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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee-company directed against the order of assessment passed u/s 143(3) r.w.s.144C of the Income-tax Act, 1961 [‘the Act’ for short] for the assessment year 2011-12.
The assessee-company raised the following grounds of appeal:
IT(TP)A No431/Bang/2016 Page 2 of 7 1. “That the order of the learned lower authorities in so far it is prejudicial to the interests of the appellant is bad and erroneous in law and against the facts and circumstances of the case.
2. That the learned lower authorities erred in law and on facts in disallowing the claim of the appellant u/s 80JJAA of the Act.
3. That the learned lower authorities erred in law and on facts in holding that the new additional regular workmen employed during the previous year should be more than 100.
4. Without prejudice to Grounds no. 2 and 3 above, the learned lower authorities ought to have allowed the weighted deduction for the claim in respect of the regular workmen employed during the financial year's 2008-09 and 2009-10.
5. That the learned lower authorities ought to have allowed the weighted deduction u/s 80JJAA 30% of the wages paid to the workmen during the financial year 2010-11.
6. Without prejudice to Ground nos. 2 to 5, that the learned lower authorities erred in law and on facts in disallowing a sum of Rs. 2 1,70,239 u/s 80JJAA even though the appellant had claimed only a sum of Rs. 13,85,514.
That the learned lower authorities erred in law and on facts in making the TP adjustment in respect of the interest paid to the holding company.
8. That the learned lower authorities erred in law and on facts in applying LIBOR rates prevalent during the financial year 2010-11 even though the loans were taken during previous year ended 31.03.2006 and 31- 3-2007 and the learned lower authorities ought to have applied the rates prevalent on the date of taking the loan.
That the learned lower authorities erred in law and on facts in adopting six months EURO LIBOR rate even though the appellant has taken a loan with a tenure of five years.
IT(TP)A No431/Bang/2016 Page 3 of 7 10. Without prejudice to Grounds no. 7 to 9, the learned lower authorities ought to have held that the loan transaction are integrally connected with the business of the assessee and therefore, a combined transaction approach should have been made and since the ALP determined on such combined transactions approach justify the book value of international transactions, the learned lower authorities ought to have held that the interest paid on loan transactions are also ALP.
The learned lower authorities erred in law and on facts in determining (a) the amount of loan outstanding at Rs. 12,94,69,594 (b) the ALP interest at Rs. 28,09,490 and (c) actual interest paid at Rs. 1,76,90,420 and thereby making a TP adjustment of Rs. 1,48,80,929.
That the adjustment made by the learned TPO in his order dated 21.01.2016 is totally contrary to the directions of the Hon'ble DRP and is liable to be quashed.
That the order passed by the learned TPO on 21.01.2016 is violative of principles of natural justice as no opportunity was given to the appellant before passing such order.
Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify either all or any of the above grounds either before or at the time of hearing of this appeal.”
Briefly, facts of the case are that the assessee-company is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and sale of enclosures, Heat Exchangers, Industrial cooling equipments, power distribution and MOD centres. Return of income for the assessment year 2011-12 was filed on 29/11/2011 admitting income of Rs.21,45,45,141/-. The IT(TP)A No431/Bang/2016 Page 4 of 7 assessee-company declared the following international transactions:
The return of income was processed u/s 143(1) and later it was taken up of scrutiny assessment. The Assessing Officer [AO], after noticing that there are some international transactions returned by the assessee-company, referred the matter to the Transfer Pricing Officer [TPO] for purpose of determining arm’s length price [ALP] in respect of such international transactions. The TPO, vide order dated ‘nil’ suggested adjustment of Rs.123,43,326/- u/s 92CA of the Act in respect of interest paid to Associated Enterprise [AE] on the loans borrowed by the assessee-company as follows:
Accordingly, draft assessment order dated 03/03/2015 was passed by the AO incorporating above transfer pricing adjustment
IT(TP)A No431/Bang/2016 Page 5 of 7 and disallowance of the claim u/s 80JJA of the Act at a total income of Rs.22,90,58,705/-.
Being aggrieved, objections were filed before the DRP contending inter alia that the TPO was not justified in suggesting adjustment inasmuch as interest paid to AE is less than Euro Libor rate. It was also contended that the TPO has actually taken the interest on inter-corporate loans repaid during the year. Against these objections, DRP directed the TPO to verify facts and take necessary action. As regards disallowance of the claim u/s 80JJA, DRP felt that no interference was called for. Accordingly, draft assessment order was passed by the AO on 27/01/2006 incorporating some adjustments.
Being aggrieved, assessee-company is in appeal before us in the present appeal.
5.1 It was contended that the TPO, without complying with the directions of the DRP to verify the amount of interest paid on loans borrowed from AE. We were informed at the Bar that DRP had deleted similar addition for the assessment year 2010-11.
5.2 On the other hand, learned Departmental Representative relied on the orders of the lower authorities.
We heard rival submissions and perused material on record. As regards adjustment made u/s 92CA of the Act, we are of the considered opinion that in the immediately preceding
IT(TP)A No431/Bang/2016 Page 6 of 7 assessment year i.e. 2010-11, DRP deleted the addition on account of interest payment to AE in identical circumstances. We do not find any reason to take a different view in the current assessment year. Accordingly, we direct the TPO to follow the directions given by the DRP in the assessment year 2010-11 for this year also.
7. As regards disallowance of the claim u/s 80JJA of the Act, the AO has disallowed the claim by holding that the aasessee- company had not employed new employees more than 100 during the previous year relevant to assessment year under consideration. On a perusal of the provisions of section 80JJA of the Act, which is extracted below, we do not find that any such condition is imposed in the said provision. The provisions of section 80JJA are reproduced below: “Deduction in respect of employment of new workmen. 80JJAA. (1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed— (a) if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking; (b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanation below subsection (2) of section 288 giving such particulars in the report as may be prescribed.
IT(TP)A No431/Bang/2016 Page 7 of 7 Explanation . . . . . . . ” However, it requires to be satisfied that all other conditions mentioned in provisions of section 80JJA are fulfilled before allowing deduction u/s 80JJA of the Act. Therefore, this ground of appeal is also restored to the file of the AO fo fresh adjudication in accordance with provisions of law.
In the result, the appeal is partly allowed for statistical purposes.