AUTOLITE MANUFACTURING LIMITED,JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX CIIRCLE-1, JAIPUR

ITTPA 5/JPR/2022

AI Insights

The case involves M/s. Autolite Manufacturing Ltd., which appealed against the assessment order of the ACIT Circle-1, Jaipur, concerning the assessment year 2017-18. The primary issues revolved around the Transfer Pricing Adjustments made by the TPO and the subsequent adjustments by the AO, which were upheld by the Dispute Resolution Panel (DRP). The adjustments pertained to the assessee's Specified Domestic Transactions with its Associated Enterprises, which were alleged not to be at Arm's Length Price as per Section 92C of the Income Tax Act, 1961. The Tribunal's decision focused on the legal interpretation of Section 80-IC and its interaction with Section 92BA, particularly in the context of the assessee's delayed filing of the income tax return and the non-claim of deductions under Section 80-IC.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 33665 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 13-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 17-08-2022
• Other Referred Cases: Manglam Cement Limited, IT(TP)A No. 6/JP/2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR
• Assessee Lawyers: ROHAN SOGANI
• Keywords: Set aside; Business income; Transfer pricing; Competent authority; Related party transaction
• Section: 139(1); 43; 113; 13; 144C; 72; 10B; 92C; 80IC; 80IC; 92A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, A, JAIPUR BEFORE: SHRI SANDEEP GOSAIN, JM & DR MITHA LAL MEENA, AM IT(TP)A No. 5/JP/2022 Assessment Year : 2017-18 M/s. Autolite Manufacturing Ltd 8, Tara Nagar, Civil Lines Jaipur Vs. The ACIT Circle -1 Jaipur PAN/GIR No.: AAGCA 1484 M Appellant Respondent Assessee by : Shri Rohan Sogani, CA Revenue by: Shri Arvind Kumar, CIT-DR Date of Hearing : 10/10/2024 Date of Pronouncement: 13 /11/2024 ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against assessment order of the ACIT Circle-1, Jaipur dated 30-06-2022 for the assessment year 2017-18 wherein the assessee has raised the following grounds of appeal. ‘’1. In the facts and circumstance of the case and in law, Id. TPO has erred in proposing and Id. AO has erred in confirming and thereafter, the Hon'ble Dispute Resolution Panel, New Delhi (\"DRI\") has further erred in upholding the Transfer Pricing Adjustment to the extent of Rs. 5,63,51,070 in respect of assessee company's Specified Domestic Transactions with its Associated Enterprises, alleging the same to be not at Arm's 2 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR Length Price in terms of the provisions of Section 92C of the Income Tax Act, 1961 2. In the facts and circumstance of the case and in law, Id. AO has erred in increasing the final adjustment to Rs. 5,98,87,848, on the basis of the order of the Id. TPO, passed pursuant to the directions of the Hon'ble DRP, without providing copy of ld. TPO. 3. In the facts and circumstance of the case and in law, ld.TPO, ld. AO and Hon'ble DRP has, without any cogent basis, erred in rejecting \"Any Other Method\" considered by the assessee company as the Most Appropriate Method, with comparing the Profit Margin on Cost in respect of Sales made to Non- Associated Enterprises with the Profit Margin on Cost in respect of Sales made to Associated Enterprises and also failed to consider the Transfer Pricing Study Report submitted by the assessee company 4. In the facts and circumstance of the case and in law, ld. ΤΡΟ, Ιd. ΑO and Hon'ble DRP has erred in choosing Transactional Net Margin Method (‘’TNMM’’) as the Most Appropriate Method and thereafter considering Operating Profit/Operating Cost of the assessce company at 86.81% without providing any basis for such calculation. 5. In the facts and circumstance of the case and in law, ld. TPO, ld. AO and Hon'ble DRP erred in arbitrarily applying new filters and determining new set of companies, for the purpose of benchmarking, when assessee company had already submitted detailed working as regards the internal comparability of the Profit Margin on Cost in respect of Sales made to Associated Enterprises with that of Non-Associated Enterprises 6. In the facts and circumstance of the case and in law. Id. AO and Hon'ble DRP erred making disallowance of Rs. 11,21,764 under Section 40A(2)(b) of the Income Tax Act. 1961, without considering the submissions in this regard, made by the assessee company. 3 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 7. In the facts and circumstance of the case and in law, Id. AO and Hon'ble DRP erred disallowing the claim of the assessee company of Rs. 13,40,115 made under Section 80IC of the Income Tax Act, 1961.’’ 2.1 During the course of hearing, the ld. AR of the asssessee has not pressed the Ground No. 7. Hence, the Ground No. 7 is dismissed being not pressed. 