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Facts
The assessee filed an appeal against the order of the Assessing Officer (AO) for AY 2020-21, arising from directions of the Dispute Resolution Panel (DRP). The appeal primarily concerns transfer pricing adjustments, disallowances, and other grounds related to ICDS, MSMED Act interest, TDS credit, and interest under sections 234A and 234B.
Held
The Tribunal dismissed grounds related to transfer pricing adjustments (2, 3, and 4) as withdrawn due to the existence of a Unilateral Advanced Pricing Agreement. Ground No. 6 concerning ICDS adjustments was allowed, and Ground No. 7 regarding inadmissible interest was also allowed as it was already disallowed by the assessee. Ground No. 8 concerning TDS credit was allowed, with directions to the AO to verify and grant credit. Ground No. 9 (interest u/s 234A & 234B) was deemed consequential.
Key Issues
Whether the transfer pricing adjustments, ICDS adjustments, interest disallowances, TDS credit, and levy of interest are justified based on facts and law, and whether the assessment order was time-barred or issued beyond jurisdiction.
Sections Cited
143(3), 144C(13), 144B, 153, 37(1), 144C(8), 92CA(3), 92C, 10C, 274, 270A, 23, 154, 234A, 234B
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Income Tax Appellate Tribunal, MUMBAI “H” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI SANDEEP SINGH KARHAIL
O R D E R PER VIKRAM SINGH YADAV, A.M : This appeal is filed by the assessee against the order of the Assessing Officer (AO) dt. 23-07-2024 u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [‘the Act’], consequent to the directions given by the DRP-2, Mumbai-3, pertaining to Assessment Year (AY) 2020-21, wherein the assessee has taken the following grounds of appeal:
Ground No. 1 – Legal Grounds: 1. Transfer Pricing Grounds 1.1. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (Ld. TPO) and the learned Assessing Officer (Ld. AO) under directions issued by the Hon'ble Dispute Resolution Panel ('DRP"), erred in making an addition to the Appellant's total income of INR 1,35,83,96,724/- 1.2. On the facts and circumstances of the case and in law, the final assessment order dated 23 July 2024 is issued beyond the time limit as prescribed w/s 153 of the Act. Consequently, the final assessment order is time barred and deserves to be quashed. 1.3. On the facts and circumstances of the case and in law, the Hon'ble DRP has erred in issuing directions in violation to provisions of section 144C(8), read with the explanation thereto, by directing the AO to make additional disallowance under section 37(1). Accordingly, the directions of the Hon'ble DRP are bad in law and ought to be quashed. Consequently, the final assessment order dated 23 July 2024, is bad in law and ought to be quashed. 1.4. Without prejudice to the above ground, on the facts and circumstances of the case and in law, the Ld. AO has erred in not passing the final assessment order dated 23 July 2024 as per the directions of the Hon'ble DRP Panel as prescribed in section 144C (13), thereby rendering the assessment order being null & void and liable to be quashed. 1.5. On the facts and circumstances of the case and in law, the transfer pricing order passed by the learned TP under section 92CA(3) of the Act further considered by the learned AG and confirmed by the Hon'ble DRP bad in law, illegal, unsustainable and ought to be deleted, as the learned AO/Id. TPO has not applied any of the methods for determination of arm's length price as prescribed under section 92C of the Act, read with rule 10C of the rules being the most appropriate method. 1.6. On the facts and in the circumstances of the case and in law, the learned AO/ TPO erred and the Hon'ble DRP further erred in upholding confirming the action of the learned AO/ TPO in issuing notices requiring the Assessee to show cause as to why the last year's adjustments should not be made in the current year thereby failing to appreciate that the principle of res judicata is not applicable to the assessment proceedings. 1.7. The Ld. AO, Ld. TPO and Hon'ble DRP further erred in upholding/ confirming the action of the learned AO/TPO in determining the arm's length price of the international transactions relating to Payment of License Fees/ Royalty, payment of management recharge cost and payment of II support and SAP systems recharge at NII, without appreciating that as per the provisions of the Act, the ld. TPO's role is merely to determine the arm's length nature of the transactions referred to him by the ld. AO. 1.8. Without prejudice to above, the Ld. AO, Ld. TPO and Hon'ble DRP has erred in making an adjustment to the total income of the Appellant, without disputing / rebutting or providing an explicit findings /observation on the voluminous/plethora of evidences filed by the Appellant in support of the claim that the aforesaid international transactions have been carried out at an arm's length standard and to substantiate need, receipt and benefits arising from the aforesaid international transactions. 