2015 (7) TMI 1282 - AT - Income Tax

TPA - DRP rejecting the entity level TNMM adopted by the TPO and directed to compute the adjustment at transaction level only Held that - The undisputed fact is that the TP adjustments have to be made only for the transaction with the Associated Enterprises. A similar view was taken by the Tribunal in the case of Ratilal Becharlal & Sons 2012 (11) TMI 988 - ITAT MUMBAI wherein the Tribunal at para-13 of its order has held that adjustment arising out of ALP cannot be made on the entire turnover and the same has to be restricted to the International transaction with the AE. Thus the ALP has to be at International Transaction and not in relation to assessee s entire sales/turnover. - No error in the directions of the DRP. Appeal filed by the Revenue is accordingly dismissed. Not allowing the benefit of the proviso to Sec. 92C - Held that - A perusal of the assessment order shows that following the directions of the DRP the AO has made TP adjustment of Rs. 3, 16, 022/-. We find force in the contention of the Ld. Counsel that the benefit of proviso i.e. the difference is within the range of / - 5% should be allowed to the assessee. We direct the AO to verify this contention of the assessee and decide the issue as per the provisions of the law. Disallowance being loan written off - Held that - Firstly the assessee lended money to MST knowing fully well that MST is not in a position to carry on the work of the assessee as it does not possess the necessary facilities. Yet the assessee advanced money to MST. The recovery of machinery from MST was nothing but recovery on account of adjustment of loan since the assessee has grossly failed to establish any commercial expediency in giving advance to MST we do not find any reason to allow the write off as expenditure. We therefore confirm the findings of the DRP. Brought forward losses - Held that - This issue has to be relooked as we have confirmed the findings of the DRP in so far as Transfer Pricing adjustments is concerned in Revenue s appeal. The AO is directed to decide this issue afresh as per provisions of the law.

Summary

Issues involved:
1. Dispute regarding Transfer Pricing adjustment at entity level vs. transaction level.
2. Late filing of Cross objection by the assessee.
3. Benefit of the proviso to Sec. 92C of the Act.
4. Disallowance of loan written off.
5. Treatment of brought forward losses.

Transfer Pricing Adjustment - Entity vs. Transaction Level:
The Revenue contested the rejection of entity level TNMM by the DRP, advocating for adjustment at transaction level only. The Tribunal noted that TP adjustments should be limited to transactions with Associated Enterprises, referencing a similar decision in Ratilal Becharlal & Sons case. Upholding the DRP's direction, the Tribunal dismissed the Revenue's appeal, emphasizing that ALP should be determined at the transaction level with AEs.

Late Filing of Cross Objection:
The Cross objection by the assessee was delayed by 80 days, but the Tribunal, after reviewing the affidavit supporting the condonation of delay, found reasonable cause for the delay and thus condoned the delay.

Benefit of Proviso to Sec. 92C:
The Tribunal directed the AO to verify if the TP adjustment falls within the permissible range of +/- 5% as per the proviso to Sec. 92C, allowing the assessee the benefit of this provision.

Disallowance of Loan Written Off:
The dispute centered on the disallowance of a loan written off as unrecoverable. The DRP upheld the disallowance, stating the loan was granted for capital purposes and not part of the business income. The Tribunal concurred, highlighting that the loan was not offered for taxation earlier and lacked commercial expediency, thus confirming the DRP's decision.

Treatment of Brought Forward Losses:
Regarding the treatment of brought forward losses, the Tribunal directed the AO to reevaluate the issue in light of the Transfer Pricing adjustments, as the findings of the DRP were upheld in the Revenue's appeal, necessitating a fresh decision as per the law.

In conclusion, the Tribunal dismissed the Revenue's appeal while partly allowing the assessee's cross objection. The judgment addressed various issues related to Transfer Pricing, loan disallowance, and brought forward losses, providing detailed analysis and directions for further assessment in specific areas.