3.1 Apropos Ground No. 1 to 5, the facts as emerges from the assessment order wherein the AO made the addition of Rs.5,98,87,848/- in the hands of the assessee by observing as under:- ‘’13. Transfer pricing Adjustment: The assessee company filed Form No. 3CEB containing the details of Large Specified Domestic Transactions made by it during the year. Since, one of the reason of selection of case u/s CASS was based on T.P Risk Parameter. reference was made by Jurisdictional AO with prior approval of competent Authority u/s 92CA(3) of Income Tax Act 1961 to the TPO for determination of Arm's Length Price (ALP) u/s 92CA(3) of Income Tax Act 1961 of the Act in respect of the transactions pertaining to FY 2016-17 13.1 The TPO i.e. DC/ACIT TP 2(3)(2) DELHI, has passed u/s 92CA(3) of the Income Tax Act. 1961 on 31.07.2021 wherein an adjustment of Rs. 5,63,51,070/-has been made in the Arm's Length Price of the Large Specified Domestic Transactions made by the assessee during the year. A copy of this order has been duly endorsed by the TPO 13.2 The relevant portion of the Order passed by the TPO on 31.07.2021 is being reproduced asunder- \"We choose TNNM as the MAM by aggregating the transaction of purchase of goods, royalty and reimbursement of expenses. We 4 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR assume that the expense Side of the related party transaction is correct and take OP/OC for entities engaged in similar business as comparable and determine the arm's length price The following comparables are selected on the basis of following criteria. S.N. Filter Used Rational for using the Filter 1. Companies whose data is not available or having financial year are excluded As per the Rule 10B (4) it is mandatory to use the current year data i.e. the data for the FY 2016- 17. The provision to Rule 10B (4) says that data for earlier two years can also be used if it is shown that such earlier year's data had an influence in determining the transfer price. 2. Companies whose turnover over less than Rs 1 Cr. are excluded By taking companies whose turnover is less than Rs 1 Crore the analysis may not lead to a proper comparability as these companies may not be representing the industry trend. Moreover their low cost sales base makes their results unreliable. 3. Companies whose Revenue from Manufacturing activities is less than 75% of the total sales are excluded The companies whose revenue from manufacturing activities are more than 75% of their sales alone should have been selected as comparables. This is an appropriate filter as this is 5 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR the stage which will determine the correct comparability in respect of enterprises whose main source of income is from manufacturing segment the companies whose income comes to more than 75% of the sales have been considered for the ALP study as the other segment may not materially affect the financial results of the company. 4. Companies having than 25% related party Transactions (RPT) (Sales as well as expenditure combined) of the sales are excluded Companies having related party transactions of more than 25% are proposed to be excluded. A threshold of 25% is being applied following the provisions of Section 92A (2)(a) which provides a limit of 26% for treating an enterprise as Associated Enterprise if the limit is reduced further would only result in eliminating more and more companies, on the other hand, if the limit is relaxed then companies with predominantly related party transactions would get included which would not represent uncontrolled transactions. Therefore, on a balancing note 25% is a proper 6 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR threshold limit for related party transactions. As such the companies having more than 25% related party transactions should be rejected as comparables. 5. Companies who have persistent looses for the last two out of three years including current year are excluded Because these companies have peculiar economic circumstances which are not in line with industry trend. 6. Reject companies that do not meet functional profit of the assessee The companies which have business profit not similar to the assessee company are rejected as comparable S.N. Company Name Weighted OP/OC 1. Jay Ushin Ltd. 2.02 2. Auto Profiles Ltd. 2.16 3. Daebu Automotive Seal India Pvt Ltd. 2.34 4. Minda Auto Components Ltd. (Merged) 2.38 5. Yeshree Press Comps Pvt Ltd. 2.41 6. HIS Automatives Pvt. Ltd. 3.04 7. Aurangabad AutoEngg. Pvt. Ltd. 3.78 8. Skoka Auto India Pvt Ltd. 3.89 7 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 9. Aditya Auto Product & Engg. (India) Pvt. Ltd. 4.15 10. A.G. Industries Pvt. Ltd. 4.3 11. Mobis India Ltd. 4.77 12. Rucha Engineers Pvt. Ltd. 5.07 13. JMT Auto Ltd. 5.27 14. Jay Bharat Matuti Ltd. 5.53 15. Munjal Showa Ltd. 5.71 16. Aliena Auto India Ltd. 5.82 17. Mudhra Fine Blanc Pvt. Ltd. 7.59 35th Percentile 3.78 65th Percentile 5.07 Median 4.22 The OP/OC of the assessee is 86 81% which is outside the range and therefore arm's length price would be determined by taking median OP/OC i.e. 4.22%. Accordingly adjustment of Rs 5,63,51,070/-is made in the sale transaction. I am satisfied that the assessee has under reported particulars of its income and penalty proceeding us 270A are initiated. Further, the assessee has failed to furnish information or documents required to be maintained u/s 92D(1) of the Income-tax Act, 1901 before TPO. Therefore, penalty proceedings u/s 271G of the Act were initiated separately 13.3 In accordance with section 144C(2) of the IT Act, 1961 a draft order u/s 144C (1) of 13.09.20 was issued and delivered to the assessee