1.9. On the facts and in the circumstance of the case and in law, the learned AO/ TPO erred and the Hon'ble DRP further erred in confirming the action of the AO/TPO in ignoring the fact that there was no intention by the Appellant to shift profits outside India. 1.10. Ld. AO, Ld. TPO and Hon'ble DRP has erred in initiating penalty proceedings under section 274 read with section 270A of the Act, without appreciating the fact that the additions made by the Ld. AO are not in accordance with the law. Ground No. 2- Transfer Pricing-Payment for IT Support and SAP System charges 2.1. On the facts and in the circumstances of the case and in law, the Ld. AO/ National Faceless Assessment Centre (Ld. AO) and the Ld. TPO, erred in determining the Arm's Length Price ('ALP") of the transaction pertaining to payment for IT Support and SAP System charges by the Appellant to its AE as 'NII' as against INR 40,64,05,307 paid/determined by the Appellant. 2.2. The Ld. AO, Ld. TPO and Hon'ble DRP has erred in making an adjustment without considering the fact that the cost allocation methodology is uniformly and consistently followed by the Schindler Group for charging intra group charges to all the group companies globally. 2.3. The Ld. AO, Ld. TPO and Hon'ble DRP has erred in not appreciating that the Appellant duly withheld the taxes on payment made to the AE and that the AE has also duly filed a return of income in India offering such services to taxes, and that disallowing payments made by the Appellant would lead to double taxation. 2.4. The Ld. AO. L.d. TPO and Hon'ble DRP erred in upholding/ confirming the action of the learned AO/TPO whereby they have exceeded their jurisdiction in questioning the commercial expediency of the Appellant and in applying the need-evidence-benefit test in relation with the international transactions carried out by the Assessee the in determining the arm's length price of the international transactions relating to Payment of IT support and SAP systems recharge. The Ld. AO, Ld. TPO and Hon'ble DRP has erred in deviating from approach adopted in the Appellant's own case in preceding assessment years (prior to AY 2016-17), wherein consistently, the said international transactions have been held to be at arm's length. Ground No. 3- Transfer Pricing-Payment for License fees/ Royalty 3.1. The Ld. AO/Ld. TPO erred in determining the ALP of payment of royalty to Inventio AG as NIL, instead of INR 65,38,76,796. The Ld. TPO erred in making an ad hoc adjustment based on his presumptions, without understanding and appreciating the facts of the case. 3.2. On the facts and in the circumstances of the case and in law, the Ld. AO/TPO erred and the Hon'ble DRP further erred in rejecting benchmarking approach adopted by Assessee using Comparable Uncontrolled Price method (CUP) as the Most appropriate method selected by the Assessee based on the contemporaneous data in the transfer pricing study report maintained as per section 92D of the Act read with Rule 100 of the Rules, and using 'Other Method for benchmarking the aforesaid international transactions. 3.3. The Ld. AO, Ld. TPO and Hon'ble DRP erred in rejecting the benchmarking analysis as undertaken by the Appellant merely for a reason the comparables selection are the foreign comparables which is based on the selection of tested party. However, the learned AO/TPO erred by not providing any reasons to reject the AE as the tested party. 3.4. The Ld. AO, Ld. TPO and Hon'ble DRP has erred in concluding that the Appellant should not pay royalty as the IP's are used since inception of the company ie. the IP's lose their value over the time and cannot be used for payment of royalty. The Ld. AO/ TPO erred in disregarding the agreement submitted by the Assessee and concluding that the agreement is mostly for license of trademark and patents, which the Assessee has been using for last 16 years. 3.5. The Ld. AO/NFAC, Hon'ble DRP and the Ld. TPO erred in upholding/ confirming the action of the learned AO/TPO whereby they have exceeded their jurisdiction in questioning the commercial expediency of the Appellant and in applying the need-evidence-benefit.
