Appeal Dismissed, Rent Payment Justified, Transfer Pricing Addition Deleted.

The appeal was dismissed, and the order confirmed the deletion of the transfer pricing addition related to the Specified Domestic Transaction (SDT) of rent payment. The delay in filing the appeal was condoned due to the COVID-19 lockdown. The Tribunal upheld the Commissioner of Income Tax (Appeals) decision, concluding that the premises were indeed used by the assessee, and the rent paid was justified. The Tribunal found the CUP method applied by the assessee valid, resulting in the deletion of the transfer pricing addition.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of transfer pricing addition related to Specified Domestic Transaction (SDT) of rent payment.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed with a delay of 68 days, attributed to the lockdown due to COVID-19. The delay was condoned as the reason was found satisfactory and the assessee did not object to it.

2. Deletion of Transfer Pricing Addition Related to SDT of Rent Payment:
The primary issue involved the deletion of a transfer pricing addition of Rs. 4,91,89,500 related to the SDT of rent payment to Giriraj Promoters Pvt. Ltd. (GPPL). The assessee, engaged in the business of manufacturing sugar, filed its return declaring total income at Nil but paid taxes under section 115JB of the Income-tax Act, 1961. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of SDTs, particularly the rent payment.

The assessee applied the Comparable Uncontrolled Price (CUP) method to demonstrate the transaction was at ALP. The TPO required detailed information about the property and found discrepancies, leading to the conclusion that the Leave and Licence agreement was bogus. The TPO determined the ALP of the SDT of rent payment at Nil, resulting in a transfer pricing adjustment of Rs. 4.91 crore.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the TPO relied on an Inspector’s report without confronting the assessee. The CIT(A) considered additional evidence submitted by the assessee, including photographs and other documents, and concluded that the TPO violated principles of natural justice. The CIT(A) held that the assessee used the premises and availed economic and commercial benefits, thus deleting the addition.

Upon further appeal by the Revenue, the Tribunal examined the controversy surrounding the assessee's use of the Sawant Corner premises. The Tribunal noted that the TPO rejected the assessee’s CUP method and applied the `Other method’ under Rule 10AB of the Income-tax Rules, 1962, determining Nil ALP. The Tribunal excluded the Inspector's photographs from consideration as they were not confronted to the assessee.

The Tribunal reviewed additional evidence provided by the assessee, including a Certificate of Registration, Minutes of Board Meetings, Master Data from the Ministry of Corporate Affairs, property tax receipts, and various letters from banks and credit rating agencies. These documents substantiated the assessee's claim of occupying and using the premises for business purposes.

The Tribunal concluded that the premises were indeed used by the assessee, and the Revenue failed to provide contrary reliable evidence. The Tribunal found that the rent paid by the assessee was less than the comparable uncontrolled transaction, thus validating the CUP method applied by the assessee. Consequently, the Tribunal upheld the CIT(A)’s decision to delete the transfer pricing addition.

Conclusion:
The appeal was dismissed, and the order pronounced in the Open Court on 11th June 2021 confirmed the deletion of the transfer pricing addition related to the SDT of rent payment.

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