Tribunal Overturns TP Adjustment; Orders Reconsideration of Tax Issues Due to Non-Compliance with DRP Directions.

Tata Power Solar Systems Ltd., Versus. The Deputy Commissioner of Income Tax, Circle 7 (1) (1), Bengaluru.

Tata Power Solar Systems Ltd., Versus. The Deputy Commissioner of Income Tax, Circle 7 (1) (1), Bengaluru. - [2024] 120 ITR (Trib) 209 (ITAT [Bang]) Issues Involved:
1. Transfer Pricing Adjustment
2. Corporate Tax Disallowance
3. Disallowance of TDS Credit

Detailed Analysis:

1. Transfer Pricing Adjustment:

The primary issue in this case revolves around the Transfer Pricing (TP) adjustment made by the TPO. The assessee, a joint venture, had aggregated its international transactions for benchmarking purposes using the cost-plus method. However, the TPO rejected this method and adopted the Transaction Net Margin Method (TNMM), making an adjustment of Rs. 3,29,82,771. The AO incorporated this adjustment in the draft assessment order. The assessee filed objections before the DRP, which directed the TPO/AO to rework the TP adjustment, especially concerning Engineering Design services and the sale of finished goods to AE. Despite these directions, the AO retained the same TP adjustment in the final assessment order, leading to the appeal.

The Tribunal noted that the AO's final assessment order did not conform to the DRP's directions. The DRP had directed the exclusion of certain comparable companies and reworking of the TP adjustment. The Tribunal quashed the TP adjustment, citing that the AO had not given effect to the DRP's directions. The Tribunal relied on precedents, including the case of Toyota Tsusho India Pvt. Ltd., where a similar issue was adjudicated. Consequently, the Tribunal did not adjudicate the merits of the TP adjustment, leaving those grounds open.

2. Corporate Tax Disallowance:

The assessee contended against an addition of Rs. 1,03,61,430 due to the difference between the revenue as per Form 26AS and the Profit & Loss account. The AO had made this adjustment, and the DRP sustained it, stating that the assessee could not offer income assessable in a particular year in any subsequent year as per its convenience.

The Tribunal remitted this issue back to the AO for reconsideration, directing the AO to consider the reconciliation submitted by the assessee and decide the issue in accordance with the law after giving a reasonable opportunity of being heard.

3. Disallowance of TDS Credit:

The AO observed that the assessee claimed TDS credit of Rs. 31,59,801 without offering the corresponding income to tax. The DRP confirmed this disallowance. The assessee argued that the tax credit was claimed in the year the tax was deducted and reflected in Form 26AS, and there might be a timing difference in accounting.

The Tribunal remitted this issue back to the AO to examine whether the tax was claimed as a deduction in the year the income was offered. The AO was directed to consider the issue on merits based on the evidence submitted by the assessee, ensuring a reasonable opportunity of being heard.

Conclusion:

The appeal was partly allowed, with the Tribunal quashing the TP adjustment due to non-compliance with DRP directions and remitting the corporate tax disallowance and TDS credit issues back to the AO for reconsideration. The judgment emphasized adherence to procedural directions and the need for a thorough examination of evidence in tax matters.