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2014 (6) TMI 920 - ITAT HYDERABADTransfer pricing adjustment - selection of tested party in determination of Arm’s Length Price - Held that:- Since the assessee company is having various activities and only activity A.E. has undertaken in USA is to distribute the products of the assessee in USA market, we are of the opinion that A.E. can be taken as ‘tested party’ in order to examine the transactions being arms length or not. As the Ld. Counsel pleaded for restoring the matter to the file of the A.O. for undertaking the fresh exercise, we are of the opinion that TPO should examine afresh with the data available in public domain keeping in mind A.E. as the tested party and to do the needful. We make it clear that in case assessee is not able to furnish data or the data available in public domain is not appropriate, then, A.O. is free to determine comparability study taking assessee as a tested party. However, this will come only when A.E. as tested party is rejected after examining the data availability and its suitability. In order to reexamine the issue, assessee’s grounds are considered as allowed for statistical purposes and the issue is restored to the file of A.O. to consider the A.E. as tested party. Rejection of Resale Price Method (RPM) as the most appropriate method - Held that:- Since we have already considered above that A.E. should be selected as tested party, it is nothing but natural that the T.P. study should be undertaken by Resale Price Method only, as A.E. is only undertaking the distribution of assessee’s products in the local market. Profitability of the selected Comparable companies in domestic market may vary with the profit margins available abroad, particularly in the USA market. DRP also rejected the method solely on the reason that AE was not selected as tested party. Therefore, keeping in mind the submissions made by the Ld. Counsel, the issue of selection of method of resale price method or of TNMM or any other method suitable to the international transactions is also restored to the file of A.O. to examine the suitability of various methods and consider accordingly. Rejection of alternative analysis of the appellant under Transactional Net Margin Method (TNMM) and Comparable Uncontrolled Price Method (CUP) to determine the ALP - Held that:- Since we have already directed the TPO to examine afresh whether A.E. can be selected as tested party and Resale Price Method can be selected as most appropriate method, there is no need to adjudicate the issue about filters/ comparables raised in these grounds. Assessee is free to raise any contentions as and when need arises. Therefore, these grounds are considered as allowed for statistical purposes, to be adjudicated if required, in case A.O.’s/TPO’s order rejects the above issues and selects assessee as tested party and TNMM as the most appropriate method. Disallowance of PF and ESI payments - Held that:- We direct the A.O. to allow the amounts which are paid before the due date of filing of the return of income. Disallowance of loss of insurance as business expenditure - Held that:- The provisions of section 36(1)(vii) will apply only to the bad debts which are not recoverable in the course of business. If the export proceeds were not received it could have become a bad debt but assessee choose to prefer an insurance claim with ECGC. Therefore, non-recovery of the above amount is certainly a loss. Like wise, even for repairs also, had assessee charged amount directly to the P & L account when repairs were occurred, probably the receipt of ₹ 5500/- as amount of settlement of claim could have been shown as income and there will be no issue of separate claim of loss. However, since Assessee choose to make the claim on insurance company, non-recovery of the amount is certainly a loss, but not a bad debt. The contention that amount should be allowed as bad debt on write off cannot be accepted. The case law relied also do not pertain to loss claim, but to bad debt claims. The loss claimed has to be justified and DRP has correctly directed the A.O. to verify the settlement order passed by the ECGC and also the claim with New India Assurance Co. Ltd., in respect of damage of vehicle. Therefore, the directions given by the DRP are justified. A.O. however, is directed to implement the directions of the DRP, if not already done Disallowance of GDR expenses claimed under section 35D - Held that:- We modify the directions of the DRP and direct the A.O. to examine whether this claim was already allowed in earlier year and if so, allow the proportionate amount in this year being a consequential amount. In case, the expenditure was disallowed or not allowed in earlier years in the year in which this amount was incurred, A.O. is free to restrict the disallowance amount in this year consequent to the orders in earlier year. There is no need to separately verify the expenses in this year as the expenditure was not stated to be incurred in this year. Therefore, the consequential claim can be allowed on the basis of the record of the earlier year. Levy of interest under section 234B on the transfer pricing adjustments - it was the contention that assessee could not anticipate the T.P. adjustments and therefore, levy of interest under section 234B cannot be made on the adjustments made on account of T.P. provisions if any - Held that:- Considering the above submissions and also keeping in mind the principles laid down by the Hon’ble Uttaranchal High Court in the case of CIT vs. Sedco Forex International Drilling Co. Ltd., (2003 (10) TMI 40 - UTTARANCHAL High Court ) A.O. is directed to reconsider levy of interest as the issue of addition of T.P. itself is restored to the file of the A.O. for fresh consideration.
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