Buy-back tax transitional relief cannot be defeated by retrospective procedural conditions where timely disclosures substantially satisfy material requirements.
Buy-back tax transitional relief for listed shares under section 115QA remains available where material public disclosures substantially satisfied requirements on or before 5 July 2019; retrospective procedural conditions unavailable when the transaction was undertaken cannot defeat accrued rights. Manufacturing functions, unchanged facts and the absence of established documentation defects support retaining the Cost Plus Method; the Berry ratio omits essential production costs. Uniform interest-free credit terms for associated and unrelated customers do not support notional-interest adjustments based on an unsupported shorter credit period. Employees' provident-fund contributions paid on the next working day after a Sunday due date are timely and deductible. Unexplained expenditure requires actual expenditure and an unexplained source; rough diary notings alone are insufficient where a recorded invoice explains the transaction and no contrary corroboration exists.
Issues: (i) Whether the Berry ratio could replace the Cost Plus Method for benchmarking manufacturing sales and purchases with associated enterprises; (ii) Whether notional interest on delayed trade receivables from associated enterprises was justified; (iii) Whether employees' provident-fund contributions deposited on the working day after a Sunday due date were deductible; (iv) Whether the listed company's buy-back attracted additional tax under section 115QA despite pre-cut-off disclosures and a later formal public announcement; (v) Whether rough diary notings established unexplained expenditure under section 69C.
Issue (i): Whether the Berry ratio could replace the Cost Plus Method for benchmarking manufacturing sales and purchases with associated enterprises.
Analysis: No defect satisfying section 92C(3) was established in the documentation maintained under section 92D of the Income-tax Act, 1961 and rule 10D of the Income-tax Rules, 1962. Functions, assets and risks analysis under rules 10B(2) and 10C established substantial manufacturing activity, employment of tangible and intangible assets, and entrepreneurial risks. The Berry ratio did not capture the material and production costs essential to that activity. The consistently accepted Cost Plus Method, using gross profit to cost of production, remained appropriate on unchanged facts. For assessment year 2020-21, the assessee's margin of 15.43% exceeded the 9.99% median of the comparables selected by the Transfer Pricing Officer, satisfying the arm's length principle. The same reasoning applied to assessment year 2021-22 under the rule of consistency.
Conclusion: The sales-and-purchases adjustments of Rs. 1,36,31,75,249 for assessment year 2020-21 and Rs. 1,41,06,22,743 for assessment year 2021-22 were deleted, in favour of the assessee.
Issue (ii): Whether notional interest on delayed trade receivables from associated enterprises was justified.
Analysis: The section 92CA adjustments rested on an assumed 60-day credit period and treatment of subsequent outstanding balances as unsecured loans. The actual credit policy uniformly allowed 180 days to associated enterprises and unrelated customers, without charging either category interest on delayed receipts. That policy also accorded with the applicable foreign-exchange guidelines. The assumed shorter period lacked a factual basis, and the reasoning previously applied to identical credit arrangements remained applicable. No factual distinction supporting a separate notional-interest adjustment was established.
Conclusion: The notional-interest adjustments of Rs. 96,03,898 for assessment year 2020-21 and Rs. 1,09,25,934 for assessment year 2021-22 were deleted, in favour of the assessee.
Issue (iii): Whether employees' provident-fund contributions deposited on the working day after a Sunday due date were deductible.
Analysis: Section 36(1)(va) of the Income-tax Act, 1961 was applied with the computation of time principle under section 10 of the General Clauses Act, 1897. The prescribed payment date, 15 December 2019, fell on a Sunday, and the contribution was deposited on 16 December 2019, the next working day. These facts were undisputed and satisfied the direction that payment on the subsequent working day be treated as timely where the due date was a public holiday.
Conclusion: The employees' provident-fund contribution of Rs. 19,68,509 was deductible, and the disallowance was deleted, in favour of the assessee.
Issue (iv): Whether the listed company's buy-back attracted additional tax under section 115QA despite pre-cut-off disclosures and a later formal public announcement.
Analysis: The proviso to section 115QA(1) excluded listed-share buy-backs publicly announced on or before 5 July 2019 in accordance with the securities regulations. Board approval, stock-exchange disclosures, the postal-ballot notice and publicity had placed the material buy-back information in the public domain in May 2019. Although formal publication under the prescribed securities-regulation procedure followed in August, the retrospectively introduced condition was treated as unavailable for compliance when the relevant steps were completed. Disclosure of the material information contemplated by Schedule I constituted substantial compliance. The legislative purpose of transitional relief, reliance on the information then publicly available, and protection of accrued rights prevented procedural machinery from defeating that relief.
Conclusion: Additional tax under section 115QA was not leviable on the disputed buy-back, and the addition of Rs. 71,99,99,211 was deleted, in favour of the assessee.
Issue (v): Whether rough diary notings established unexplained expenditure under section 69C.
Analysis: Section 69C requires expenditure to have been incurred and its source to remain unexplained. Rough negotiation figures in an employee's diary did not establish actual unaccounted expenditure. The assessee identified the author and explained that the proposed prices culminated in a final invoice of Rs. 2,70,928, which was recorded in the regular books. The evidentiary burden was discharged through that explanation and supporting invoice. No inquiry with the employee or vendor, or contrary corroborative evidence, displaced the explanation. The diary figures alone could not support the addition.
Conclusion: The unexplained-expenditure addition of Rs. 3,97,000 was deleted, in favour of the assessee.
Final Conclusion: The assessments require recomputation after excluding the specified sales-and-purchases and receivables adjustments, the provident-fund disallowance, the buy-back addition and the Rs. 3,97,000 diary-based expenditure addition.
Ratio Decidendi: A retrospectively prescribed procedural condition for transitional exclusion from buy-back tax cannot defeat the benefit where the material disclosure requirements were substantially complied with before the statutory cut-off and the prescribed condition was unavailable when the transaction was undertaken.