2022 (7) TMI 1532 - AT - Income Tax

Section 144C procedure applies from 01/10/2009; transfer pricing adjustments limited to international transactions with Associated Enterprises only

Lanxess India Private Limited Versus Asst. Commissioner of Income-tax, Circle 1, Thane And (Vice-Versa)

Lanxess India Private Limited Versus Asst. Commissioner of Income-tax, Circle 1, Thane And (Vice-Versa) - TMI Issues Involved:1. Adjustment related to international transaction of export of finished goods.2. Application of adjustment to total turnover versus controlled transactions.3. Use of multiple methods for calculating Arm's Length Price (ALP).4. Computation of alternative Transfer Pricing adjustment.5. Revised calculation of adjustment based on Dispute Resolution Panel (DRP) directions.6. Additions under Section 69C of the Income-tax Act.7. Invocation of Section 69C.8. Set-off of short-term capital loss against long-term capital gain.9. Credit for tax deducted at source.10. Effect to rectification application letters.11. Validity of draft assessment order under Section 144C.12. Time-barred assessment order under Section 153.Detailed Analysis:1. Adjustment Related to International Transaction of Export of Finished Goods:The assessee contested an adjustment of Rs. 5,96,53,388/- made by the AO/TPO in relation to the international transaction of exporting finished goods. The Tribunal upheld the adjustment, noting that the TPO had used the Transaction Net Margin Method (TNMM) and Comparable Uncontrolled Price Method (CUP) to compute the ALP.2. Application of Adjustment to Total Turnover Versus Controlled Transactions:The assessee argued that the adjustment should apply only to controlled transactions, not the total turnover. The Tribunal agreed, directing the AO to limit the adjustment to international transactions with Associated Enterprises (AEs) and not the entire manufacturing turnover.3. Use of Multiple Methods for Calculating Arm's Length Price (ALP):The assessee argued against using multiple methods (TNMM and CUP) for calculating the ALP. The Tribunal did not specifically address this issue as it was rendered academic due to the decision on the second issue.4. Computation of Alternative Transfer Pricing Adjustment:The TPO had computed an alternative adjustment using the CUP method but did not consider it for making the adjustment. The Tribunal did not address this issue separately as it was academic following the decision on the second issue.5. Revised Calculation of Adjustment Based on DRP Directions:The assessee argued that the AO did not provide a revised calculation of the adjustment based on the DRP's directions. The Tribunal did not address this issue separately as it was academic following the decision on the second issue.6. Additions Under Section 69C of the Income-tax Act:The AO made additions of Rs. 55,44,990/- under Section 69C for unexplained expenditure. The Tribunal upheld the DRP's decision to sustain the addition for two parties where the assessee failed to substantiate the purchase amount recorded in its books.7. Invocation of Section 69C:The assessee argued against the invocation of Section 69C for the addition of Rs. 55,44,990/-. The Tribunal upheld the DRP's decision, noting that the AO had verified the evidence and found the addition justified for two parties.8. Set-off of Short-term Capital Loss Against Long-term Capital Gain:The assessee argued that the AO erred in not allowing the set-off of short-term capital loss of Rs. 55,25,462/- against long-term capital gain of Rs. 5,27,20,000/-. The Tribunal restored this issue to the AO for verification and fresh decision.9. Credit for Tax Deducted at Source:The assessee argued that the AO did not grant credit for tax deducted at source of Rs. 7,62,232/-. The Tribunal restored this issue to the AO for verification and fresh decision.10. Effect to Rectification Application Letters:The assessee argued that the AO did not give effect to rectification application letters regarding the set-off of capital loss and credit for tax deducted at source. The Tribunal rendered this issue infructuous as it had already restored the related issues to the AO.11. Validity of Draft Assessment Order Under Section 144C:The assessee argued that the draft assessment order was void ab initio as Section 144C was applicable only from AY 2010-11 onwards. The Tribunal, following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd., held that the procedure of issuing a draft assessment order under Section 144C is applicable from 01/10/2009, thus validating the draft assessment order.12. Time-barred Assessment Order Under Section 153:The assessee argued that the assessment order was time-barred. The Tribunal held that the final assessment order was within the limitation provided in law, dismissing the assessee's additional grounds.Conclusion:The Tribunal allowed the assessee's appeal partly for statistical purposes, directing the AO to limit the transfer pricing adjustment to international transactions with AEs and to verify the issues related to the set-off of capital loss and credit for tax deducted at source. The Tribunal dismissed the Revenue's appeal, upholding the DRP's decision on the verification of purchase expenses.