company electronically on if to file acceptance of the 8 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR variations or file objections, if any, with the Dispute futon Panel and the Assessing Officer within thirty of receipt of this Draft Order 13.4. Thereafter the assessee filed objection against the draft order with Dispute Resolution Panel on 11.10 2021 Dispute Resolution Panel vide its order dated 5.5.2022 directed the TPO to recompute TP adjustment. It may be mentioned that Ground 1 to 4 in assessee's objection filed with the DRP were related to TP adjustment which are as follows:- Ground of Objection 1: Under the facts and circumstances of the case, The Ld. Assessing Officer (herein with referred to as AO) has erred in making adjustment of Rs 5,63,51,070/- based on the computation made by the Transfer pricing officer (herein with referred to as TPO) for OPIOC ratio of the assessee at the rate of 61% without providing any working for calculating the same and calculating the adjustment to the income at Rs 5. 63 crores Ground of Objection 2 On the brief facts and circumstances of the case the Ld AO has red in facts by increasing the income of the assessee by Rs 5,63,51,070 instead of reducing the value of sales transaction and income of the assessen by the same amount Ground of Objection 3 On the brief facts and circumstances of the case the Ld AO has erred in facts by considering external data of other entities data to calculate OPVOC with related parties when internal data was available with the Ld. AO Ground of Objection 4 Without prejudice to above, On the brief facts and circumstances of the case the Ld. AO has erred in facts by using net margin of the assesses for comparison with external entities rather than comparing it with margin of transaction with related parties moreover the data for calculation of TNMM and for FY 2015-16 rather than FY 2016-17 13.5 In response to these grounds the DRP's direction is reproduced below- 9 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR ‘’In view of above comments recorded by the TPO, the penal does not find any infirmity in the order. However in respect of Ground 3 and 4 the panel does not find any adequate discussion on issues construed in these grounds made by the TPO Therefore the TPO is directed to pass a speaking order on these two issues. 13.6 Subsequently as per DRP's direction, TPO recomputed the TP adjustment which comes out to be Rs 5,98,67,848/-. Relevant part of TPO's order is produced below:- ‘’In Ground No. 3 & 4 before DRP the assessee has objected to use of external data of other entities. The arm’s length price by rules is determined by taking data of comparable entities. There is no merit in these groups. Ground of objection 4 is as under: Without prejudice to above, on the brief facts and circumstances of the case the Ld AO/TPO has erred in facts and law by using net margin of assessee, for comparison with external entities rather than comparing with margin of transaction with related parties turnover the data for calculation of TNMM is used for FY 2015-16 rather than FY 2016-17 After verification with respect to data for calculation of TNMM, the medium weightage OP/OC of final list of comparables on the basis of two years, FY 2015-16 & FY 2016-17 available with this office taken as 3.94 calculation sheet enclosed). The determination of the ALP was recalculated as follows:- Particulars (in Rs.) Operating Revenue 23,59,68,835/- Operating cost 12,63,13,477/- 10 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR Operating profit 10,96,55,358/- OP/OC 86.81 Median of weighted OP/OC 3.94 OR 17,60,80,986.9 Adjustment 5,98,87,848.06/- Accordingly the adjustment of Rs 5,98,87,848/- may be made in the assessment order 1.13.7 The calculation sheet provided by TPO is attached as annexure -B and the same also been sent to you on your registered e-mail ID 2.13.8 Thus based on TPO's computation addition of Rs 5,98,87,848/- is being made to the total income of the assessee for A.Y. 2017-18. 3.13.9 Further, I am satisfied that the assessee has under reported particulars of its income and penalty proceeding u/s 270A are being initiated separately. (Addition Rs.5,98,87,848/- 3.2 During the course of hearing, the ld.AR of the assessee has filed the following written submission praying therein to allow the addition made by the AO in his assessment order. Ground No. 1 to 5: Adjustment related to specified domestic transaction 1. At the outset, without submitting on the correctness of the methodology adopted by the ld. AO/ld. TPO in making adjustment, following contentions may please be considered: - 11 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 1. Assessee company, during the year under consideration, claimed benefit, under Section 80IC, of Rs. 13,40,115. 