Tribunal limits transfer pricing adjustment, reconsiders working capital claim, allows appeal for sales expenses

The Tribunal partially accepted the appellant's objections regarding the enhancement of income due to international transactions not meeting the Arm's Length Price criteria, limiting the transfer pricing adjustment. The Tribunal also directed the Assessing Officer to reconsider the working capital adjustment claim without the need for additional evidence. Regarding the disallowance of sales and promotion expenses under section 40(a)(ia) of the Income Tax Act, the Tribunal allowed the appeal for statistical purposes, instructing the Assessing Officer to verify if recipients had disclosed the receipts in their income tax returns to determine the disallowance.

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Issues involved:
1. Enhancement of income due to international transactions not satisfying Arm's Length Price (ALP).
2. Disallowance of sales and promotion expenses under section 40(a)(ia) of the Income Tax Act.

Issue 1: Enhancement of income due to international transactions not satisfying Arm's Length Price (ALP):
The appellant, a branch of Oxford University Press UK engaged in publishing and trading books, contested the assessment order for the assessment year 2018-19. The appellant challenged the enhancement of income by Rs. 2,98,84,072, asserting that the international transactions did not meet the Arm's Length Price (ALP) criteria. The appellant also raised an additional ground seeking a working capital adjustment based on differences with comparable companies. The Transfer Pricing Officer (TPO) disagreed with the comparables selected by the appellant, resulting in an adjustment of Rs. 11,25,21,247. The Dispute Resolution Panel (DRP) partially accepted the objections, limiting the transfer pricing adjustment to Rs. 2,98,84,072. The appellant argued for the admission of the additional ground without the need for additional evidence, citing the case of NTPC Ltd. vs. CIT,229 ITR 353(SC). The Tribunal admitted the additional ground and directed the Assessing Officer to consider the working capital adjustment claim and any other legitimate plea regarding transfer pricing adjustment.

Issue 2: Disallowance of sales and promotion expenses under section 40(a)(ia) of the Income Tax Act:
The appellant contested the disallowance of sales and promotion expenses amounting to Rs. 1,05,21,136 under section 40(a)(ia) of the Act. The Tribunal noted a similar ground raised by the appellant in the assessment year 2016-17, which was remanded to the Assessing Officer for verification. The Tribunal emphasized the requirement for tax deduction at source and directed the Assessing Officer to verify if the recipients had disclosed the receipts in their income tax returns. If the recipients had disclosed the receipts, even if their income was exempt, the disallowance under section 40(a)(ia) should be deleted. The appeal on this issue was allowed for statistical purposes.

In conclusion, the Tribunal allowed the appellant's appeal for statistical purposes, directing the Assessing Officer to reconsider the working capital adjustment claim and verify the disclosure of receipts by recipients for the disallowed expenses.

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