,40,000/-. The Dispute Resolution Panel (DRP) upheld the TPO's inclusion of these comparables but directed the TPO to verify the Profit Level Indicator (PLI) of ICI India Ltd. and recompute the TP adjustment accordingly. The issue was remitted to the Assessing Officer (AO) to verify the computations and decide as per law.2. Non-implementation of the certificatory order dated 22/12/2010 under section 92CA(5) r.w.s 154 of the Act:The assessee argued that the AO should have given effect to the order passed under section 154, which recomputed the TP adjustment at Rs. 10,51,78,000/-. The DRP directed the AO to verify the correctness of the figures and recompute the TP adjustment. The Tribunal remitted the issue to the AO to consider the workings in light of the order passed under section 154 and the DRP's directions.3. Restriction of transfer pricing adjustment to Rs. 4,18,04,000/-:The DRP directed the TPO to verify the recomputation of the PLI of ICI India Ltd. and adopt the arithmetic mean PLI of 9 companies at 7.88%, leading to a TP adjustment of Rs. 4,18,04,000/-. The Tribunal remitted the issue to the AO to verify the correctness of the figures and recompute the TP adjustment accordingly.4. Addition of Rs. 9,49,968/- on account of Modvat under section 145A of the Act:The assessee claimed that the AO should have allowed deduction in respect of Modvat credit relating to opening inventory without making any adjustment to the closing inventory. The AO made an adjustment of Rs. 9,49,968/- under section 145A. The Tribunal found that the authorities below had rejected the assessee's submissions without providing reasons and decided the issue in favor of the assessee, setting aside the AO's order.5. Deduction in respect of Modvat credit relating to opening inventory:The Tribunal held that the assessee's method of accounting for Modvat credit, as prescribed by Accounting Standard-2 and in accordance with ITAT Mumbai Bench directions in the case of Hawkins Cookers Ltd., was correct. The Tribunal set aside the AO's order and decided the issue in favor of the assessee.6. Addition of Rs. 8,16,19,125/- under section 40(a)(ia) of the Act:The AO disallowed Rs. 8,16,19,125/- under section 40(a)(ia) for non-compliance with TDS provisions. The DRP directed the AO to verify the details of TDS payments and recompute the disallowance. The Tribunal remitted the issue to the AO to give effect to the DRP's directions after verifying the details.7. Addition on account of Interest free deposit/advance of Rs. 2,50,000/-:The AO added Rs. 2,50,000/- as notional interest on an advance of Rs. 25,00,000/- given to Mr. Rishabh Saksena and Mrs. Anu Saksena. The DRP upheld the addition, noting that the lease agreement was dated after the relevant financial year. The Tribunal found the delay in finalizing the agreement reasonable and set aside the addition, deciding the issue in favor of the assessee.Conclusion:The Tribunal remitted several issues to the AO for verification and recomputation as per the DRP's directions and decided in favor of the assessee on the issues related to Modvat credit and notional interest on the deposit. The assessee's appeal was allowed for statistical purposes.
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