2. The said benefit was rejected by the ld. AO, during the assessment proceedings, for the reason that the assessee company had not filed its return of income within the time limit prescribed under Section 139(1), which was a clear violation of the condition has prescribed under Section 80AC of the ITA. 3. Ld. AO/TPO made adjustment of Rs. 5,98,87,848 on account of SDT, against the claim of Rs. 13,40,115 made by the assessee company under Section 80IC. 2. In the present case the assessee company was denied benefit under Section 80IC of Rs. 13,40,115. Assessee company, for the year under consideration, forgoes its claim of 80-IC, then there cannot be any applicability of Section 92BA, related to SDT. Such claim would be forgone only for the year under consideration, only for the reason that the return was not filed within the time limit prescribed under Section 139(1), which was a violation of the condition has prescribed under Section 80AC of the ITA. This should not have any impact on other Assessment Years, as assessee company was otherwise entitled to such benefit, as it fulfilled all the conditions as prescribed under Section 80IC. 3. Section 92BA was amended vide Finance Act, 2017, w.e.f 1.04.2017, i.e. AY 2017-18, which is the year under consideration. As per such amendment, Section 92BA was only applicable once the assessee claimed benefit of Section 80IA/80IB/80IC etc. Once the claim is not made under such Sections, then there cannot be any applicability of Section 92BA. 4. Thus, in the present case, the adjustment/additions as has been made by the ld. AO/TPO cannot be made as Section 80IC benefit was denied to the assessee. Alternatively, if the benefit of Section 80IC is given, then the adjustment, in relation to SDT, can at best be made of Rs. 13,40,115, i.e. to the extent of the benefit claimed under Section 80IC. 5. Submissions in this regard, were also made before the ld. DRP. Refer written submissions at Page 168 to 169 of the Paper Book, which were placed before the ld. DRP. 12 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR Alternatively, without prejudice to above, following submissions on the wrong methodology adopted by the ld. AO/TPO in making adjustment to the income of the assessee company, may please be considered 6. BRIEF FACTS 1. In order to establish that the transaction of purchase, sale, booking of expense, etc. entered by the assessee company, with its AE, was at ALP, assessee company adopted “any other method” as MAM. 2. Assessee company essentially had to establish, before the lower authorities, that higher profits were not reported by it vis-à-vis the transactions if they would have been at the ALP. In other words, it had to be established that assessee company was not claiming higher benefits under Section 80IC, in comparison to what it would have reported if the transactions would have been with non-AE. 3. BENCHMARKING - SALE OF GOODS i. Assessee company calculated the Gross Margins as earned on sales made to AE and those earned from sales made to non-AE. Profit margin earned on sales made to AE was 4.47%, whereas, with non-AE was 6.44%. ii. Since the Profit Margins earned on the transactions with non-AE were on a higher side, in comparison to those with AE, based on such internal comparable, it was concluded that the transactions of Sale of Goods were made at ALP. 4. BENCHMARKING –PURCHASE OF GOODS i. It was established before the ld. TPO, that the price at which goods were sold by AE to assessee company was same as the price at which the goods were sold by the same AE to a third-party customer/ un-related parties. 13 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR ii. Further, for manufactured goods, so purchased, it was established that the Profit Margin charged by AE from assessee company was higher than the profit margin charged on similar goods by the AE from other unrelated, third-party customers.[PB: 71] 5. BENCHMARKING – OTHER REMAINING TRANSACTIONS i. For other transactions also, MAM was as considered by assessee company and benchmarking was done and was found to be at ALP. ii. For the purpose of benchmarking each of the expenses incurred were found to be at arms-length. 7. TRANSFER PRICING OFFICER 1. Ld. TPO rejected “any other method”, as considered by the assessee company, and applied TNMM as MAM. Thereafter, ld. TPO selected comparable companies, by applying filters and derived OP/OC as the Profit Level Indicator and arrived at 4.22% as median percentage. Ld. TPO recalculated OP/OC of the assessee company at 86.81% and, thereafter, made adjustment of Rs. 5,63,51,070. 8. DISPUTE RESOLUTION PANEL 1. Assessee company made objections, against the adjustment made by ld. TPO, before the ld. DRP. In this regard, assessee company filed Written Submissions, forming part of the Paper Book from Pages 141 to 169 before the ld. DRP. 14 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 2. Ld. DRP, without any cogent basis, in a summary manner, dismissed the objection filed by the assessee company and simply held as under: “In view of above comments recorded by the TPO, the Panel does not find any infirmity in the order. However, in respect of ground no. 3 and 4, the Panel does not find any adequate discussion on issues construed in these grounds made by the TPO. Therefore, the TPO is directed to pass a speaking order on these two issues.” 