The order of the Bench was delivered by
I.P. Bansal, Judicial Member - This is an appeal filed by the assessee. It is directed against assessment order dated 7/10/2010 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act). The assessee has filed concise grounds which read as under:
"I. On the facts and in the circumstances of the case, the Learned Transfer Pricing Officer (hereinafter referred to as "Ld.TPO") and the Learned Assessing Officer (hereinafter referred to as "Ld. AO") have erred in proposing, and the Hon'ble Dispute Resolution Panel (hereinafter referred to as "Hon'ble DRP") has erred in confirming (under Section 144C(6)), the addition of Rs. 3.83 crores to the income of the appellant for AY 2006-07 under section 92CA(3).
II. On the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have erred in proposing and the Hon'ble DRP has erred in confirming the rejection of a comparable company namely, Nicco Corporation Limited (from the set of comparable companies for Power segment) solely on the basis of the financial results (i.e. losses incurred) of the said comparable company, thereby disregarding the provisions of the Rule 10B(2).
III. On the facts and in the circumstances of the case, the Ld. TPO and the Ld. AO have violated the proviso to Section 92C(2) by restricting the applicability of variation of +/- five percent only on the international transactions of purchases undertaken by the appellant and not applying the same on the international transactions of sales undertaken by the appellant.
IV. On the facts and in the circumstances of the case, the Ld. TPO, the Ld. AO and the Hon'ble DRP have violated the Proviso to Rule 1OB(4) of the Rules by not allowing use of comparables' data relating to two years prior to the financial year 2005-06, in addition to financial year 2005-06, for computing the arm's length price.
V. On the facts and in the circumstances of the case, the Ld. TPO and the Ld. AC have erred in proposing and the Hon'ble DRP has erred in confirming attribution of the entire short fall of Rs.3.83 crores in the profit margin of the appellant, to the transactions with associated enterprises only, instead of apportioning the same to all transactions of the appellant.
Contravention of the Hon'ble DRP's directions u/s 144C(5)
VI. In the facts and in the circumstances of the case, the Ld. AC has violated the provisions of section 144C(13) in issuing the assessment order in contravention to the directions of the Hon'ble DRP.
VII. On the facts and in the circumstances of the case and in law, the learned AO/ TPO erred in not granting reasonable and adequate opportunity to the appellant before passing order under section 143(3) rws 144C(13) of the Act and the said order being passed in violation of the principles of natural justice is liable to be quashed or alternatively set aside.
VIII. Disallowance of Employee's Contribution to provident Fund:
VIII. a. On the facts and circumstances of the case and in law, the Ld. AC erred in disallowing payments made on account of employee's contribution to provident fund amounting to Rs. 8,02,850/- (1,81,496 + 4,83,5 19 + 1,37,835) on the alleged ground that the payments have been made beyond the grace period.
VIII. b. He failed to appreciate and ought to have held that Payments for Rs. 1,81,496 and Rs.4,83,519 were made before the due date. Balance payment of Rs. 1,37,835 was made on 22.11.2005 i.e. before due date of filing of return of income.
VIII. c. The appellant prays that the aforesaid disallowance of 8,02,850/- be deleted.
IX. Disallowance u/s 40 (a) (ia):
IX. a. On the facts and circumstances of the case and in law, the Ld. AC erred in disallowing a sum of Rs. 1,71,38,714/- (65,36,243 + 1,06,02,471) u/s 40(a)(ia) on the alleged ground that no details of TDS were submitted during assessment proceedings.
IX. b. He failed to appreciate and ought to have held TDS was deducted on all the items disallowed by the Ld. AC. However, due to voluminous nature, only sample evidences were submitted before the Ld. AC and Hon'ble DRP.
IX. c. The appellant, therefore, prays that the Ld. AC be directed to delete the aforesaid disallowance.
X. Set off of accumulated losses and depreciation allowance:
X. a. On the facts and circumstances of the case and in law, the Ld. AC erred in disallowing carry forward and set off of accumulated losses of Rs.6,51,53,017/-and unabsorbed depreciation of Rs.1,21,44,325/- aggregating to Rs. 7,72,97,342/- of Alstom Transport Limited on the alleged ground that accountant's certificate in Form No. 62 as prescribed under Rule 9C of the Income-tax Rules, 1962 was not furnished.
