Thursday, November 1, 2012

TP provisions are self-governing; TPO finding can be used against a transaction not referred to him

The assessee-company was a manufacturer of chemicals and dyes having six manufacturing divisions. To arrive at the ALP in respect of its international transactions the TPO disallowed certain adjustments as desired by assessee. The assessee filed this present appeal. The grounds of appeal, inter alia, were as follows:

i) TPO had made an upward adjustment on account of commission. In this respect, the assessee contended that since there was no reference in respect of commission because AO had made reference only in respect of goods sold to AEs, the upward adjustment in commission receipt as suggested by the TPO was without jurisdiction;

ii) The assessee raised the issue that the provisions of Chapter X could not be invoked without prima facie demonstrating that there was some tax avoidance.

On issue of adjustment on account of commission transaction, the Tribunal held in favour of assessee as under:

i) As per Section 92CA, the role of the TPO is restricted to determining the ALP in relation to the international transaction which has been referred to him, thus, it could be said that it was not within the domain of TPO to determine the ALP of a transaction not referred to him;

ii) This ground of assessee was, therefore, allowed. However, it was also held  that as per section 92C(3), the AO could consider it as a material fact and proceed to determine an international transaction which had come to his knowledge on the basis of any material or document available with him.

On issue of invoking TP Provisions without establishing tax avoidance the Tribunal held in favour of revenue as under:

1) There is nothing in the statutory language to suggest that the AO must demonstrate the avoidance of tax before invoking TP provisions;

2) Rather, the logic is to make certain that the transactions between the AEs should not be arranged in such a way that the ultimate tax payable in India is artificially reduced. Thus, the stand of the assessee on this ground was dismissed by Tribunal - ATUL LTD. v. ACIT [2012] 26 300 (Ahmedabad - Trib.)

Assessee escaped penalty for delay in filing e-TDS return on reasoning that he was new to this stuff

In the instant case, for the relevant assessment year, the assessee had not filed the E-TDS returns within the specified time and, thus, AO levied the penalty under Section 272A(2). Aggrieved by the order of AO, assessee preferred an appeal to the CIT(A), which  confirmed the penalty order passed by AO.

 On appeal, the Tribunal held in favour of assessee as under:

1) The delay in filing the returns, even if they are characterized as negligence on the part of the assessee, can only be considered as a technical or venial breach of law for which penalty should not be levied automatically;

2) The requirement of filing Form No. 24Q was new one for the assessee being the first year of filing such return and, moreover, there was no dispute about the fact that the tax had been deducted by the assessee; and

3) As held by the ITAT Mumbai Bench in the case of Royal Metal Printers (P.) Ltd.v.ACIT [2010] 37 SOT 139, for such technical or venial breach supported by reasonable cause, penalty under Section 272A(2) is not leviable.

Therefore, the impugned penalty order was cancelled - UNION BANK OF INDIA V. ACIT [2012] 26 347 (Agra - Trib.)