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Facts
The assessee challenged the final assessment order passed by the AO, which included additions based on directions from the DRP. The appeal involved several grounds, including challenges to transfer pricing adjustments, disallowance of interest on delayed TDS, and erroneous additions.
Held
The Tribunal noted that the assessee filed an application to withdraw the appeal, stating it was a duplicate of another appeal. Given that the grounds for both appeals were identical, the Tribunal deemed the appeal infructuous and dismissed it.
Key Issues
The primary issue was the assessee's application to withdraw the appeal as a duplicate, leading to the dismissal of the appeal as infructuous.
Sections Cited
143(3), 144C(13), 144B, 153, 92CA(1), 92C(3), 92D, 10AB, 92C(1), 36(1)(va), 41, 37(1), 40(a)(ii)
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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
(Assessment Year: 2021-22) Solvay Specialities India Private Ltd. ACIT, Circle 16(2) Equinox Business Park, Tower No. 4, Aayakar Bhavan, Mahrishi Karve Vs. Unit No. 903, LBS Marg, Kurla West, Road, New Marine Lines, Mumbai – 400070. Churchgate, Mumbai – 400020. PAN/GIR No. AAJCS0613F (Assessee) : (Respondent) Assessee by : Shri. Dhaval Respondent by : Shri. Pravin Salunkhe, Sr. DR Date of Hearing : 06.02.2025 Date of Pronouncement : 07.02.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the final assessment order dated 17.10.2024 of the learned Assessing Officer (‘ld. AO’ for short) passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (‘the Act'), pursuant to the directions of Hon’ble Dispute Resolution Panel (‘Hon’ble DRP’ for short), pertaining to the Assessment Year (‘A.Y.’ for short) 2021-22.
The assessee has raised the following grounds of appeal:
1. In light of the facts and circumstances of the case, as well as legal considerations, the Appellant contends that the Learned Assessing Officer (AO) and Transfer Pricing Officer (TPO) have erred, and the Hon’ble Dispute Resolution Panel (DRP) further erred in: 1.1. On the facts and circumstances of the case and in law, the Learned Assessing Officer (AO) / Transfer Pricing Officer (TPO)/ Hon’ble Dispute Resolution Panel (DRP) (as the case may be) erred in passing the order U/s.143(3) r.w.s. 144C(13) of the Income Tax Act, (A.Y. 2021-22) Solvay Specialities India Private Limited 1961 (the Act) making additions on the basis of surmises, conjectures, presumptions, and assumptions and without considering the papers and documents submitted as also submissions made during the course of assessment proceedings and the proceedings before the Hon’ble DRP. 1.2. determining the Appellant’s total income at loss of INR 41,38,79,875 as against the loss as per returned income of INR 97,68,02,821 disclosed under the normal provisions of the Act. 1.3. not providing sufficient time for the Appellant to respond to detailed show cause notices thereby violating the principles of natural justice. Legal Grounds: 1.4. On the facts and circumstances of the case and in law, the learned AO has erred in not passing the final assessment order within the time limit prescribed under section 153 of the Act which is the outer time limit for passing the final assessment order and hence, the assessment proceedings are time-barred and liable to be quashed. 1.5. On the facts and circumstances of the case and in law, the Technical Unit has erred making a reference u/s 92CA (1) of the Act without having any powers for making such a reference. Accordingly, the Transfer Pricing reference is bad in law, consequently the Transfer Pricing order dated October 24, 2023, is bad in law and ought to be quashed. 1.6. On the facts and circumstances of the case and w law, the learned TPO |DC/ACLEL 4(1)(L)) has erred in passing the TP order dated October 24, 2023 without having any powers of passing the said order. Accordingly, the said TP order is bad in law and ought to be quashed. 1.7. On the facts and circumstances of the case and in law, learned jurisdictional PCIT has erred in giving approval for the TP reference u/s 92CA(1) without having any jurisdiction/powers for giving the said approval. Accordingly, the TP reference is bad in law and ought to be quashed, consequently the TP order dated October 24, 2023 is bad in law and ought to be quashed.