X. b. The appellant, therefore, prays that aforesaid set off of unabsorbed losses and depreciation allowance be allowed.
Other Grounds:
XI. a. The above 'Grounds of Appeal' are all independent and without prejudice to one another.
XI. b. The appellant craves leave to supplement, to cancel, amend, add and/or otherwise alter/modify any or all the grounds of the appeal stated hereinabove."
3. Shri Sunil M. Lala argued the matter relating to addition made on account of T.P adjustment. He submitted that adjudication of Ground No.5 is sufficient to deal with the issue relating to addition made on account of T.P adjustment. The facts relating to this addition are that the assessee's power segment in respect of which TP adjustment has been made has a turnover of Rs.891.21 crores. Its OP/Sale percentage is 6.06%. Out of the aforementioned transactions the assessee had four transactions of purchases from its Associated Enterprises(AE) totalling to Rs.69.32 crores. Therefore, Ld. TPO observed that benchmark needed to be the Arm's Length Price (ALP) of the purchases. The Ld. TPO selected 12 comparable and their OP/sales percentage was computed at 6.44%. The TPO calculated the operating cost of power segment by applying 6.03% at Rs.837.20 crores as against the turnover of the assessee of Rs.891.21 crores. In this manner Ld. TPO has calculated the arms length operating cost of the assessee at Rs.833.37 crores ( 100 -6.47 = 93.51% of sales). Thereafter, Ld. TPO had made adjustment of Rs.3,83 crores (Rs.837.20 - 833.37). The TPO has made this addition on the ground that it is beyond 5% of the AE's cost which is computed at Rs.69.32 cores. All these figures are mentioned in para-8 of the order of Ld. TPO which for the sake of convenience is reproduced below:
"8. Determination of the Arm's length price:
APIL's power segment has turnover of Rs.891.21crores. Its OP/Sales percentage is 6.06%. Since the main transactions with AEs are of purchases (4 transaction totalling to Rs. 69.32 Crores (41.25+4.39+13.68+9.99)), we need to benchmark the arm's length price of purchases. The OP/ Sales percentage of comparables is 6.49%. Operating Cost(OC) of Power segment is 100- 6.03=93.94% of Sales of Rs. 891.21 crores, i.e., Rs. 837.20 crores, which includes AE cost of Rs. 69.32 crores. The Arm's Length Operating Costs are 100 - 6.49 = 93.51% of Sales of Rs.891.21 crores, i.e., Rs. 833.37 crore Therefore, this calls for a Transfer Pricing Adjustment of Rs. 837.20 - 833.37 = Rs. 3.83 crores, which is beyond 5% of the AE costs of Rs. 69.32 crores."
4. Firstly, it is the case of the assessee that Ld. TPO while making the adjustment has considered the entire turnover whereas according to well established law TP adjustment can be made only in respect of transactions entered into by the assessee with its AEs. Such proposition is contended to be supported by various decisions relied upon by the Ld. AR as under:
| Sr.No. |
Name |
Citation |
1. |
Emerson Process Management (India) P. Ltd. v. DCIT |
[2012] 53 SOT 281 |
2. |
SMCC Construction India Ltd. v. ACIT |
[2011] 44 SOT 63 (Del) |
3. |
II Jin Electronics (I) (P) Ltd. v. ACIT |
[2010] 36 SOT 227 (Del) |
4. |
India Japan Lighting Pvt. Ltd. v. DCIT |
(ITA No.2154/Mds/2011) |
5. |
Phonenix Mecano (India) Ltd. v. DCIT |
[2012] 49 SOT 515 (Mum) |
6. |
ACIT v. Super Diamonds |
[2012] 53 SOT 243 (Mum) |
7. |
DCIT v. Twinkle Diamonds |
[2012] 53 SOT 243 (Mum) |
4.1 The second submission of Ld. AR is that even if the mean margin taken by TPO in respect of comparables is adopted and the same is applied to the transactions of the AE then adjustment will come only to a sum of Rs.32.00 lacs, which is much below 5% of the total value of international transactions. He in this regard referred to the following chart, a copy of which was also given to Ld. DR.
