Transfer pricing adjustments cannot increase taxable income when no section 80IC deduction claimed due to accumulated losses

ITAT Chandigarh held that transfer pricing adjustments under section 92CA read with section 80-IA(8)/80IC cannot result in addition to returned income when the assessee has not claimed deduction under section 80IC for the current year due to accumulated losses. The TPO's adjustment, though valid for benchmarking inter-unit transactions of Unit V eligible for section 80IC deduction, would only reduce current year profits and increase carried forward losses. Since no profits were available after setting off past losses and no section 80IC claim was made, the adjustment cannot enhance taxable income. The addition was directed to be deleted.

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Issues Involved:
1. Rejection of the Assessee's Benchmarking Analysis and Application of Profit Split Method.
2. Adjustment of Rs. 5,63,07,963/- under Section 80IC.
3. Consideration of Addition as Deemed Income under Section 115BBE.

Summary:

Condonation of Delay: The Tribunal noted a delay of one day in filing the appeal, which was condoned after considering the condonation application and affidavit from the Managing Director of the assessee company. The appeal was admitted for adjudication.

Issue 1: Rejection of the Assessee's Benchmarking Analysis and Application of Profit Split Method: The assessee contended that the Dispute Resolution Panel (DRP) and the Transfer Pricing Officer (TPO) erred in rejecting its benchmarking analysis and applying the profit split method. However, this issue became academic as the Tribunal did not adjudicate on the merits of the benchmarking analysis due to the resolution of the primary issue regarding the adjustment under Section 80IC.

Issue 2: Adjustment of Rs. 5,63,07,963/- under Section 80IC: The assessee argued that no deduction under Section 80IC was claimed due to losses in the respective units, and therefore, the transfer pricing adjustment should not lead to an addition. The Tribunal observed that the TPO's adjustment would reduce the profits of Unit V and increase its carried forward losses, but since no deduction under Section 80IC was claimed, the adjustment should not result in an addition to the returned income. The Tribunal directed the deletion of the addition of Rs. 5,63,07,943/-.

Issue 3: Consideration of Addition as Deemed Income under Section 115BBE: This ground was not pressed during the hearing and was dismissed as not pressed.

Conclusion: The appeal was partly allowed, with the Tribunal directing the deletion of the addition of Rs. 5,63,07,943/- and leaving other grounds of appeal open and not adjudicated upon.

Order pronounced in the open Court on 05/09/2023.

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