2. Transfer Pricing Adjustment to international transactions in the Manufacturing segment - INR 40.58,80.632 On the facts and circumstances of the case and in law, the Ld. AO / Ld. TPO erred, and the Hon’ble DRP has further erred in: 2.1. making adjustment of INR 40,58,80,632 to the total income of the Appellant under Section 92CA(3) of the Act while computing arm’s length price of the international transactions in the manufacturing segment. 2.2. not appreciating that with respect to the international transactions under consideration, none of the conditions set out in Section 92C(3) of the Act are satisfied and (A.Y. 2021-22) Solvay Specialities India Private Limited therefore, it is incorrect to disregard the transfer pricing analysis carried out by the Appellant and re-determine the arm’s length price.
2.3. rejecting certified and audited segmental accounts obtained from an independent expert providing line-by-line classification of expenses as well as income along with allocation keys adopted without any basis and with a preset mindset of making adjustment. 2.4. adopting a combined approach of considering the entire Manufacturing segment of the Appellant for the purpose of benchmarking the transactions of export of manufactured finished goods and import of raw materials from its AE. 2.5. not considering that in the case of the appellant internal comparable could be considered to determine the arm’s length price of the international transactions. 2.6. disregarding the economic analysis undertaken by the Appellant to determine the arm’s length price in its transfer pricing documentation in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (‘Rules’) without providing any cogent reason for the same. 2.7. not providing a valid reason for rejecting the search process/benchmarking analysis and the Transfer Pricing documentation submitted by the Appellant. 2.8. non-sharing of the detailed search process undertaken for identification of companies to determine the arm’s length price of the impugned international transactions which is a gross violation of the principles of natural justice and leads to cherry-picking of companies. 2.9. applying the turnover filter of (1/10th and 10 times) instead of sales more than INR 1 crore adopted by the Appellant and concluding that the arm’s length price adopted by the Appellant is not correct. 2.10. considering companies which are functionally not comparable to the manufacturing activity of the appellant. 2.11. not considering the impact of economic adjustments i.e., working capital adjustments while computing the operating margin of comparable companies for the purpose of determination of the arm’s length price of the impugned international transaction.
3. Transfer Pricing adjustment to international transaction pertaining to Payment of Royalty -INR 14,61,55,609: On the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO erred, and the Hon'ble DRP has further erred in: 3.1 making adjustment of INR 14,61,55,609 to the total returned income of the Appellant under Section 92CA(3) of the Act on account of arm's length price of the international transaction of payment of royalty to its AE, by considering the same as 'Nil' without (A.Y. 2021-22) Solvay Specialities India Private Limited providing any cogent reasons or rationale and without appreciating the commercial rationale of such royalty paid as well as adopting inconsistent approach on the findings considered and accepted by the learned TPO for the IP under consideration for which the royalty is paid by the Appellant to its AE 3.2 not appreciating that with respect to the international transaction under consideration, none of the conditions set out in Section 92CA(3) of the Act are satisfied and therefore, it is incorrect to disregard the transfer pricing analysis carried out by the Appellant and re- determine the arm's length price. 3.3 disregarding the economic analysis undertaken by the Appellant to determine the arm's length price using Comparable Uncontrolled Price ('CUP') method as the Most Appropriate Method in the transfer pricing study report maintained by it in terms of section 92D of the Act read with the Income-tax Rules, 1962 ('Rules') without providing any cogent reason for the same. 3.4 rejecting the refined search undertaken on the database as requested by the Hon'ble DRP, without any basis and with a preset mindset of making an adjustment. 3.5 not providing cogent reason and rationale for selecting the other method as prescribed under Rule 10AB of the Rules as the most appropriate method for the impugned transaction and rejecting all the other five methods provided under section 92C(1) of the Act for the impugned transaction under consideration. 3.6 treating royalty transactions separately from manufacturing transactions and not accepting that the royalty and manufacturing transactions are interlinked and should be considered together for the purpose of transfer pricing analysis, 3.7 not appreciating the fact that the benefits derived from right to use the patents and know-how cannot be segregated, 3.8 considering the payment made towards technical know-how & patent, as also towards use of trademark, without any basis and with a preset mindset of making an adjustment. 3.9 ignoring that the technical know-how licensed by the AEs to the Appellant was an invaluable and unique intangible which yielded commercial benefits to the Appellant. 3.10 directing an enhancement of variation by INR 10 Crores due to a typographical error by the Transfer Pricing Officer (TPO). This direction is unjust and not based on substantive grounds. The Appellant sabmits that such an enhancement should be based on valid grounds and not due to a typographical error.