"Details of Power Segment:
Working of Adjustment by taking into account only AE related cost ( and total cost on entity level)
| Power Segment |
Particulars |
Amount in Crores |
ADJUSTMENT BY THE TPO ON AN ENTITY LEVEL BASIS |
Revenue (A) |
891.21 |
NPM of comparable (B) |
6.49% |
ALP Total Cost (C=A-B) |
833.37 |
Actual Total cost |
837.20 |
Adjustment as per TPO (E=D-C) |
3.83 |
PROPORTIONATE ADJUSTMENT (AS PER COJ) ON AE COST ONLY |
Total Cost Side (Debit) AE Transactions (F) |
69.32 |
Actual Total cost, including AE and Non AE Cost(D) |
837.20 |
Proportionate Adjustment (E+F/D) |
0.32 |
ADJUSTMENT IS WITHIN +/-5% THEREFORE NIL ADDITION |
Total Cost Side (Debit) AE Transactions |
69.32 |
5% of the International Transactions |
3.46 |
Proportionate Adjustment on Cost |
0.32 |
Since adjustment of 0.32 Crores is within the 5% variation range no addition can be made |
|
4.2 Thus it was pleaded by Ld. AR that no adjustment should have been made as the difference, if any, is between the mean margin of comparable and of the assessee is much below of the 5% of the international transactions.
5. However, Ld. DR relied upon the orders passed by AO and Ld. DRP.
6. We have carefully considered the rival submissions in the light of material placed before us. So far as it relates to contention that TP adjustment is permissible only on AE transactions the same is required to be accepted as it is supported by aforementioned decisions. Therefore, we have no hesitation in holding that Ld. TPO was wrong in making TP adjustment on non-AE transactions. The adjustment, if any, should be limited to the AE transactions. Now the question will arise that whether the adjustment will fall within the safe harbour of +/- 5%. The copy of chart submitted by Ld. AR was also given to Ld. DR who could not dispute the fact that even applying the mean margin taken by Ld. TPO, the difference in the ALP would be much less than 5% of the AE transactions. In this view of the situation, we hold that no TP adjustment was required to be made and addition in this regard is deleted. Ground No.5 is allowed.
6.1 So far as it relate to other grounds relating to T.P addition ( Ground No. 1 to 4) Ld. AR did not press these grounds as required relief is available to the assessee on adjudication of Ground No.5, which is decided in favour of assessee. Therefore, other grounds are dismissed being not pressed.
7. Rest of the grounds relate to corporate issues and these grounds were argued by Shri Yogesh Thar. In respect of Ground No.6 & 7 it was submitted by Ld. AR that these grounds relate to violation of rule of natural justice as assessee was not given reasonable and sufficient opportunity for producing the relevant material to show that none of the additions which have been contested in this appeal was liable to be upheld.
8. So far as it relates to Ground No.8, it is the case of Ld. AR that all the payments which have been made subject to disallowance are made before the due date of filling return. He submitted that even in respect of employees contribution, according to recent decision of Hon'ble Himachal Pradesh High Court in the case of CIT v. Nipso Polyfabriks Ltd. [2013] 350 ITR 327/213 Taxman 376/30 taxmann.com 90, the payments made before the due date of filing the return are allowable. He submitted that the matter may be restored back to the file of AO for verification that all the payments have been made before due date of filing the return.
9. On the other hand, Ld. DR relied upon the order passed by A.O.
10. We have heard both the parties on this issue. Now law has become settled that disallowance under section 43B cannot be made even in respect of employees contribution if the same is paid before due date of filing the return. The case law relied upon by Ld. AR supports such conclusion. Therefore, we hold that no part of Provident Fund can be disallowed whether it relates to employees contribution or employers contribution, if the payment is made before due date of filing the return. Here it is the case of the assessee that all the payments have been made before the due date of filing the return. To verify such contention of the assessee the matter is restored back to the file of AO with a direction that if the payments are made before due date of filing the return no disallowance should be made. We direct accordingly. For statistical purposes this ground is considered as allowed in the manner aforesaid.
