2018 (9) TMI 1544 - AT - Income Tax

Assessee's Appeals Partly Allowed; Stay Petition Dismissed

The appeals filed by the assessee were partly allowed for statistical purposes, with various grounds being dismissed or allowed in part. The Stay Petition ... Computation of segmental margin - Validity of order u/s 144C(13) - Held that:- The directions passed by DRP u/s 144C (5), as it can be seen in the present case, are not speaking about what objections were raised by the assessee and how they have been found to be not acceptable. The DRP has simply observed that the TPO has given reasons for rejecting the comparables and by the Assessing Officer in the draft order. The order passed by the DRP is a non-speaking order on the issues raised by the assessee, not stating the objections raised by the assessee and the reasons have also not been given as simply the order of TPO and Assessing Officer are referred. We find that similar issue was considered by the Hon'ble Delhi High Court in the aforementioned case of Vodafone Essar Ltd. [2011 (12) TMI 22 - DELHI HIGH COURT] against the order passed by the DRP. We find that it is a fit case where this issue should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reason for adjudication of the objections of the assessee. We direct accordingly. After receiving the order from DRP, the Assessing Officer will again pass order u/s 144C(13) and the present assessment passed by the Assessing Officer is set aside as the DRP is directed to readjudicate the objections raised by the assessee as per directions give above. We direct accordingly. This ground of appeal of the assessee is allowed for statistical purposes. Disallowance of working capital adjustments - Held that:- We are inclined to direct the Assessing Officer to consider working capital adjustment while determining the ALP of international transactions of the assessee with its AEs in this case also. Hence this ground of appeal of the assessee is partly allowed. Disallowance made u/s. 14A - Held that:- We are inclined to direct the Assessing Officer to exclude interest and bank charges which are not related to exempt income yielding investments. Hence, this ground of appeal of the assessee is partly allowed for statistical purposes. Issues Involved:1. Legality of assessments passed by the TPO.2. Erroneous imputation of interest on transactions with branches.3. Erroneous imputation of interest on advances given to subsidiaries.4. Computation of segmental margin.5. Disallowance of working capital adjustments.6. Disallowance of appropriate adjustments to comparable companies.7. Variation of 5 percent from the arithmetic mean under section 92C(2).8. Disallowance made under section 14A.9. Levying consequential interest under sections 234B and 234C.10. Non-granting of credit for prepaid taxes.11. Denial of foreign tax credit under section 90.12. Levying penalty under section 271.Detailed Analysis:1. Legality of Assessments Passed by the TPO:The first common ground in both the appeals is that the assessments passed by the TPO are bad in law. This ground is general in nature and does not require adjudication.2. Erroneous Imputation of Interest on Transactions with Branches:The assessee argued that the advances to branches were not in the nature of loans but were short-term advances given in the ordinary course of business. The Tribunal referenced its previous decision in the assessee's own case, which held that the advances given to AEs in the UK and USA fell within the ambit of 'international transaction' as per the amendment made in section 92B of the Act. The Tribunal dismissed the ground of appeal, deciding against the assessee and in favor of the department.3. Erroneous Imputation of Interest on Advances Given to Subsidiaries:The TPO computed interest at the rate of 5% per annum instead of using LIBOR. The Tribunal referenced its previous decision, which upheld the charge of interest at 5% on advances made to AEs in the USA and UK. The Tribunal dismissed this ground of appeal, deciding against the assessee.4. Computation of Segmental Margin:The assessee argued that the segmental profitability should exclude extraordinary items and that the TPO's upward adjustment was erroneous. The DRP's findings were deemed cryptic and non-speaking. The Tribunal directed the DRP to pass a detailed order stating all objections raised by the assessee and providing cogent reasons for adjudication. This ground of appeal was allowed for statistical purposes.5. Disallowance of Working Capital Adjustments:The TPO allowed nil working capital adjustment. The Tribunal referenced its previous decision in a similar case, directing the Assessing Officer to consider the working capital adjustment while determining the ALP of international transactions. This ground of appeal was partly allowed.6. Disallowance of Appropriate Adjustments to Comparable Companies:This ground was not pressed before the Tribunal and was dismissed as not pressed.7. Variation of 5 Percent from the Arithmetic Mean Under Section 92C(2):This ground is consequential in nature and was dismissed for both assessment years.8. Disallowance Made Under Section 14A:The TPO denied the claim under section 14A, considering certain expenses incurred while managing investments and earning tax-free income. The Tribunal referenced its previous decision, directing the Assessing Officer to exclude interest and bank charges not related to exempt income-yielding investments. This ground of appeal was partly allowed for statistical purposes.9. Levying Consequential Interest Under Sections 234B and 234C:This ground is consequential in nature and does not require adjudication.10. Non-Granting of Credit for Prepaid Taxes:The Tribunal directed the Assessing Officer to grant tax credits due to the assessee in accordance with law as reflected in income tax records. This ground of appeal was allowed for statistical purposes for both assessment years.11. Denial of Foreign Tax Credit Under Section 90:The DRP was directed to give the assessee an opportunity of hearing and decide the issue afresh. This ground of appeal was allowed for statistical purposes.12. Levying Penalty Under Section 271:This ground was deemed preposterous and does not require adjudication. It was dismissed.Stay Petition:Since the assessee's appeals were disposed of, the Stay Petition filed by the assessee was dismissed as infructuous.Conclusion:The appeals filed by the assessee were partly allowed for statistical purposes, and the Stay Petition was dismissed.