2019 (10) TMI 437 - AT - Income Tax

Tribunal remands issues for re-examination by AO, cancels interest charges, deems penalty premature.

The Tribunal remanded various issues for re-examination by the AO, including transfer pricing adjustment, addition of sundry creditors, disallowance of ... TP Adjustment - MAM Selection - TPO rejected all 4 companies adopted as comparable by the assessee in its TP Study for CPM Method and selected 4 companies as comparables for applying TNMM to benchmark the transaction of import of raw materials - AR argued that the primary reason for rejection of CPM by the ld. TPO was that assessee had incurred loss during the year - HELD THAT:- When the CUP method using ICIS software covers 68% of the total transactions that too being a direct method and a traditional transaction method, DRP ought to have accepted the same. Before us, we find that assessee by way of additional evidences had produced comparable data using TIPS Data Base which covers even more higher percentage of total value of import transactions from the AEs. We hold that CUP is a direct method. We find that assessee has raised additional grounds of appeal for adoption of CUP to be MAM which we are inclined to accept in the facts of the instant case. We find that assessee had also filed additional evidences before us by producing data from TIPS Data Base maintained by the Customs Department, for the purpose of comparability of the prices of import transactions carried out by the assessee vis-à-vis comparable prices on the relevant date or nearer to the date of transactions. This according to the ld. AR covers 94.69% of the total value of import transaction from AEs, which according to the ld. DR covers only 70% of the total transactions. We hold that in either case, substantial amount of transactions gets covered using TIPS Data Base under CUP method. Hence, we admit the entire additional evidences filed by the assessee before us in this regard and deem it fit and appropriate to restore the entire issue to the file of the Ld. AO with the following directions:- (a) CUP should be adopted as MAM being the direct method and being a traditional transaction method which should be preferred over traditional profit method such as RPM and TNMM. (b) TIPS Data Base maintained by the Customs Department which has also been accepted by the Delhi Tribunal in the case of Tilda Riceland Pvt. Ltd. vs. ACIT [2014 (3) TMI 63 - ITAT DELHI] should be accepted as a valid database. (c) While comparing the data at or near to the relevant date of transactions with the comparable prices using TIPS Data Base, the ld. TPO is directed to adopt portfolio approach to take both the prices that are favourable to assessee as well as that are adverse to assessee in view of a categorical finding of fluctuating prices for the same product already given by the ld. DR which is not disputed by the ld. DR before us. We hold that the revenue cannot do cherry picking of those transactions which are favouring them and ignore those transactions that are detrimental to them while benchmarking the transactions of the assessee with comparable cases. Addition of sundry creditors u/s.41(1) - HELD THAT:- It is not in dispute that the assessee had not written back those liabilities as no longer payable by crediting to its profit and loss account. The assessee continues to show the said sundry creditor balance as its liability, meaning thereby liability to pay all these sundry creditors had been duly acknowledged by the assessee as on the balance sheet date and even in subsequent years. Hence, the same does not fall under the ambit of cessation of liability. It is for the assessee to decide whether a particular liability had ceased to exist from its books or not. SUGAULI SUGAR WORKS PVT. LIMITED [1999 (2) TMI 5 - SUPREME COURT] followed. We direct the ld. AO to delete the addition made u/s.41(1). We direct the ld. AO to delete the addition made u/s.41(1). Disallowance of foreign exchange loss - Non admission of additional evidence - DR vehemently opposed that the additional evidences submitted by the assessee before the Tribunal should not be admitted as sufficient opportunities were provided to the assessee by the lower authorities - HELD THAT:- e are not inclined to accept this argument of the ld. DR as the basic details of forward contracts were indeed given by the assessee before the lower authorities and the same were not properly appreciated with reference to the relevant documents by the lower authorities. The present documents filed were only as a matter of abundant caution and to further strengthen the evidences as detailed supra. Hence, we are convinced that these additional evidences deserve to be admitted and accordingly, deem it fit and appropriate to remand this issue to the file of the ld. AO to decide the impugned issue in dispute before us in the light of additional evidences filed by the assessee together with list of forward contracts on cancellation of which foreign exchange fluctuation loss had been incurred by the assessee need to be verified by the ld. AO and, if it is found by the ld. AO, that the forward contract was indeed entered for trading purposes, then the exchange fluctuation loss should be allowed as deduction Addition of sundry creditor balances - unexplained credit and upheld by the ld. DRP - HELD THAT:- We find lot of force in the alternative argument made by the ld. AR that purchases made from the aforesaid parties involved were