2021 (3) TMI 53 - AT - Income Tax

Appeal allowed, transfer pricing adjustments vacated, property valuation referred, TDS credit verified

Dow Agrosciences India Private Limited Versus Asst. Commissioner of Income tax-3 (1) (1) [Income-Tax Officer-14 (1) (3) ], Mumbai

The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to vacate the transfer pricing adjustments related to royalty payments ... TP Adjustment - adjustment in the arm's length price of the international transaction of payment of royalty - Rejection of economic analysis undertaken by the Appellant - HELD THAT:- As the order of the DRP for A.Y 2011-12 [2021 (1) TMI 472 - ITAT MUMBAI] that was relied upon by the panel while disposing off the objections of the assessee as regards the issue pertaining to the transfer pricing adjustment made by the TPO towards payment of royalty by the assessee to its AE, viz. Dow AgroSciences BV, Netherland had been set aside by the Tribunal, we thus concurring with the view therein taken respectfully follow the same. Accordingly, we herein direct the A.O/TPO to vacate the transfer pricing adjustment as regards the royalty paid by the assessee to its AE. TP adjustment - Intra-Group Services received by the assessee from its AEs, viz. information technology services, financial and treasury support services, financial and accounting support services and legal and administrative support services - HELD THAT:- In its aforesaid order for A.Y 2011-12 [2021 (1) TMI 472 - ITAT MUMBAI], the Tribunal while vacating the transfer pricing adjustment made by the A.O/TPO as regards the intra-group services received by the assessee from its AEs had observed the details as regards the services rendered by Mr. Jeorge La Roza to the assessee, as well as the basis of the charge so raised formed part of the “additional evidence” that was filed by the assessee with the DRP. In fact, no adverse inference as regards the aforesaid payment made by the assessee company finds any mention in the order of the DRP. In our considered view, as there is no justifiable reason for drawing of any adverse inferences as regards the payments that were made by the assessee to the aforesaid person, we, thus, not being able to persuade ourselves to subscribe to the claim of the ld. D.R that there was no material available on record which would justify the basis of the costs to the AE, reject the same. Computation of short term capital gain - why the stamp duty valuation may not be adopted as the deemed sale consideration u/s 50C for the purpose of computing the capital gain on the sale of the property in question? - HELD THAT:- in a case where the assessee had neither disputed the value so adopted by the stamp duty valuation authority for the purpose of payment of stamp duty in respect of a capital asset, being land or building or both, in any appeal or revision nor made any reference before any other authority, court or the High Court then, on an objection raised by the assessee to the adoption of the stamp duty valuation as the deemed sale consideration for the purpose of computing of the capital gain for the property in question within the meaning of Sec. 50C of the Act, the A.O is obligated to make a reference to the Valuation Officer for carrying out the valuation of the capital asset in question. Accordingly, we are unable to persuade ourselves to subscribe to the view taken by the A.O that de hors any objection raised by the assessee to the valuation adopted by the stamp valuation authority at the time of valuation, it was divested of its right to seek reference to the Valuation Officer for valuation of the property in question. At the same time, we are unable to comprehend as to on what basis an appeal had been filed by the assessee with the CIT(A) against the refusal on the part of the A.O to make a reference to the Valuation Officer. No such right to prefer an appeal against a declining on the part of the A.O to make a reference to the Valuation Officer within the meaning of Sec. 50C of the Act can be deciphered from Sec. 246A . Assessee before us had neither disputed the value so adopted by the stamp duty valuation authority for the purpose of payment of stamp duty in respect of the property in question, in any appeal or revision nor made any reference before any other authority, court or the High Court, had however, admittedly objected to the adoption of the stamp duty valuation as the deemed sale consideration by the A.O for computing the capital gains within the meaning of Sec. 50C of the Act thus, we herein direct the A.O to make a reference to the Valuation Officer for the purpose of valuation of the property in question for the purpose of Sec. 50C of the Act. Ground allowed for statistical purpose. Short credit of TDS - HELD THAT:- As assessee had filed a rectification application as regards the issue in question, which however is pending before the A.O. It was submitted by the ld. A.R that the A.O may be directed to look into the