Tribunal upholds CIT(A)'s decisions on additions, remands Transfer Pricing Adjustment for procedural errors

The Tribunal dismissed the Revenue's appeals regarding the deletion of additions on account of Deferred Bank Guarantee Commission and Japanese Food Stuff, upholding the CIT(A)'s decisions. However, on the issue of Transfer Pricing Adjustment for Marketing and Support Services, the Tribunal found procedural errors and restored the matter to the Transfer Pricing Officer for reconsideration, ensuring compliance with natural justice principles. The appeal was partly allowed for statistical purposes.

---

---

Issues Involved:
1. Deletion of addition on account of Deferred Bank Guarantee Commission.
2. Deletion of disallowance on account of Japanese Food Stuff.
3. Transfer pricing adjustment on account of marketing and support services.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Deferred Bank Guarantee Commission:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 1,75,34,052/- made by the Assessing Officer (AO) on account of Deferred Bank Guarantee Commission. The AO argued that the commission accrued when the bank issued the guarantee and should be recognized as income immediately. However, the CIT(A) followed the precedent set by the Hon’ble Calcutta High Court in the assessee's case for AY 1981-82, which stated that the income from guarantee commission should be spread over the period to which it relates. The Tribunal upheld the CIT(A)'s decision, noting that the assessee consistently followed this accounting method and that the Delhi High Court also endorsed this approach for AY 2007-08. Thus, the Tribunal found no error in the CIT(A)'s findings and dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance on Account of Japanese Food Stuff:
The AO disallowed Rs. 2,76,749/- claimed by the assessee for freight and clearing charges related to Japanese foodstuff, arguing it was not a business expense. The assessee justified the expenditure as necessary for maintaining business relations with Japanese clients and for the welfare of expatriate employees. The CIT(A) deleted the disallowance, referencing the Tribunal's decision in the assessee's favor for AY 1994-95 to 1996-97, where similar expenses were allowed as business expenditures. The Tribunal confirmed the CIT(A)'s decision, reiterating that the expenditure was indeed for business purposes and allowable. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

3. Transfer Pricing Adjustment on Account of Marketing and Support Services:
The AO made a transfer pricing adjustment of Rs. 1,06,52,699/- for marketing and support services provided by the assessee to its foreign branches for External Commercial Borrowings (ECB). The CIT(A) found that the TPO violated the principles of natural justice by using data not available in the public domain and restored the issue to the TPO for fresh consideration. The Revenue argued that the CIT(A) was not empowered to restore the issue, while the assessee contended that the TPO did not follow the prescribed methods for computing the arm's length price. The Tribunal noted that the TPO's actions violated natural justice principles and that the CIT(A) should have called for a remand report instead of restoring the issue. Despite this procedural error, the Tribunal decided to restore the issue to the TPO/AO for a fresh decision, ensuring the assessee is given adequate opportunity to be heard. The Tribunal allowed the Revenue's appeal on this ground for statistical purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeals on the first two grounds, upholding the CIT(A)'s decisions. However, on the third ground, the Tribunal restored the issue to the TPO/AO for a fresh decision, ensuring compliance with natural justice principles. The appeal was thus partly allowed for statistical purposes. The decision was pronounced on 3rd August 2017.

---