Tribunal upholds TNMM royalty ALP, restores 10AA, 80JJAA, deletes 115JB 14A add-back, remands remaining issues

ITAT partly allowed assessee's appeal and upheld CIT(A)'s relief on key issues. It held that a separate TP benchmarking for royalty was impermissible when TNMM was accepted for other international transactions; the assessee's TNMM-based ALP for royalty was directed to be accepted. Exemption u/s 10AA was sustained, holding that for A.Y. 2018-19 timely filing u/s 139(1) was not a mandatory condition and the marginal delay due to portal glitches could not defeat the claim. Deduction u/s 80JJAA, disallowed by CPC for delayed return, was also allowed. Disallowance u/s 14A as made by AO was upheld, but its addition to book profit u/s 115JB was disallowed. Issues on s.35(2AB), double taxation of LTCG and interest u/s 234C were remanded to AO.

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Issues: (i) Whether the upward transfer pricing adjustment in respect of royalty payments (framed by TPO/DRP applying CUP for royalty while accepting TNMM for other transactions) is sustainable; (ii) Whether denial of exemption under section 10AA for A.Y. 2018-19 on account of delay in filing return is justified; (iii) Whether weighted deduction under section 35(2AB) can be allowed where DSIR certificate (Form 3CL) was obtained after completion of assessment; (iv) Whether disallowance under section 14A (Rule 8D) at Rs.47,55,629/- is sustainable; (v) Whether deduction under section 80JJAA is rightly denied for delay in filing return; (vi) Whether disallowance under section 14A is required to be added while computing book profit under section 115JB; (vii) Miscellaneous computational / rectification issues remitted for verification.

Issue (i): Legality of TP adjustment of Rs.12,70,86,646/- (royalty) made by AO/TPO/DRP by segregating royalty and applying CUP while TNMM was accepted for other international transactions.

Analysis: The Tribunal analysed the TPO/DRP approach and the jurisdictional High Court decision in assessee's earlier years where the High Court held that where TNMM was accepted as the most appropriate method for all international transactions, it was not open to tax authorities to subject one element (royalty) to a different method (CUP). The Tribunal applied that ratio to the facts of A.Y.2018-19 and found the DRP/TPO direction to separately benchmark royalty using CUP inconsistent with the High Court ratio on identical facts.

Conclusion: In favour of Assessee TP adjustment on royalty as imposed by AO/TPO/DRP is set aside and the ALP as determined by the assessee using TNMM is accepted; grounds Nos.25 allowed.

Issue (ii): Validity of denial of deduction/exemption under section 10AA for filing return one day late.

Analysis: The Tribunal examined statutory text, the Finance Act, 2023 amendment (proviso to section 10AA made effective from 01/04/2024) and consistent tribunal decisions. It found that for AY 2018-19 no requirement existed in section 10AA to file return by the section 139(1) due date and that the CPC denial was solely for a short delay caused by technical issues; required reports (Form 56F, Form 3CD etc.) were filed within time.

Conclusion: In favour of Assessee denial of deduction under section 10AA for the A.Y. 2018-19 is rejected; Revenue grounds dismissed and corresponding assessee ground allowed.

Issue (iii): Allowability of deduction under section 35(2AB) where DSIR certificate (Form 3CL) was obtained after assessment.

Analysis: The Tribunal noted the assessee obtained Form 3CL post-assessment and that AO denied deduction for want of certificate. The Tribunal held verification of the certificate and expenditure nature is appropriate and remitted the matter to the AO to verify Form 3CL and grant deduction if criteria are met.

Conclusion: Partly in favour of Assessee ground allowed for statistical purposes and remitted to AO for verification of Form 3CL and consequential relief.

Issue (iv): Validity of disallowance under section 14A (Rule 8D) at Rs.47,55,629/-.

Analysis: The Tribunal considered amended Rule 8D (effective 02/06/2016) and AO's application of the Rule. It found AO had applied a plausible method and that prior tribunal decisions relied on by assessee related to pre-amendment years; AO's disallowance was not infirm in the facts.

Conclusion: Against Assessee disallowance under section 14A at Rs.47,55,629/- upheld; ground dismissed.

Issue (v): Claim of deduction under section 80JJAA denied for delay in filing return.

Analysis: The Tribunal noted that requisite certificate (Form 10DA) and other supporting documents were filed within time and the short delay in e-filing of return was due to technical glitches. It followed tribunal precedents holding machinery/formal filing delays not to defeat substantive entitlement where supporting records are timely.

Conclusion: In favour of Assessee deduction under section 80JJAA allowed; Revenue ground dismissed and corresponding assessee ground allowed.

Issue (vi): Whether disallowance under section 14A is to be added back for computing book profit under section 115JB.

Analysis: On authority of the Special Bench decision in ACIT vs. Vireet Investments and related analysis, the Tribunal held that disallowance under section 14A need not be added to book profits for section 115JB computation.

Conclusion: In favour of Assessee ground allowed; disallowance under section 14A not to be added for computing book profit under section 115JB.

Issue (vii): Miscellaneous computational and rectification issues including alleged double taxation of LTCG, interest under section 234C, short TDS/TCS credit and DDT credit.

Analysis: The Tribunal observed discrepancies in assessment computation and pending rectification applications; it considered submissions and existing records.

Conclusion: In favour of Assessee for procedural reliefs these issues are remitted to the AO for correct computation/verification; allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the TP adjustment on royalty and upheld the assessee's entitlement to specified deductions (10AA, 80JJAA), remitted the 35(2AB) claim and certain computational matters to the AO for verification, upheld the section 14A disallowance, and accordingly partly allowed the assessee's appeal and dismissed the Revenue's appeal.

Ratio Decidendi: Where the tax authority accepts TNMM as the most appropriate method for an entity's international transactions, it is not permissible to apply a different method to a component transaction (royalty) in the same ALP determination; absent a statutory requirement in section 10AA for filing the return by the due date for the year under consideration, denial of section 10AA benefits solely for a short, technical delay in e-filing is unjustified.

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