9. SUBMISSION 1. Following contentions may please be considered: - i. Ld. TPO was not correct in law in rejecting the MAM selected by assessee company, without any basis and thereafter applying TNMM; ii. Ld. TPO was not correct in law in rejecting the benchmarking done by assessee company based on Internal Comparables and thereafter applying External Comparables for the purpose of benchmarking; iii. Ld. TPO considered OP/OC of the assessee company to be 86.61%, whereas, the actual OP/OC of the assessee company was 1.72%, as was clearly evident from the Audited Financial Statements submitted during the proceedings; iv. Even after considering the comparable companies as selected by ld. TPO by applying certain filters, the Arm’s Length Percentage of OP/OC as determined by ld. TPO of 4.22% was higher than the actual OP/OC of the assessee company, being 1.72%; v. Ld. TPO ignored the factual position that benchmarking, on similar basis, was done by the assessee company in the preceding years and was found to be in order by the Income Tax Department. vi. Ld. AO, as regards, Ground No. 3 and Ground No. 4, taken before the ld. DRP, did not follow the directions of ld. DRP and passed the order in a summary manner. vii. Additional Adjustment of Rs. 37,36,777 made without any basis, vis a vis the order of the ld. TPO and the final order passed by ld. AO, pursuant to the directions of ld. DRP. Each of the contentions, as raised above, are elaborated hereunder: 15 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 9.2 CONTENTION NO. 1: MAM selected by assessee company was rejected without any basis: - i. Benchmarking methodology was consistently followed by assessee company, also accepted by the Income Tax Department, with no additions, in this regard, made in any preceding and succeeding years; ii. No basis, whatsoever, was provided for not accepting the working of assessee company; iii. Reliance is placed on the below mentioned judicial pronouncements, as was also submitted before the ld. DRP:- 1. Infotech Limited, ITA No. 21/Mds/2013 [PB: 146] 2. Lever India Exports Ltd. [2017] 78 taxmann.com 88 (Bombay) [PB: 147] 3. Det Norske Veritas A/S, [2016] 67 taxmann.com 16 (Mumbai – Trib.) [PB: 147] 4. UCB India (P.) Ltd., [2010] 37 SOT 1 (Delhi- Trib) [PB: 156] 5. Global Vantedge (P.) Ltd., [2010] 37 SOT 1 (Delhi- Trib) [PB: 156] 9.3 CONTENTION NO. 2: Benchmarking done by assessee company based on Internal Comparables was rejected without any basis and external comparables were considered:- i. It is a settled proposition that when internal comparables are available, they are at a higher pedestal in comparison to external comparables. ii. No discrepancy or shortcoming was found by the ld. TPO in the internal comparables selected by the assessee company. iii. Reliance is placed on the below mentioned judicial pronouncements as was also submitted before the Ld. DRP: 1. Chemtex Global Engineers (P.) Ltd – IT Appeal Nos. 1626, 1797 (Mum.) of 2014 [PB: 152] 2. Carraro India (P.) Ltd – [2020] 113 taxmann.com 257 (Pune –Trib.) [PB: 152] 3. Gharda Chemicals Ltd, Mumbai – [2010] 35 SOT 406(Mum.) [PB: 153] 4. Lummus Technology Heat Transfer B.V., International Taxation – 1(1), New Delhi [2014] 42 taxmann.com 113 (Delhi – Trib.) [PB: 153] 16 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 5. Carrier Air conditioning & Refrigeration Ltd., Gurgaon [2016] 67 taxmann.com 72 (Delhi – Trib.) [PB: 153] 6. Pino Bisazza Glass (P.) Ltd, Ahmedabad [2013] 36 taxmann.com 43 (Ahmedabad – Trib.) [PB: 154] iv. Further, ld. TPO did not consider the data of the relevant previous year. 9.4 CONTENTION NO. 3: Incorrect OP/OC considered by the Ld. TPO:- i. OP/OC of the assessee company, as provided by the Ld. TPO in his order was 86.61%. ii. No basis/working was ever provided. iii. OP/OC of the assessee company was 1.72%. In this regard, the working at PB 139 may please be considered as submitted to the ld. TPO/DRP and also emerging from the Audited Financial Statements of the assessee company: 9.5 CONTENTION NO. 4: Arm’s Length Percentage of OP/OC as determined by ld. TPO was higher than the actual OP/OC of the assessee company:- i. Without prejudice to above, even if the working of ld. TPO is to be considered, the Arm’s length Percentage of OP/OC comes to 4.22%. ii. Actual OP/OC of the assessee company comes to 1.72%. iii. Above benchmarking clearly suggests that the assessee company has not reported higher profits for the purpose of claiming benefit under Section 80IC. 9.6 CONTENTION NO. 5: Benchmarking, as was done by the assessee company in the preceding years was accepted:- i. Benchmarking considering the same basis was done by the assessee company in preceding and subsequent years and Form 3CEB was also filed. ii. However, the same was found to be in order by the Income Tax Department with no additions/adjustments being made in this regard. 9.7 CONTENTION NO. 6: Directions given by ld. DRP were not followed by ld. AO and order passed in a summary manner: - i. Before ld. DRP, assessee company had Ground No. 3 in relation to External Data of other entities being considered to calculate OP/OC with related parties when internal data was available with ld. AO and Ground No. 4 in relation to act of ld. AO/TPO in erring on facts and law by using Net Margin of assessee, for 17 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR comparison with external entities, rather than comparing it with margin of transaction with related parties. ii. The ld. DRP had directed the ld. AO to pass speaking order. Order was passed by the ld. AO on 10.11.2021, without considering the directions of the ld. DRP. 9.8 CONTENTION NO. 7: Additional Adjustment of Rs. 37,36,777 made without any basis. i. Ld. TPO, in his order made adjustments of Rs. 5,63,51,070. ii. Thereafter, without any specific direction of enhancement of such adjustment, final adjustment of Rs. 5,98,87,848 was made without any basis. iii. No working or basis was provided for such additional adjustment of Rs. 37,36,777 [Rs. 5,98,87,848 minus Rs. 5,63,51,070]’’ 3.3 On the other hand, the ld.DR supported the assessment order and refuted the submission filed by the assessee. 