Export turnover calculation shouldn't include excise duty deduction for transfer pricing analysis, royalty adjustment deleted

ITAT Kolkata ruled on multiple transfer pricing and tax issues. The tribunal held that excise duty should not be deducted from export turnover for determining arm's length price and remanded the matter to AO. Transfer pricing adjustment on royalty payments to associated enterprises was deleted, following coordinate bench precedent. Leave encashment disallowance under section 43B was remanded for verification of actual payments made. Club expenses disallowance under section 40A(9) was decided in favor of assessee, directing AO to allow deduction as business expenses. Commission expenditure and interest income discrepancy issues were remanded to AO for proper examination and implementation of DRP directions. Business loss calculation error was also remanded for correct computation.

---

---

Issues involved:
The issues involved in this judgment include the exclusion of time for filing appeal during the COVID-19 pandemic, deduction of excise duty for determining transfer price, adjustment of transfer price for royalty payment, disallowance of leave encashment, disallowance of club expenses, disallowance of commission expenditure, difference in interest income as per books and Form 26AS, and calculation error in business loss available for set off.

Exclusion of time for filing appeal during COVID-19 pandemic:
The appeal was treated as filed within the limitation period due to the decision of the Hon'ble Supreme Court regarding the exclusion of time for filing appeal during the COVID-19 pandemic.

Deduction of excise duty for determining transfer price:
The Tribunal held that excise duty should not be deducted from the export turnover for determining the Arm's Length Price (ALP) of goods supplied by the assessee to its Associated Enterprises (AEs) abroad. The issue was restored to the file of the Assessing Officer (AO) for re-adjudication.

Adjustment of transfer price for royalty payment:
The Tribunal directed the AO to delete the addition of royalty payment amounting to Rs. 1,70,19,072/- as the issue was covered by decisions of the Coordinate Benches in favor of the assessee.

Disallowance of leave encashment:
The Tribunal directed the AO to allow the deduction of Rs. 63,13,289/- paid by the assessee towards leave encashment during the year, as it was an actual payment made by the assessee.

Disallowance of club expenses:
The Tribunal allowed the deduction of club expenses of Rs. 17,38,319/- as the issue was covered by the decision of the Coordinate Bench in favor of the assessee.

Disallowance of commission expenditure:
The Tribunal directed the AO to give effect to the direction of the Dispute Resolution Panel (DRP) regarding the disallowance of commission expenditure amounting to Rs. 1,93,98,230/-.

Difference in interest income:
The Tribunal restored the issue of disallowance of interest income of Rs. 39,491/- to the file of the AO for further examination and decision.

Calculation error in business loss available for set off:
The Tribunal directed the AO to correctly compute the business loss available for set off, as there was a calculation error in the assessment order.

In conclusion, the appeal filed by the assessee was allowed for statistical purposes, and the issues were either decided in favor of the assessee or restored to the file of the AO for further examination and decision.

---