2019 (6) TMI 1374 - AT - Income Tax

Tribunal directs re-adjudication on transfer pricing, upholds tax benefits, and dismisses Revenue's appeals.

Atul Limited Versus DCIT (OSD), Range-1 Ahmedabad. And ACIT (OSD), Range-1 Ahmedabad. Versus Atul Limited

Atul Limited Versus DCIT (OSD), Range-1 Ahmedabad. And ACIT (OSD), Range-1 Ahmedabad. Versus Atul Limited - TMI Issues Involved:1. Adjustment in Arm's Length Price (ALP) of international transactions.2. Disallowance under section 80HHC.3. Quantification of expenditure required to be disallowed for earning tax-free income under section 14A.Issue-wise Detailed Analysis:1. Adjustment in Arm's Length Price (ALP) of International Transactions:The primary issue raised by the assessee was the confirmation of additions made by the AO based on the TPO's recommendation for adjustments in the ALP of international transactions with its AE. The additions were Rs. 1,59,56,205/- for AY 2002-03, Rs. 1,80,32,866/- for AY 2003-04, and Rs. 1,65,41,873/- for AY 2004-05. The assessee contended that the orders of the CIT(A) in these years were non-speaking and did not consider the submissions made by the assessee. The Tribunal observed that the CIT(A) had merely followed the orders of the predecessor without independent consideration, making the orders non-speaking. The Tribunal cited the Full Bench of the Punjab & Haryana High Court in Roadmaster Industries of India P. Ltd. Vs. ACIT, emphasizing the necessity of providing reasons in support of conclusions. Consequently, the Tribunal set aside the findings of the CIT(A) on this issue in all three years and restored the matter to the CIT(A) for re-adjudication, ensuring that the CIT(A) considers the judgment of the Full Bench of the Punjab & Haryana High Court.2. Disallowance under Section 80HHC:In the Revenue's appeal, the sole ground was the deletion of disallowance made under section 80HHC amounting to Rs. 4,26,64,066/-. The AO had disallowed the deduction based on three reasons: (a) deduction under section 80HHC to be computed after reducing deductions under sections 80IA and 80IB, (b) inclusion of excise duty and sales tax in total turnover, and (c) reduction of sale proceeds of DEPB license from the profit of the business. The Tribunal noted that the CIT(A) had followed the decision of the jurisdictional High Court in Avani Exports Vs. CIT, which held the retrospective amendment brought by the Finance Act, 2005, as unconstitutional. Therefore, the Tribunal upheld the CIT(A)'s decision and rejected the Revenue's ground of appeal.3. Quantification of Expenditure Required to be Disallowed for Earning Tax-Free Income under Section 14A:The assessee had dividend income of Rs. 1,73,50,995/- claimed as exempt. The AO, using Rule 8D, worked out a disallowance of Rs. 2,00,34,000/-. The CIT(A) restricted this disallowance to Rs. 12.30 lakhs, deleting the rest. The Tribunal agreed with the CIT(A) that Rule 8D is prospective and applicable from 01.04.2008, as per the Bombay High Court judgment in Godrej & Boyce vs. CIT. The Tribunal also upheld the CIT(A)'s decision that no interest disallowance was warranted due to sufficient interest-free funds. However, the Tribunal found the CIT(A)'s estimation of administrative expenses disallowance at Rs. 12.51 lakhs to be excessive and scaled it down to Rs. 1,50,000/-. The Tribunal rejected the Revenue's ground of appeal and partly allowed the assessee's appeal, restricting the disallowance to Rs. 1,50,000/-.Conclusion:The Tribunal allowed all three appeals of the assessee for statistical purposes and dismissed the two appeals of the Revenue. The order was pronounced on 25th June 2019 at Ahmedabad.