3.4 We have heard the arguments advanced by both sides and considered the material available on record, including the evidence filed by the assessee in the form of Paper Book. Before us, the assessee has raised seven grounds of appeal. However, during the course of the hearing, ld. AR submitted that the assessee did not wish to press Ground No. 7, which pertains to the rejection of the claim under Section 80-IC of the Income Tax Act, 1961 (“ITA”) by the lower authorities. Ground No. 1 to 5 relates to the adjustment made by the Transfer Pricing Officer (TPO)/Assessing Officer in connection with Specified Domestic Transactions. In this case, the assessee filed its return of income for the relevant assessment year on 18 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 30.03.2018, which was after the due date prescribed under Section 139(1) of the ITA. As the return was filed beyond the time limit specified under Section 139(1), the assessee was denied the benefit of claiming deduction under Section 80-IC. Before us, the ld. AR of the assessee contended that since the return of income was not filed within the prescribed time under Section 139(1), the assessee was not entitled to the deduction under Section 80-IC. Consequently, it was submitted that the provisions of Section 92BA, which govern Specified Domestic Transactions, could not be invoked, as the applicability of Section 92BA arises only when certain benefits, including those under Section 80-IC, are allowed. In support of the argument, ld. AR referred to the provisions of Section 80AC, which mandate that the return of income must be filed within the time prescribed under Section 139(1) to avail deductions under different sections such as Section 80-IA, Section 80-IC etc. Accordingly, Section 80AC bars any benefit from being granted to the assessee under Section 80-IC, or similar sections as specified therein, if the return of income is filed beyond the prescribed due date under Section 139(1), irrespective of whether the assessee has claimed such benefit or not in the return of income. In other words, the claim under Section 80IC, even if made by the assessee, in the return filed with delay would become non-est. Therefore, the assessee would not be entitled to the said benefit under any circumstances if the return is filed with delay. Therefore, the denial of the deduction under Section 80- 19 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR IC logically precludes the applicability of Section 92BA for the purpose of treating the transaction as a Specified Domestic Transaction. The primary argument advanced by the ld. AR of the assessee is that no domestic transfer pricing adjustment could be made in its case, as no benefit under Section 80-IC was allowed to the assessee, irrespective whether claimed or not, on account of delayed filing of return. In support of this, the assessee has drawn attention to Section 92BA, which defines the scope of \"specified domestic transactions\" and lists the types of transactions that can be subjected to transfer pricing adjustments. The ld. AR of the assessee argued that since the deduction under Section 80-IC was not granted, the assessee’s case does not fall under any of the clauses specified in Section 92BA. Consequently, the provisions of Section 92BA are not applicable, and no transfer pricing adjustment could have been made by the Transfer Pricing Officer (TPO) pursuant to the reference made by the ld. AO. The ld. AR further relied on the decision of the Coordinate Bench of ITAT, Jaipur, in the case of Manglam Cement Limited, IT(TP)A No. 6/JP/2022. Referring to this decision, ld. AR of the assessee emphasized that the legal position is well-settled, when no deduction is granted under Section 80-IC, no domestic transfer pricing adjustment can be made. We have carefully gone through the decision rendered by the Jaipur Bench in the case of Manglam Cement Limited. The relevant portion of the decision is reproduced below: 20 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR “….2.4 We have heard the rival submission and perused the material on record. We noted that assessee filed the return of income declaring loss of Rs.86,81,399/- under normal provisions of the Act without claiming any deduction u/s 80-IA of the Act. The TPO, however, has computed the Arms Length Price of electricity supplied by the captive power plant and wind power plant to the cement unit by holding that the price charged by the assessee is higher and thus, proposed addition of Rs.67,34,34,228/-. The DRP in its order held that there is no infirmity in the action of TPO in proceeding to benchmark the specified domestic transaction. Accordingly, the objection raised by the assessee was rejected. However, no