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Issues: (i) Whether the addition under section 68 on account of alleged unexplained cash credits from two lenders was to be sustained or remanded for fresh consideration; (ii) whether the proportionate write-off of shelved project expenditure was allowable; (iii) whether the transfer pricing adjustment made by estimating the arm's length margin at 15% was to be sustained or sent back for fresh adjudication.
Issue (i): Whether the addition under section 68 on account of alleged unexplained cash credits from two lenders was to be sustained or remanded for fresh consideration.
Analysis: The assessee had furnished confirmations, PAN details and bank statements of the lenders as additional evidence before the first appellate authority. The question turned on whether these materials had been properly examined and whether the assessee had been given a fair opportunity in relation to the source and genuineness of the credits.
Conclusion: The addition was not finally sustained and the issue was restored to the Assessing Officer for fresh adjudication after considering the additional evidence; the assessee succeeded to that extent.
Issue (ii): Whether the proportionate write-off of shelved project expenditure was allowable.
Analysis: The expenditure related to a project that had been abandoned after change in specifications, and the assessee had been amortizing the project cost over ten equal instalments. A coordinate bench had already accepted an identical claim in the immediately succeeding year, and the facts for the year under appeal were found to be the same.
Conclusion: The write-off was allowed and the corresponding addition was directed to be deleted in favour of the assessee.
Issue (iii): Whether the transfer pricing adjustment made by estimating the arm's length margin at 15% was to be sustained or sent back for fresh adjudication.
Analysis: The adjustment had been made by relying on the margin of a subsequent year, without proper adjustment for non-operating items and without complete details required for arm's length determination under the transfer pricing provisions. The proper course was to re-examine the international transaction de novo under the prescribed method.
Conclusion: The transfer pricing adjustment was set aside and the matter was remanded to the Assessing Officer for fresh adjudication; the assessee succeeded to that extent.
Final Conclusion: The appeal resulted in partial relief to the assessee, with one substantive disallowance deleted and the remaining contested additions remanded for reconsideration.
Ratio Decidendi: Where relevant material bearing on a cash-credit issue is produced at the appellate stage and a transfer pricing adjustment rests on an uncritical use of a subsequent year's margin, the matter should be re-examined on the basis of the complete evidence and the prescribed statutory method rather than sustained mechanically.
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