aforesaid grievance of the assessee. As the adjudication of the aforesaid issue would require verification of the records, we herein direct the A.O to verify the same and redress the aforesaid grievance of the assessee. Interest liability u/ss. 234A and 234B - HELD THAT:- As claimed by the assessee that as it had filed its return of income for the year in question within the ‘due date’ contemplated in Sec. 139(1) of the Act thus, no interest u/s 234A was liable to be imposed on it. It is further stated by the assessee that the A.O had erred in levying interest u/s 2434B of the Act. It was submitted by the ld. A.R that the assessee’s application u/s 154 in context of both the aforesaid issues was pending before the A.O. It was submitted by the ld. A.R that suitable directions may be issued to the A.O. We have given a thoughtful consideration and in the backdrop of the aforesaid claim of the assessee we direct the A.O to consider its aforesaid grievances while giving appellate effect to our order. Ground allowed for statistical purpose. Issues Involved:1. Assessment of Total Income2. Transfer Pricing Adjustments: Payment of Royalty to Associated Enterprise (AE)3. Transfer Pricing Adjustments: Payment to AE's for Availing Services4. Corporate Tax Adjustments: Short Term Capital Gain on Sale of Building5. Credit for Tax Deducted at Source (TDS)6. Levy of Interest under Section 234A and 234B of the Income Tax Act7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax ActDetailed Analysis:1. Assessment of Total Income:The assessee company contested the assessment of total income at Rs. 99,44,02,394 as against the returned income of Rs. 66,91,50,480. The Tribunal found that the adjustment made by the Assessing Officer (A.O) was based on the transfer pricing adjustments and corporate tax adjustments, which were the primary points of contention.2. Transfer Pricing Adjustments: Payment of Royalty to AE:The A.O made an adjustment of Rs. 5,40,32,169 to the total income of the assessee under Section 92CA(3) on account of the arm's length price of the international transaction of payment of royalty. The Tribunal noted that the Dispute Resolution Panel (DRP) had upheld the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) based on a similar issue in the assessee's case for A.Y 2011-12. The Tribunal referred to its own decision in the assessee's case for A.Y 2011-12, where it was held that the royalty paid by the assessee to its AE was justified and approved by the Secretariat of Industrial Assistance (SIA) and Reserve Bank of India (RBI). The Tribunal directed the A.O/TPO to vacate the transfer pricing adjustment of Rs. 5,40,32,169.3. Transfer Pricing Adjustments: Payment to AE's for Availing Services:The A.O made an adjustment of Rs. 24,42,84,844 under Section 92CA(3) for the international transaction of availing services from AEs. The DRP upheld the adjustment based on the panel's decision for A.Y 2011-12. The Tribunal, referring to its decision for A.Y 2011-12, noted that the TPO had not provided any comparable uncontrolled price (CUP) for benchmarking the services and had wrongly determined the arm's length price at nil without following any prescribed method under Section 92C. The Tribunal directed the A.O/TPO to vacate the transfer pricing adjustment of Rs. 24,42,84,844.4. Corporate Tax Adjustments: Short Term Capital Gain on Sale of Building:The A.O computed the short term capital gain on the sale of building at Rs. 3,05,52,648 as against Rs. 36,17,750 computed by the assessee. The Tribunal observed that the A.O had adopted the stamp duty valuation as the deemed sale consideration under Section 50C without making a reference to the Valuation Officer as required. The Tribunal directed the A.O to make a reference to the Valuation Officer for the purpose of valuation of the property in question under Section 50C.5. Credit for Tax Deducted at Source (TDS):The assessee claimed that the A.O had granted short credit of TDS amounting to Rs. 2,07,68,263. The Tribunal directed the A.O to verify the records and redress the grievance of the assessee.6. Levy of Interest under Section 234A and 234B of the Income Tax Act:The assessee contested the levy of interest under Sections 234A and 234B. The Tribunal directed the A.O to consider the assessee's grievances while giving appellate effect to the Tribunal's order.7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal found the grievance to be premature and dismissed this ground of appeal.Conclusion:The Tribunal allowed the appeal of the assessee in terms of the above observations, directing the A.O to vacate the transfer pricing adjustments and to make a reference to the Valuation Officer for the property valuation under Section 50C. The Tribunal also directed the A.O to verify the TDS credit and consider the grievances related to the levy of interest under Sections 234A and 234B. The initiation of penalty proceedings under Section 271(1)(c) was dismissed as premature.