specific finding is given in respect of the objection of assessee that when assessee has not claimed any deduction u/s 80-IA, the adjustment proposed has no revenue effect while making the assessment in this case as there is in fact a loss in the returned income of the assessee company. Based on these facts, we are of the view that adjustment made against the deduction claimed u/s 80-IA could have been made if the assessee had claimed deduction under this section or because of addition made by the AO, the income would have been positive on which deduction u/s 80-IA could have been allowed. However, in the present case, neither the assessee claimed deduction u/s 80-IA due to losses nor the AO made any addition wiping off the losses and assessing the income. Therefore, in the absence of any deduction claimed u/s 80-IA, addition of Rs.67,34,34,228/- made by AO to the loss declared by the assessee is incorrect and the same is deleted being revenue neutral, without commenting on the merits of the case so as to decide as to whether the adjustment made are in accordance with the law or not. Both the parties may take their case on merits in any of the subsequent year as prayed by the ld. AR of the assessee. Thus Ground NO. 1 raised by the assessee is allowed in terms of these observations….” After considering the above decision, we are of the view that the legal position in the present case is covered by the decision of the Jaipur Bench, which held that no adjustment can be made under domestic transfer pricing in such circumstances. Since no benefit has been granted under Section 80-IC no domestic transfer pricing adjustment is permissible. Our view is further fortified by the legal framework provided under Section 92BA, which specifies the types of transactions that are subject to domestic transfer pricing. In the present case, since the claim made under Section 80-IC has become non-est from the point of assessee, no benefit, at 21 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR all, has been provided to the under such section. Thus, if no benefit has been provided under Section 80-IC the conditions necessary to invoke the provisions of Section 92BA are not satisfied, and no adjustment can be made under the said section. In view of the above, we set aside the adjustment made by the TPO/AO with respect to the Specified Domestic Transaction and accordingly, delete the entire adjustment so made. Since we have decided the matter in favour of the assessee on the legal issue, holding that the transfer pricing adjustment was not in accordance with law, we do not find it necessary to adjudicate the grounds raised by the assessee on the merits of the case. Accordingly, Ground Nos. 1 to 5, as raised by the Assessee, are disposed off in accordance with the above directions. 4.1 Apropos Ground No. 6, the facts as emerges from the assessment order wherein the AO made the addition of Rs.11,21,764/- in the hands of the assessee by observing as under:- ‘’14. Disallowance u/s 40A(2)(b):- On perusal of the Tax audit Report filed by the assessee, it was observed that the assessee had made payments of Rs 15,23,87,657/- to the persons covered under the purview of section 40 A(2) (b) of the Act. Out of total payment of Rs 15,23,87,657/, reimbursement of sundry expenses amounting o Rs. 50,08,818/- made to Directors Relatives of Director and Group Company The assessee was asked vide notice dated 29.06.2022 to clarify the nature of payment In this regard the assessee submitted that no these expenses have been incurred in day to day functioning Moreover despite two opportunities the assessee failed to justify the reasonableness of said payments. In absence of the justification and 22 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR documentary evidence disallowance was proposed in draft order The assessee raised this ground before DRP which is produced below Ground of Objection 6 On the brief facts and circumstances of the case the Ld AO has erred in facts and law by making addition of Rs 14,02,204/- assuming jurisdiction on related party transactions under Section 404(2)(b) where same has been dealt with by the TPO and also no further details were required by AO 14.1. In response to these grounds the DRP's direction is reproduced below- ‘’The Panel is of the view that the AO should not make such addition on estimation basis. However AO should make factual verification by considering the assessee's stand that there is a minor increase in other expense and pass a speaking order. This ground of objection is disposed of accordingly’’ 14.2 The assessee was given a show cause vide letter dated 29.06.2022 to provide its exploration regarding the nature of these sundry expenses. The assessee argued that these expenses have been incurred during the normal course of business and in relation to the business and they are being incurred every year for the smooth function of business. 