2020 (9) TMI 1098 - AT - Income Tax

Tribunal rulings on tax appeals: expenses disallowed, transfer pricing upheld, service tax reexamination.

DCIT – 1 (1) (1), Mumbai. Versus M/s. Alstom India Ltd., (Formerly Alstom Project India Ltd.), M/s. Alstom India Ltd. Versus ITO – 1 (1) (1), Mumbai., DCIT – 1 (1) (1), Mumbai. And M/s. GE Power India Ltd. (formerly known as Alstom India Ltd.) Versus Addl. CIT, Range – 1 (1), Mumbai., DCIT, Range – 1 (1) (2), Mumbai.

DCIT – 1 (1) (1), Mumbai. Versus M/s. Alstom India Ltd., (Formerly Alstom Project India Ltd.), M/s. Alstom India Ltd. Versus ITO – 1 (1) (1), Mumbai., ... Issues Involved:1. Delay in filing the appeal and its condonation.2. Disallowance of extraordinary expenses in the Transport segment.3. Transfer pricing adjustment on royalty payments in the Power segment.4. Addition of unpaid service tax payable.5. Deduction of service tax on payment basis.6. Addition of transfer pricing adjustment to book profits under Section 115JB.7. Addition of merger expenditure disallowance to book profits.8. Short grant of tax deducted at source.9. Excess interest charged under Section 234C.10. Revenue's appeal on adjustment reduction to AE transactions.Detailed Analysis:1. Delay in Filing the Appeal and Its Condonation:The appeal in ITA No. 956/Mum/2018 was delayed by 63 days due to the concerned person being medically unfit. The assessee submitted an affidavit supporting the reasonable cause for the delay. Upon hearing both parties and reviewing the records, the delay was condoned.2. Disallowance of Extraordinary Expenses in the Transport Segment:The assessee claimed adjustments for extraordinary expenses related to production overheads, selling and administrative overheads, and a one-time technological fee for the Chennai Metro project. The TPO disallowed these adjustments, stating they were routine and normal expenditures. The DRP upheld the TPO's decision, emphasizing that adjustments must be made to the results of comparables, not the tested party. The Tribunal agreed with the authorities, noting that the expenses were regular business expenditures and not extraordinary. The Tribunal also directed that adjustments should be made only for AE transactions, not at the entity level.3. Transfer Pricing Adjustment on Royalty Payments in the Power Segment:The TPO rejected the assessee's approach of aggregating royalty payments with other transactions and insisted on separate benchmarking. The TPO determined the arm's length price (ALP) for royalty payments as Nil, which was upheld by the DRP for the assessment year 2012-13. For 2013-14, the DRP directed the TPO to determine the ALP as per the prescribed methods. The Tribunal agreed with the DRP, stating that the TPO must compute the ALP based on the rules and law, and cannot determine it as Nil. The DRP's ad hoc fixation of the royalty rate at 1% for technology license was also rejected, as it was not based on any prescribed method.4. Addition of Unpaid Service Tax Payable:The issue of unpaid service tax payable was covered in favor of the assessee by previous ITAT decisions. The Tribunal held that service tax is payable only upon receipt from the consumer, and since the assessee did not claim any deduction for the service tax payable, no disallowance under Section 43B could be made.5. Deduction of Service Tax on Payment Basis:The AO was directed to reexamine the issue of allowing the deduction of service tax on a payment basis in the current year, which was disallowed in the previous year. If the amount was disallowed in the concerned assessment year for non-payment, the assessee's ground would succeed.6. Addition of Transfer Pricing Adjustment to Book Profits under Section 115JB:The Tribunal admitted the additional ground regarding the addition of transfer pricing adjustment to book profits. It was decided in favor of the assessee, following the Supreme Court decision in Appollo Tyres and several Bombay High Court decisions, which held that no adjustment in book profit is to be done unless mandated in the Act.7. Addition of Merger Expenditure Disallowance to Book Profits:The assessee's counsel did not press this issue, and it was dismissed as not pressed.8. Short Grant of Tax Deducted at Source:The AO was directed to examine the factual issue of short grant of tax deducted at source.9. Excess Interest Charged under Section 234C:This was a consequential issue and did not require specific adjudication.10. Revenue's Appeal on Adjustment Reduction to AE Transactions:The Revenue's appeal against the DRP's decision to reduce the adjustment to AE transactions only was dismissed. The Tribunal referred to the ITAT decision in the assessee's own case for A.Y. 2006-07, which was upheld by the Bombay High Court.Conclusion:The assessee's appeals were partly allowed, the cross objection was dismissed, and the Revenue's appeals were dismissed. The Tribunal pronounced the order under Rule 34(4) of ITAT Rules by placing the pronouncement list on the notice board.