11. Apropos Ground No.9, it is the case of Ld. AR that TDS on all the items has duly been deducted and paid. Only due to voluminous nature sample evidences were submitted before the AO and Ld. DRP. He, therefore, submitted that in the interest of justice matter may be restored back to the file of AO as assessee is in a position to produce all the evidences to show that TDS has duly been deduced and paid to the Government Treasury for the disallowed amount.
12. Ld. DR relied upon the orders passed by AO and Ld. DRP.
13. After hearing both the parties and considering their submissions we restore this issue to the file of AO with a direction to re-adjudicate this issue after giving the assessee a reasonable opportunity of hearing. If the amount of TDS has been deducted and paid to the Government Treasury then no disallowance should be made under section 40(a)(ia) of the Act.
14. Apropos Ground No. 10; this issue relates to brought forward loss and unabsorbed depreciation relating to amalgamated company namely Alstom Transport Ltd., which was amalgamated with the assessee w.e.f. A.Y 2001-02. To claim such brought forward loss and unabsorbed depreciation the assessee did not submit Chartered Accountant's Certificate as prescribed under rule 9C r.w.s. 72A(2). The AO required the assessee to furnish the same. Vide letter dated 16/10/2009 Photostat copy of CA's certificate in Form No.62 dated 16/12/2009 was submitted. According to AO as per rule 9C such certificate was required to be furnished with the returns of income. As the return was filed electronically the assessee may not fie such certificate along with the return, therefore, AO observed that such certificate should have been ready before filing the return of income. The assessee did not state any reasonable cause for not obtaining such certificate before due date of filing the return. Thus, AO disallowed a sum of Rs.6,51,53,017/- on account of accumulated losses and a sum of Rs. 1,21,44,325/- on account of unabsorbed depreciation pertaining to Alstom Transport Ltd.
15. It was pleaded by Ld. AR that during the course of draft assessment proceedings the assessee though had obtained such certificate before due date of filing the return but the same could not be located. Therefore, to fulfill the statutory condition certificate dated 16/12/2009 was submitted. However, in the proceedings before Ld. DRP the earlier certificate, copy of which is filed at page-171 of the paper book, was submitted. Ld. AR submitted that the condition regarding filing of such form alongwith return of income is directory and not mandatory. He in this regard referred to the decision of Hon'ble Delhi High Court in the case of CIT v. Contimeters Electrical (P) Ltd. [2009] 317 ITR 249/178 Taxman 422 wherein it has been held that provisions of section 80IA(7) requiring to file audit report alongwith return of income are not mandatory but directory and if audit report is filed at any date before framing the assessment, then requirement of section 80 IA(7) would be met. Ld. AR further submitted that the certificate dated 24/10/2006 was submitted to Ld. DRP vide letter dated 15/9/2010, copy of which has been placed at pages 169 to 170 of the paper book. In the said letter it was submitted that this form could not be submitted during the assessment proceedings as the same was not traceable due to many changes in the staff and persons handling the tax matters. Under the circumstances fresh certificate dated 16/12/2009 was obtained and filed before AO under honest plea that the said certificate was misplaced. The permission was sought to submit the certificate. He submitted that Ld. DRP did not admit such evidence with the observation that certificate appears to be back dated. Ld. AR submitted that the matter may be restored back to the file of AO as the assessee has obtained the affidavit from the concerned Chartered Accountant to refute the allegation made in the order of Ld. DRP that the certificate appears to be back dated.
16. On the other hand, Ld. DR relied upon the orders of AO and Ld. DRP.
17. We have heard both the parties on this issue. After hearing both the parties and considering the facts and circumstances of the case which have been described in detail in the aforementioned para, we consider it just and proper to restore this issue to the file of AO with a direction to re-adjudicate the same as per law after giving the assessee a reasonable opportunity of hearing. We direct accordingly. For statistical purposes this ground is treated as allowed.
18. In the result, the appeal filed by the assessee is partly allowed for statistical purposes in the manner aforesaid.
The order pronounced in the open court on July 23, 2013.