14.3 Reply of the assessee has been considered and found to be partially acceptable. However it is seen that nature of some of the expenses included in sundry expenses such as travelling expense, foreign tour, car expenses reimbursed by the company to directors involve element of personal use by the directors. These expenses could not have been incurred solely and exclusively for business purpose. Further the assessee did not provide complete details of foreign tours undertaken by directors and its link to assessee's business. Therefore it is reasonable to disallow 15% of sundry expenses payment made to directors considering discrepancies and above mentioned facts. Thus 20% of Rs 56,08,818/- i.e. Rs 11,21,764/-is disallowed and added back to the total income of the assessee. 23 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 14.4 Further, I am satisfied that the assessee has under reported particulars of its income and penalty proceedings u/s 270A are being initiated separately.’’ 4.2 During the course of hearing, the ld.AR of the assessee has filed the following written submission praying therein to allow the addition made by the AO in his assessment order. Ground No. 6: Disallowance u/s 40A(2)(b) of Rs.11.21.764/- ‘’BRIEF FACTS 1. Assessee company, during the year under consideration incurred expenses of Rs. 56,08,818 with the parties covered under Section 40A(2)(b). 2. Expenses incurred with such parties were also covered by the assessee company in the TP Report for the purpose of benchmarking. Such transactions were found to be at the ALP. 2. TRANSFER PRICING OFFICER 1. Ld. TPO, while passing order under Section 92CA, for all the transactions entered by the assessee company with its AE, including the aforementioned expenses incurred rejected the MAM opted by the assessee company. Thereafter, ld. TPO determined the adjustments by applying the TNMM. 2. The transactions in relation to expenses incurred of Rs. 56,08,818 were also covered while determining the Arms-Length Net Margin of the assessee company. 3. DISPUTED RESOLUTION PANEL 24 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 1. Before the ld. DRP elaborate submissions were made. Ld. DRP gave the following directions to the ld. AO: “The Panel is of the view that the AO should not make such addition on the estimate basis. However, AO should make factual verification by considering the assessee’s stand that there is minor increase in other expense and pass a speaking order. This ground of objection is disposed off accordingly.” 4. ASSESSING OFFICER 1. Ld. AO, while passing the Draft Assessment Order, made addition over and above the adjustments made by the ld. TPO. 2. Ld. AO, without any cogent basis disallowed 20% of the expenses incurred, amounting to Rs. 11,21,764 5. SUBMISSION 1. It is submitted that the expense of Rs. 56,08,818 incurred were already considered for the purpose of benchmarking by the ld. TPO at the time of applying TNMM. Under such circumstances, no separate additions were warranted. 2. Even otherwise, the ld. AO made the disallowance without any basis, it is pertinent to note that the Books of Accounts of the assessee company was also not rejected by the ld. AO. 3. Although, allegation was made of the expenses having been incurred for the personal use of the Directors, however, the same was not backed with evidences. 25 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 4. No discrepancy/defect was pointed out by the lower authorities in the evidences submitted. Under such circumstances, no lumpsum disallowance should have been made. 5. Such expenses were even incurred by the assessee company, in the preceding and subsequent years and no additions were made by the Income Tax Department/ld. AO for such years. In view of the above, disallowance made under Section 40A(2)(b) of Rs. 11,21,764 deserves to be deleted in to-to.’’ 4.3 On the other hand, the ld. DR supported the assessment order and refuted the submission made by the ld AR of the assessee. 4.4 We have heard the rival submissions and considered the material available on record. During the year under consideration, assessee incurred certain expenses of Rs. 56,08,828. During the assessment proceedings, AO disallowed 20% of these expenses, amounting to Rs. 11,21,764, on an ad-hoc basis. During the course of the hearing before us, ld. ARof the assessee objected to such ad-hoc disallowance. However, upon perusal of the order passed by the AO, it is evident that a disallowance of 20% of the expenses was made for the reason that proper evidences were not submitted by the assessee. In the absence of proper explanation, in this regard, by the assessee, we find that such disallowance has been rightly made by the AO. Accordingly, we uphold the disallowance of Rs. 26 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR 11,21,764 as made by the AO. As a result, the Ground No. 6 as taken by the assessee is dismissed, and the disallowance made by the AO is sustained. 5.0 In the result, the appeal of the assesee is partly allowed. Order pronounced on 13/11/2024 under Rule 34(4) of Income Tax (Appellate Tribunal), Rules, 1963. Sd/- Sd/- ¼ Mk0 ehBk yky ehuk ½ ¼lanhi xkslkbZ½ (Dr. Mitha Lal Meena) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13 /11/2024 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Autolite Manufacturing Ltd., Jaipur 2. izR;FkhZ@ The Respondent- The ACIT, Circle-1, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZ QkbZy@ Guard File (IT(TP)A No. 5/JP/2022) vkns'kkuqlkj@ By order, Asstt. Registrar 27 IT(TP) A NO.5/JP/2022 AUTOLITE MANUFACTURING LTD. VS ACIT, CIRCLE-1, JAIPUR "