INNOVATIVE TEXTILES LIMITED,DELHI vs. DCIT, CIRCLE-10(1), NEW DELHI

That the Hon'ble DRP / learned lower tax authorities erred in law and facts of the case, without any proper basis and properly appreciating and considering the submissions / evidences 1 material produced on record by the appellant, In selecting functionally different companies 1 companies with extreme results as comparables for the purpose of undertaking benchmarking analysis applying TNMN.

That the Hon'ble DRP/ lower tax authorities erred in law and facts of the case in not appreciating that the international transactions of the appellant were accepted o be at arm's length on Comparable Uncontrolled Price (CUP) method in the earlier assessment years viz assessment year 2012-13 and assessment year 2013-14.

That the lower tax authorities had contrary to law and facts of the case, without any jurisdiction, basis and merely on surmises and conjectures, added Rs.84,95,443 being TP adjustment to the book profits under section 115JB of the Income - tax Act, 1961.

That the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, charged interest under section 234A, 234B, 234C & 234D of the Income - tax Act, 1961 that the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, initiated penalty proceedings under section 270A of the Income - tax Act, 1961.

That the lower tax authorities had contrary to law and facts of the case, without any basis and merely on surmises and conjectures, initiated penalty proceedings under section 270A of the Income - tax Act, 1961.

It is prayed as under : a. That the Order of the learned lower tax authorities be declared null, void & non - est as not being in accordance with the mandatory procedural provisions of section 144B of the Income - tax Act, 1961 as no show cause notice being draft assessment order was served on the appellant before making the final assessment order; b. That the addition of Rs.84,95,443 being TP adjustment with reference to international transaction of purchase of cotton of Rs.27,14,55,905 from an associated enterprise to the returned business loss of Rs.8,54,00,730, thereby assessing / reducing the returned business loss to Rs.7,69,05,287 be deleted; c. That the Hon'ble DRP / learned lower tax authorities be directed to apply Comparable Uncontrolled Price (CUP) method and accept the price at which international transaction has been entered by the appellant), more so, when it has been accepted in earlier years; d. That the Hon'ble DRP / learned lower tax authorities be directed to select only functionally similar companies with normal results if TNMN has to be applied; e. That the lower tax authorities, in any case, be directed to limit the addition to Rs.3,51,766 (being the difference between 3.13% and 3.00% variance permitted by notification no. 50/2017; F.No. 500/1/2014 - APA - II dated 9th June 2017) by allowing marginal relief on the grounds of natural justice and by drawing analogy to various marginal relief provisions / sections in the Income - tax Act, 1961, itself; f. That the lower tax authorities had contrary to law and facts of the case, be directed to delete Rs.84,95,443 being TP adjustment from the book profits under section 115JB of the Income - tax Act, 1961; g. That the lower tax authorities be directed not to charge interest under section 234A, 234B, 234C & 234 D of the Income - tax Act, 1961; h. That the lower tax authorities be directed to drop penalty proceedings under section 270A of the Income - tax Act, 1961.”

At the time of hearing, ld. AR of the assessee pressed the issue in Ground No.3 only. In this regard, he submitted that the TPO has raised TP adjustment of Rs.84,85,443/- and submitted that in the final assessment order, the Assessing Officer has made the abovesaid TP adjustment in the normal computation of income and reduced the returned business loss from Rs.8,54,00,730/- to Rs.7,69,05,287/-. Further he submitted that the Assessing Officer proceeded to make the abovesaid TP adjustment in computing the book profit under section 115JB of the Income-tax Act, 1961 (for short ‘the Act’) and added to the declared book profit of Rs.93,55,782/-. In this regard, he submitted that the abovesaid adjustment in the determination of book profit is not in accordance with law and contrary to the judgment of Hon’ble Apex Court in the case of Apollo Tyres Limited 255 ITR 273 and further submitted that in the decision of ITAT, Delhi in in Cash Edge India Private Ltd., the similar issue was considered and adjudicated that Assessing Officer erred in adding back the transfer pricing adjustment of the book profit u/s 115JB of the Act. He submitted that exactly similar issue was considered by the coordinate Bench in the abovesaid decision. Therefore, he prayed that the abovesaid adjustment in the book profit is patently untenable and not in accordance with law and, therefore, it should be deleted.

We have considered the rival submissions and perused the material on record. It is settled law that except for adjustments provided in Explanation I Section 115JB(2) of the Act, no other adjustment can be made to book profits under section 115JB of the Act. We find that the transfer pricing adjustment is not one of the adjustments contemplated under Explanation I section 115JB(2) of the Act and therefore could not have been added back to the book profits under section 115JB.

In the present case there is no allegation is the assessment order much less any finding that either that profit and loss account has been drawn up in accordance with Part II and Part III of Schedule VI of the Companies Act, or that any incorrect accounting policies, accounting standards has been adopted for preparing such accounts or that the method/rate of depreciation has been incorrectly adopted for preparation of profit and loss account.

In view of aforesaid, we hold that the AO erred in adding back the transfer pricing adjustment of the book profits under section 115JB of the Act. Accordingly, this ground of the appeal raised by the assessee is allowed and the AO is directed to exclude the transfer pricing adjustment, if such adjustment survives, from the book profits computed under section 115JB of the Act.”

All other grounds raised