2018 (5) TMI 1165 - HC - Income Tax

Transfer Pricing Adjustment - interest on loan to Sun Pharma Global Inc (AE) at London Inter Bank Offer Rate (LIBOR) Plus 2% Rate which is almost equal to the Prime Landing Rate or American Bank lending rate - Held that - We notice that the amount involved is merely Rs. 40, 000/-. Looking to the smallness of claim the question is not considered. Addition u/s 14A - Held that - CIT (A) gave partial relief but made disallowance under section 14A of the Act. In further appeals by the Revenue as well as by the assessee the Tribunal uphold applicability of section 14A of the Act but provided that Rule 8D formally may be applied. In that view of the matter this question does not arise at the hands of the Revenue. We make it clear that we have already admitted Revenue s contention regarding non-applicability of section 37 of the Act. Such question would not be influenced by non-entertaining this question. Disallowance of provision for leave encashment u/s. 43B - Revenue contends that in view of section 43B of the Act such provision would not be allowable deduction - assessee relies on the judgement of Exide Industries Ltd and another v. Union of India and others 2007 (6) TMI 175 - CALCUTTA High Court and the Tribunal by the impugned judgement noted that the SLP against such judgement is pending before the Supreme Court - Held that - We recognize the genuine difficulty in view of sub-section (6) of section 153 now amended. Mere admission of this question in this Tax Appeal will also not solving the issue since this would give rise to chain of proceedings out of the order that the Assessing Officer may be compelled to pass within the statutory time frame. This issue is placed before the CIT (A) who would dispose of the proceedings once the judgement of the Supreme Court in the Revenue s appeal against such judgement of Calcutta High Court is rendered. This question is disposed of accordingly.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Interest
2. Transfer Pricing Adjustment on 0% OFCDs
3. Addition to Arm's Length Price for Corporate Guarantee
4. Transfer Pricing Adjustment on Sale of Tablets
5. Admission or Rejection of Additional Evidence
6. Weighted Deduction for Foreign Trade Marks and Patents
7. Weighted Deduction for Revenue Expenditure
8. Addition to Book Profit under section 115JB
9. Disallowance of Expenses on Behalf of Another Entity
10. Treatment of Exempted Partnership Profit
11. Provision for Leave Encashment under section 43B

Transfer Pricing Adjustment on Interest:
The High Court considered whether the ITAT was justified in setting aside the CIT(A)'s findings and directing the Assessing Officer to delete the Transfer Pricing Adjustment on interest. The court analyzed the provisions of section 92C of the Act and the computation of Arm's Length Price in detail. The judgment focused on the specific amounts involved and the rates used in the adjustments.

Addition to Arm's Length Price for Corporate Guarantee:
The court examined whether the ITAT was correct in deleting the addition to the Arm's Length Price for a Corporate Guarantee, emphasizing that it did not amount to international transactions. The judgment discussed the legal aspects and the reasoning behind the ITAT's decision in this regard.

Weighted Deduction for Foreign Trade Marks and Patents:
Regarding the claim for weighted deduction under section 35(2AB) for expenses related to Foreign Trade Marks and Patents, the court reviewed the ITAT's decision and considered the provisions of the Income Tax Act. The judgment delved into the eligibility criteria and the reasoning behind upholding the assessee's claim for weighted deduction.

Provision for Leave Encashment under section 43B:
The court addressed the issue of disallowance of provision for leave encashment under section 43B of the Act. It discussed the conflicting views and referred to the pending Supreme Court decision related to a similar case. The judgment highlighted the potential time constraints for the Assessing Officer due to the amended provision of sub-section (6) of section 153 and proposed a solution involving the CIT(A) for further proceedings.

Conclusion:
The judgment provided a detailed analysis of various substantial questions of law raised in the Tax Appeal, focusing on transfer pricing adjustments, weighted deductions, additions to Arm's Length Price, and provisions related to leave encashment. It highlighted the legal interpretations, factual circumstances, and implications of the ITAT's decisions, ultimately guiding the resolution of each issue based on the applicable laws and precedents.