2019 (5) TMI 1539 - AT - Income Tax

Tribunal decision on Transfer Pricing issues, deduction claims, and capital expenditure treatment

M/s. Timken Engineering And Research India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle 12 (4), Bangalore. And (Vice-Versa) And M/s. Timken Engineering & Research India Private Limited, Versus The Deputy Commissioner of Income Tax, Circle 12 (4), Bangalore

M/s. Timken Engineering And Research India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle 12 (4), Bangalore. And (Vice-Versa) And M/s. ... Issues Involved:1. Rejection of Transfer Pricing (TP) documentation and enhancement of transfer price.2. Incorrect computation of margins of comparable companies.3. Use of selective information by TPO and non-availability of data.4. Application of multiple year/prior year data in TP documentation.5. Rejection of comparability analysis and application of additional filters.6. Non-consideration of limited risk nature of services provided.7. Application of amended proviso to section 92C(2) of the Income-tax Act.8. Deduction claims under section 10B of the Act.9. Treatment of expenses related to telecommunication, freight, insurance, travel, and salaries.10. Treatment of software purchase expenses as capital expenditure.11. Disallowance of advances written off.12. Disallowance of bearing assembly purchase as capital expenditure.13. Levy of interest under sections 234B and 234C of the Act.14. Withdrawal of grounds related to TP issues due to MAP resolution.Detailed Analysis:1. Rejection of TP Documentation and Enhancement of Transfer Price:The assessee challenged the rejection of their TP documentation and the enhancement of the transfer price by INR 60,464,651. The tribunal noted that the grounds related to TP issues were withdrawn by the assessee due to the resolution in the Mutual Agreement Procedure (MAP). Consequently, these grounds were rejected as withdrawn.2. Incorrect Computation of Margins of Comparable Companies:The assessee argued that the TPO incorrectly computed the margins of comparable companies. However, since the TP issues were resolved through MAP, these grounds were also withdrawn and rejected.3. Use of Selective Information by TPO and Non-availability of Data:The assessee contended that the TPO used selective information not available in the public domain. This issue was also part of the withdrawn TP grounds and thus rejected.4. Application of Multiple Year/Prior Year Data in TP Documentation:The assessee argued against the use of current year data instead of multiple year/prior year data. This ground was withdrawn due to MAP resolution and subsequently rejected.5. Rejection of Comparability Analysis and Application of Additional Filters:The assessee challenged the rejection of their comparability analysis and the application of additional filters by the TPO. These grounds were withdrawn and rejected due to the MAP resolution.6. Non-consideration of Limited Risk Nature of Services Provided:The assessee claimed that the limited risk nature of their services was not considered. This issue was part of the withdrawn TP grounds and thus rejected.7. Application of Amended Proviso to Section 92C(2) of the Income-tax Act:The assessee argued that the amended proviso to section 92C(2) should apply, allowing a 5% tolerance band. This ground was also withdrawn and rejected due to the MAP resolution.8. Deduction Claims Under Section 10B of the Act:The tribunal addressed various grounds related to the deduction claims under section 10B. The main grievance was that the AO reduced expenses from export turnover but not from total turnover. The tribunal directed the AO to reduce the same expenses from total turnover, following the judgments of the Karnataka High Court and the Supreme Court in CIT Vs. Tata Elxsi Ltd. and CIT vs. HCL Technologies Ltd.9. Treatment of Expenses Related to Telecommunication, Freight, Insurance, Travel, and Salaries:The tribunal directed the AO to reconsider the treatment of these expenses, ensuring consistency in reducing them from both export and total turnover.10. Treatment of Software Purchase Expenses as Capital Expenditure:The tribunal upheld the AO's decision to treat software purchase expenses as capital expenditure, following the Karnataka High Court's judgment in CIT vs. M/s Wipro Limited.11. Disallowance of Advances Written Off:The assessee did not press this ground, and it was rejected as not pressed.12. Disallowance of Bearing Assembly Purchase as Capital Expenditure:The tribunal restored this issue to the file of the DRP for a fresh decision, as the DRP's earlier order lacked reasoning.13. Levy of Interest Under Sections 234B and 234C of the Act:These grounds were deemed consequential and did not require separate adjudication.14. Withdrawal of Grounds Related to TP Issues Due to MAP Resolution:The tribunal noted that the assessee had withdrawn all grounds related to TP issues for the assessment years 2006-07, 2007-08, and 2008-09 due to the MAP resolution. Consequently, these grounds were rejected.Conclusion:The tribunal provided a detailed analysis and directions for each issue, ensuring compliance with relevant legal precedents and judgments. The appeals were partly allowed for statistical purposes, with specific directions for fresh consideration and adjudication by the AO and DRP where necessary.