Ground No. 4- Transfer Pricing - Payment in relation to Management Services 4.1. The Ld. AO/Ld. TPO erred in determining the ALP of the transaction pertaining to payment of management recharge by the Assessee to AE as 'NIL' as against INR 29,81,14,621 paid/determined by the Assessee. 4.2. Ld. AO, Ld. TPO and Hon'ble DRP has erred in making an adjustment without considering the fact that the cost allocation methodology is uniformly and consistently followed by the Schindler Group for charging intra group charges to all the group companies globally. Further erred in Concluding that the allocation details as submitted and further supported by certification from an independent consultant certifying the cost allocation methodology, as inappropriate without finding out any discrepancies in the allocation workings. 4.3. Ld. AO, Ld. TPO and Hon'ble DRP has erred in not appreciating that the Appellant duly withheld the taxes on payment made to the AE and that the AE has also duly filed a return of income in India offering such services to taxes, and that disallowing payments made by the Appellant would lead to double taxation. 4.4. Ld. AO, Ld. TPO and Hon'ble DRP has erred Seeking documentation in relation with payment made by the AE to third party for which Assessee is not in privy to such documentation thereby causing undue hardships to the Assessee in resulting in assessment made by the Ld. AO/TPO to be arbitrary and unreasonable. 4.5. L.d. AO, Ld. TPO and Hon'ble DRP erred in upholding/ confirming the action of the learned AO/ TPO whereby they have exceeded their jurisdiction in questioning the commercial expediency of the Appellant and in applying the need-evidence-benefit test 5. Ground No. 5: Additions made in the Impugned Order on account of Intimation U/S 143(1) is in violation of Section 144C of the Act: 5.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in considering income as per intimation issued u/s 143(1) of the Act instead of the returned income as starting point for computing the assessed income. 5.2. The Ld. AO ought to have appreciated that considering income computed as per the intimation issued u/s 143(1) is not in accordance with Section 144C of the Act. 5.3. The Appellant prays that the Ld. AO be directed to consider returned income instead of income as per intimation u/s 143(1) as starting point for computing the assessed income of the Appellant.
Without Prejudice to Ground No. 5: 6. Ground No. 6: Addition on account of Income Computation and Disclosure Standard ("ICDS") amounting to INR 12,40,29,831/-: 6.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in making an addition of INR 12,40,29,831/- to the total income of the Appellant on account of ICDS adjustments reported in the Tax Audit Report for the year under consideration. 6.2. The Ld. AO failed to appreciate that since the Appellant has suo moto disallowed the aforesaid ICDS adjustment in its return of income, disallowing the same again would lead to a double disallowance. 6.3. The Appellant prays that the L.d. AO be directed to delete the addition of INR 12,40,29,831/- on account of ICDS adjustment. Without Prejudice to Ground No. 5: 7. Ground No. 7: Addition on account of interest inadmissible U/S 23 of The Micro, Small And Medium Enterprises Development Act, 2006 ("MSMED Act") amounting to INR 1,00,699/-: 7.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in making an addition of INR 1,00,699/- to the total income of the Appellant on account of inadmissible interest u/s 23 of the MSMED Act. 7.2. The Appellant prays that the Ld. AO be directed to delete the addition inadmissible interest u/s 23 of the MSMED Act amounting to INR 1,00,699/-. Ground No. 8: Short Grant of Credit of Tax Deducted at Source ("TDS") amounting to INR 5.86.957/-: 8.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in making a granting credit of TDS amounting to INR 24,20,36,253/- instead of INR 24,26,23,210/-, resulting in short grant of tax credit amounting to INR 5,86,957/- 8.2. The Appellant prays that the Ld. AO be directed to grant the credit for TDS amounting to Rs. 5,86,957/- 9. Ground No. 9: Levy of Interest U/S 234A and 234B of The Act: 9.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest u/s 234A and 2348 of the Act amounting to INR 92,63,601/- and INR 16,05,69,084/-, respectively. 9.2. The Appellant prays that the Ld. AO be directed to delete/ appropriately reduce the interest u/s 234A and 234B of the Act.
The Appellant prays that the additions made by the Ld. TPO/Ld. AO under the directions of the Hon'ble DRP be deleted and consequential relief be granted. The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law.
Regarding Ground no. 1, during the course of hearing, it was submitted that the assessee doesn’t wish to press ground no. 1.2 wherein the assessment order has been challenged on account of limitation and it was submitted that the assessee has also filed a letter dated 2/06/2025 requesting for withdrawal of the said ground of appeal
. It was further submitted that even though the AO has not made any addition u/s 37(1), the assessee out of abundant caution has taken ground no. 1.3. It was further submitted that rest all grounds relates to transfer pricing adjustment and in view of specific grounds of appeal which the assessee has taken and wishes to withdraw, the same doesn’t call for any separate adjudication. In view of the submissions so made, the grounds so sought to be withdrawn are dismissed as withdrawn and rest all grounds doesn’t call for separate adjudication.
3. In Ground No. 2, the assessee has challenged the Transfer Pricing (TP) adjustment on account of payment for IT Support and SAP System Charges. In Ground No. 3, the assessee has challenged the TP adjustment on account of payment for License Fees/Royalty. In Ground No. 4, the assessee has challenged the TP adjustment on account of payment in relation to Management Services.