accepted by the ld. AO as genuine. Once the purchases have been accepted as genuine, there cannot be any question of disputing the closing balance of the sundry creditors of the very same parties by treating them as unexplained credits u/s.68 - assessee had furnished various evidences which had not been properly appreciated by the lower authorities and certain evidences were also submitted before us as additional evidence for the first time as detailed supra and these additional evidences require to be factually examined by the ld. AO. Hence, we admit those additional evidences in the interest of justice and fair play and deem it fit and appropriate to remand this issue to the file of the ld. AO for denovo adjudication Disallowance of legal and professional fees on an adhoc basis - Admission of additional evidence - HELD THAT:- We find that the assessee had also submitted additional evidences giving various details of legal and professional fees paid to various parties together with their PAN and nature of services rendered by them. These evidences require factual examination of the ld. AO and hence, in the interest of natural justice and fair play, we deem it fit to remand this issue to the file of the ld. AO for denovo adjudication in the light of various additional evidences submitted by the assessee which are admitted herein and decide the issue in accordance with law. Disallowance of interest u/s.36(1)(iii) - HELD THAT:- we deem it fit and appropriate in the interest of justice and fair play to remand this issue to the file of the ld. AO for adjudication in the light of additional evidences filed hereinabove and in the light of decision of RELIANCE UTILITIES & POWER LTD. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC BANK LTD. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. The assessee is at a liberty to furnish further evidences, if any, in support of its contentions Issues Involved:1. Transfer pricing adjustment of international transactions.2. Addition of sundry creditors under Section 41(1).3. Disallowance of foreign exchange loss.4. Addition of sundry creditor balances as unexplained credit.5. Disallowance of legal and professional fees.6. Disallowance of interest under Section 36(1)(iii).7. Chargeability of interest under Section 234A.8. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Transfer Pricing Adjustment of International Transactions:The primary issue was the transfer pricing adjustment for the import of raw materials from associated enterprises (AEs). The assessee used the Cost Plus Method (CPM) as the Most Appropriate Method (MAM) for benchmarking its international transactions, which was rejected by the Transfer Pricing Officer (TPO) in favor of the Transaction Net Margin Method (TNMM). The TPO's rejection was based on the assessee being a loss-making concern. The Dispute Resolution Panel (DRP) upheld the TPO's decision, rejecting the assessee's use of CPM and alternate CUP method using ICIS prices. The Tribunal found the reason for losses convincing and directed the TPO to adopt CUP as MAM using TIPS Data Base, considering portfolio approach for benchmarking transactions.2. Addition of Sundry Creditors under Section 41(1):The AO added Rs. 1,24,008 under Section 41(1) for sundry creditors, which was upheld by the DRP. The Tribunal found that the liabilities were acknowledged in the balance sheet and had not ceased to exist. It directed the AO to delete the addition, referencing judicial precedents that support the assessee's argument.3. Disallowance of Foreign Exchange Loss:The AO disallowed Rs. 26,13,86,459 as speculation loss, not business loss. The DRP directed the AO to verify if the forward contracts were related to trading transactions. The Tribunal admitted additional evidence from the assessee, including bank certificates confirming the loss related to trading transactions. The issue was remanded to the AO for verification.4. Addition of Sundry Creditor Balances as Unexplained Credit:The AO added Rs. 21,43,13,273 as unexplained credit under Section 68. The assessee provided additional evidence, including addresses and PAN details of creditors. The Tribunal found the evidence sufficient to establish the identity and creditworthiness of the creditors and remanded the issue to the AO for re-examination.5. Disallowance of Legal and Professional Fees:The AO made an ad hoc disallowance of 20% of legal and professional fees for lack of documentary evidence. The Tribunal admitted additional evidence provided by the assessee and remanded the issue to the AO for re-examination.6. Disallowance of Interest under Section 36(1)(iii):The AO disallowed Rs. 47,04,000 proportionately for interest-free advances given by the assessee. The Tribunal admitted additional evidence showing the advances were regular business transactions and remanded the issue to the AO for re-examination, considering the sufficiency of interest-free funds.7. Chargeability of Interest under Section 234A:The AO charged interest under Section 234A. The Tribunal found the return was filed before the due date and directed the AO to cancel the charge.8. Initiation of Penalty Proceedings under Section 271(1)(c):The Tribunal found the issue of penalty proceedings premature for adjudication at this stage.Conclusion:The Tribunal remanded several issues for re-examination by the AO, admitted additional evidence, and provided specific directions for each issue. The appeals were partly allowed for statistical purposes.