×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
This appeal by the assessee is directed against the final assessment order dated 26.08.2015 passed by the learned Deputy Commissioner of Income-tax, Circle -14(1), New Delhi, (in short ‘the learned Assessing Officer’) for assessment year 2011- 12, pursuant to the directions dated 01.07.2015 of learned Dispute Resolution Panel (DRP). The grounds raised by the assessee are reproduced as under:
1. That the learned DRP and consequently the A.O. have grossly erred in law and on facts and in circumstances of the appellant’s case in making adjustment u/s 92CA(3) of the Income-tax Act amounting to Rs. 10,63,122/- on account of alleged delay in recovering the outstanding trade receivables from the AE.
2. That the order of assessment is bad in law and on facts of the appellant’s case.
3. That the learned DRP and consequently the AO have erred in law and on facts and in the circumstances of the appellant’s case in disregarding the internal CUP furnished by the assessee between the transactions with the AE and with non-AE for the credit period extended.
4. That the learned DRP and consequently the AO have erred in holding that the benchmarking of the income to be earned on the delayed trade receivables should be based on the interest rate charged by the Indian banks for domestic loans extended in India.
5. That without prejudice and subject to Ground 6 below, the learned AO has erred in law in not giving the benefit of base rate of SBI as on 30 June of the relevant financial year with regard to safe harbour rules.
6. That without prejudice, the learned DRP and consequently the AO have grossly erred in not applying the LIBOR rate as applicable to the international transactions of loans in the foreign currency to the trade receivables of the assessee.
7. That the lea ned DRP and consequently the AO have grossly erred in law in re-characterizing trade receivables against sales made as independent transaction from the transaction of sales made to the AE and requiring separate benchmarking.
7.1 That the Hon’ble DRP grossly erred in law in not appreciating that the transaction of sales & receivables were required to be aggregated for the purpose of TP analysis.
7.2 That the margins derived by the tested party were way beyond the comparables and thus failed to apply the view taken by Delhi HC in case of Sony Ericsson Mobile Communications in its correct perspective.
8. That the learned DRP and consequently the AO have erred in law in denying the benefit of Sec 1 OB of the Act being 100% Export Oriented Unit.
9. That the learned DRP and consequently the AO have erred in law in alleging that the approval granted by Joint Development Commissioner has not been subsequently ratified by the Board Of Approvals.
10. That the Hon’ble DRP and Ld. AO failed to appreciate that the ratification is internal process of the Board of Approval and assessee is not a party to the same.
11. That the benefit of Sec 1 OB has been denied on the assumption of the fact that the assessee is supposed to have formal ratification approval from the Board of Approvals.
11.1 That the directions by DRP on the claim u/s 10B for the years not before DRP are extraneous, illegal and are prayed to be expunged.
11.2 That the order passed by DRP denying the deduction u/s 10B are based on conjectures, surmises, imaginations and reasons which are beyond the control of the assessee and are prayed to be nullified.
12. That each ground in independent of and without prejudice to the other grounds raised herein.
2. Briefly stated facts of the case are that the assesseecompany was engaged in the business of manufacturing of Thread Rolling Dies, Milled Flat Dies and Milled Ground Dies and sale of Screws etc. For the year under consideration, the assessee filed return of income, declaring income of Rs.1,14,72,196/- on 25.09.2011. The case was selected for scrutiny and notice under Section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) was issued and complied with. In view of the international transaction carried out by the assessee with its Associated Enterprises (AEs), the Assessing Officer referred the matter of determination of Arm’s Length Price (ALP) of those international transactions to the learned Transfer Pricing Officer (TPO). The learned TPO proposed an adjustment of Rs.9,38,224/- on account of international transaction of interest on overdue receivables.
2.1 The learned Assessing Officer issued a draft assessment order on 26.08.2015, in which, along with addition of the transfer pricing adjustment proposed by the Ld. TPO, he also proposed disallowance of deduction under Section 10B of the Act amounting to Rs.10,63,73,255/-. Against the draft assessment order, the assessee filed petition before the learned DRP. The learned DRP increased the transfer pricing adjustment to Rs.10,63,122/-, however, subsequently rectified to to Rs.7,22,120/- vide order passed under Section 154 of the Act, dated 20.10.2015. On the issue of disallowance under Section 10B of the Act, two members of the learned DRP upheld the disallowance, although on the grounds not relied upon by the learned Assessing Officer.
2.2 Aggrieved with the disallowances sustained by the learned DRP and incorporated by the Assessing Officer in the final assessment order dated 26.08.2015 read with TPO's order dated 20.10.2015, the assessee is in appeal raising the grounds as reproduced above
3. In the grounds raised, ground nos. 1 to 7.2 of the appeal are related to the issue of interest on overdue receivables of Rs.7,22,122/-. The facts qua the issue in dispute are that, the assessee reported international transactions of sale of finished goods, amounting to Rs.29.28 crores to its AEs and for which it applied TNMM as the most appropriate method. The assessee earned margin under the TNMM method @48.06% based on Operating Profit/Operating Cost (OP/OC), whereas the comparables had earned decrease margin of 5.62%. All the reported international transactions were accepted at the ALP and no adjustment was made by the Ld. TPO. However, the Ld. TPO