4. In this regard, during the course of hearing, the Ld.AR submitted that the assessee and the Central Board of Direct Taxes (CBDT) entered into a Unilateral Advanced Pricing Agreement (APA) on 15-10-2024 for the period starting from FY. 2011-12 to FY. 2019-20. It was submitted that the impugned transactions relating to payment of IT Support and SAP System Charges, Payment of Royalty and payment of Management Charges stand covered under the said APA and hence, the assessee wishes to withdraw the Grounds No. 2, 3 and 4 pertaining to the said TP adjustment. It was also submitted that in this regard, the assessee had already submitted a letter dt. 19-05-2025 with the Registry and our reference was drawn to the said letter during the course of hearing.
The Ld. CIT/DR was heard, who has not raised any objection to the withdrawal request so made by the assessee.
After hearing both the parties and considering the request made by the assessee vide its letter dt. 19-05-2025 as well as the submissions made by the Ld.AR, all these three grounds of appeal
no. 2,3 and 4 are dismissed as withdrawn.
7. In Ground No. 6, the assessee has challenged the addition of Rs. 12,40,29,831/- on account of Income Computation and Disclosure Standard (ICDS) adjustment reported in tax audit report relating to tangible fixed assets.
8. In this regard, during the course of hearing, the Ld. AR taken us through the return of income, the tax computation as well as the tax audit report submitted by the assessee. It was submitted that as apparent from the return of income as well as the computation of income, the assessee has added back the book depreciation and has claimed depreciation as per the provisions of the Act and, therefore, the necessary adjustment on account of ICDS on account of tangible fixed assets has already been done by virtue of the said adjustment of book depreciation and tax depreciation.
It was further submitted that the tax auditors, however, while reporting the ICDS adjustments have inadvertently again taken into consideration the said adjustment on account of tangible fixed assets amounting to Rs. 12,40,29,831/- and which has formed the basis of disallowance by the CPC while processing the return of income. It was submitted that during the course of assessment proceedings, the AO inquired about the ICDS adjustment and no addition was proposed. However, while computing the income, he has taken the assessed income as per the intimation u/s. 143(1) of the Act, which has resulted in double disallowance on account of ICDS adjustment on account of fixed assets. It was submitted that the assessee raised the necessary objections before the DRP. However, no relief has been provided by the DRP in this regard and hence, the assessee has filed the present ground, seeking the necessary relief against the double disallowance.
The Ld. CIT/DR was heard, who has relied on the order of the lower authorities.
After hearing both the parties and considering the material available on record and in particular the return of income, the tax computation and the tax audit report, we find merit in the contention so advanced by the Ld.AR. We find that the assessee has done the ICDS adjustment on account of tangible fixed assets while disallowing the book depreciation and claiming the tax depreciation. However, the tax auditors have separately reported the said adjustment as part of the tax audit report and which has again been picked up by the CPC while processing the return of income and to formed the basis for double disallowance amounting Rs. 12,40,29,831/- and the same is hereby directed to be deleted. In the result, Ground No. 6 taken by the assessee is allowed. In light of the same, ground no. 5 which is general is nature, doesn’t call for any separate adjudication.
In Ground No. 7, the assessee has challenged the addition of Rs. 1,00,699/- on account of inadmissible interest u/s. 23 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). During the course of hearing, our reference was drawn to the computation of income and the return of income so filed by the assessee and it was submitted by the Ld.AR that the assessee has already made the disallowance while filing the return of income. Hence, the same be directed to be deleted.
The Ld. CIT/DR was heard, who has relied on the order of the lower authorities.
After hearing both the parties and considering the material available on record, we find merit in the contentions advanced by the Ld.AR that the Rs. 1,00,699/- has already been disallowed by the assessee while filing the return of income and the same thus does not call for further disallowance. Hence, the same is directed to be deleted and the ground of appeal
is allowed.
14. In Ground No. 8, the Ld.AR submitted that the assessee has requested for granting of credit of Tax Deducted at Source (TDS) amounting to Rs. 5,86,957/- as per Form 26AS and the necessary directions may be issued by the AO. It was submitted that the assessee has also moved an application u/s. 154 of the Act and which has also not been disposed off. The Ld. CIT/DR was heard. After hearing both the parties, the AO is directed to verify Form 26AS and where on such verification, the claim of the assessee regarding the short period of TDS is found to be in order, the AO is hereby directed to grant the necessary credit of TDS to the assessee. The ground is thus allowed for statistical purposes.
Ground No. 9 relates to the levy of interest u/s. 234A and 234B of the Act. The same are consequential in nature and does not require any separate adjudication.
In the result, the appeal filed by the assessee is disposed off in light of aforesaid directions. Order pronounced in the open court on 06-06-2025 Sd/- Sd/- [SANDEEP SINGH KARHAIL] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 06-06-2025 TNMM