Incorrect disallowance of interest on late payment of Tax Deducted at Source (TDS) of INR 8.55,423 4.1 On facts and circumstances of the case and in law, the Ld. AO has erred in not allowing deduction of interest paid on delayed payment of TDS as business expenditure under section 37(1) of the Income Tax Act, 1961 ('the Act')
4.2 The Ld. AO has erred in not appreciating that that interest on delayed payment TDS is compensatory rather than penal in nature, as it is a tax paid on behalf of the payee and does not represent the tax liability of the Appellant and thereby is not covered under Section 40(a)(ii) of the Act and further failed to appreciate that the said interest is directly related to the Appellant's business and therefore allowable as deduction under Section 37(1) of the Act 4.3 The Appellant prays that the interest on delayed payment of TDS of INR 8,55,423 be allowed.
No variation can be made while passing the final assessment order from the additions and disallowance made in the draft assessment order 5.1. On the facts and circumstance of the case and in law, the Ld. AO has erred in making disallowance /addition of INR 1,00,31,282 [INR 89,92,702 under Section 36(1)(va) of the Act and INR 10.38,580 presumably under Section 41 of the Act] in the impugned order by adopting loss of INR 96,67,71,539 as the starting number for determining assessed income based on communication under Section 143(1)xa) of the Act as against the loss of INR 97,68,02,821 as per the return of income inter alia without proposing any such addition in the draft assessment order. 5.2 The Ld. AO failed to appreciate that after taking into account the submissions of the Appellant, no such disallowance / addition was proposed either in the draft assessment order under Section 144C(1) of the Act or in the directions of dispute resolution panel (DRP) under Section 144C(5) of the Act and thereby he failed to appreciate that to variation can be made in the final assessment order under section 1433) read with Section 144C(13) of the Act other than those proposed in the draft order under or those given in the directions of the DRP. 5.3 The Appellant prays that it be held that the Ld. AO has exceeded his jurisdiction by not taking the total loss of INR 97,68,02,821 as declared in the return of income as the starting number to determine assessed loss and thereby delete the addition of INR 1,00,31,282 made in the impugned order.
Erroneous disallowance of employee contribution to provident fund/ESI/any other welfare fund under section 36(1)(va) of the Act of INR 89,92,702 6.1 Without prejudice to the ground 5 above, on facts and circumstances of the case and in law, the Ld. AO has erred in disallowing the employee contribution to provident fund/ESI/any other welfare fund under section 36(1)(va) of the Act. 6.2 The Ld. AO has failed to appreciate the fact that the said payment were made within the due date/extended due date and hence no disallowance is warranted under Section 36(1)(va) of the Act 6.3 The Appellant prays that the said disallowance of INR 89,92,702 under Section 36(1)(va) of the Act be directed to be deleted being unwarranted and bad in law.
Erroneous addition of INR 10.38.580 purportedly under Section 41 of the Act 7.1 Without prejudice to the ground 5 above, on facts and circumstances of the case and in law, the Ld. AO has erred in making an addition of INR 10,38,580 purportedly under Section 11(1) of the Act 7.2 The Ld. AO has inter alia failed to provide any details of the addition made or issue any show cause notice the said addition. 7.3 The Appellant prays that the said addition of INR 10,38,580 be directed to be deleted being unwarranted and bad in law, 8. TDS credit 8.1 On facts and circumstances of the case and in law, the A.O, has erred in granting TDS credit of INR 1,38,17,262 us against INR 1,38,67,146 thereby grating a short credit of INR 49,884. 8.2 The Appellant prays that the correct TDS credit of INR 1,38,67,146 be granted as per the law. The Appellant craves leave to add, alter, amend, modify, or withdraw any or all the above grounds of appeal, or add any further grounds of appeal before or at the time of hearing The above grounds of appeal are distinct and separate and without prejudice to each other, The Appellant craves leave to add, alter, amend, modify, or withdraw any or all the above grounds of appeal, or add any further grounds of appeal before or at the time of hearing. It is humbly prayed that the reliefs as prayed for hereinabove and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted.”
The assessee had filed an application for withdrawal of the said appeal dated 06.02.2025 stating that the appeal was filed online on 19.12.2024 and physically on 20.12.2024 along with the online acknowledgement. It is observed that the appeal has been assigned two numbers i.e., 6698/Mum/2024 and is listed on two separate hearings dated 06.02.2025 and 12.02.2025, respectively. The assessee intends to withdraw the duplicate appeal i.e., for A.Y. 2021-22, as the