Advance Pricing Agreement statistics released by CBDT:

• CBDT issues press release, highlighting remarkable success of the APA regime in FY 2023-24;

• A total of 125 APAs signed in FY 2023-24 including 86 Unilateral APAs and 39 Bilateral APA;

• This marked the highest ever and record APA signings in any financial year since the inception of the APA regime in 2012;

• Bilateral APAs signed with India’s treaties partners Australia, Canada, Denmark, Japan, Singapore, the UK and the USA.

Pepisco India Holding Pvt Ltd [TS-194-HC-2024(DEL)-TP]

• In the case of Pepsico India Holdings Ltd, the Delhi ITAT had deleted Advertising, Marketing and sales promotion (“AMP”) Adjustment made by the TPO.

• The Delhi High Court dismissed the revenue’s appeals challenging ITAT’s deletion of AMP adjustment;

• The HC on perusal of ITAT’s order observed that AMP computation was based on adoption of Bright Line Test (BLT), which would clearly not sustain in light of HC judgment in Sony Ericsson Mobile Communications India Pvt Ltd & Ors [TS-96-HC-2015(DEL)-TP];

• In conclusion the HC dismissed the appeals upholding the ITAT order.

- Non charging interest on loan justified, Hon’ble Tribunal deletes penalty under Section 271(1)(c) of the Act - Air Works India (Engineering) Pvt Ltd [TS-187-ITAT-2024(Mum)-TP]

Facts

• The Assessee has advanced interest free working capital loan to its Associated Enterprise (‘AE’).

• The Assessee contended that this were in the nature of the investment in the form of equity/quasi equity and therefore no interest was chargeable. The international transaction was appropriately disclosed in Form no. 3CEB and TP documentation.

• However, the TPO made upward adjustment by taking rate of interest @11.96 percent which was reduced by Tribunal to LIBOR +300 bps.

• The AO proceeded to levy a penalty under Section 271(1)(c) of the Act by invoking Explanation 7 to Section 271(1)(c) levying penalty for both inaccurate particulars of income leading concealment of income. This was confirmed by CIT(A).

Hon’ble Tribunal’s Order

Deleting the penalty, Hon’ble Tribunal noted that:

• It is not disputed that the Assessee had disclosed the interest free loan advanced to the AE.

• The Assessee had also explained that the entire working capital loan was extended out of own funds of the Assessee, and these were in the nature of investment in the form of equity / quasi-equity as part of investment so as to promote business in Asian region to support international customers for aircraft sales.

• Thus, the Assessee has explained all the reasons for not charging of interest due to various reasons. However, the same has not been accepted by the TPO.

• Hon’ble Tribunal concluded that “the contention of the assessee is that it has given partly that capital loan out of its own funds and has also justified the reasons for not imputing interest, then such explanation can be said to be not bonafide and does not lead to inference that assessee has furnished inaccurate particulars. Accordingly, penalty levied by the ld. AO in both the years are deleted.”

- Existence of arrangement between the eligible units and AEs merely on the basis of higher operating profits of the eligible units cannot be upheld - Mankind Pharma Limited [TS-171-ITAT-2024(DEL)-TP]

Facts:

• The Assessee, engaged in manufacturing of pharmaceutical and healthcare products, has three manufacturing units. Out of the said three units, Unit -II and Unit - III are eligible for deduction under Section 80-IC of the Act, whereas Unit - I is not eligible for any beneficial treatment or deduction under tax laws.

• The Assessee as per its Transfer Pricing Study Report did not separately benchmark the SDTs entered into by the eligible units with the AEs of the Assessee. The Assessee conducted entity level comparison of the margins of the Assessee with the comparable companies.

• The TPO alleged that since the respective eligible units have earned higher profits vis a vis median of comparable companies, there was an existence of arrangement between eligible units and AEs which resulted in higher than ordinary profits to eligible units and thus has given rise to excessive deduction under Section 80IC/ 80IE of the Act. The TPO accordingly proposed a TP adjustment.

• The DRP upheld the approached of the TPO, however directed to restrict the adjustment to the value of the Specified Domestic Transactions.

• The Assessee filed additional evidence before the Hon’ble Tribunal. It was submitted that additional evidences are essentially meant to augment its plea of bona fides and probity in the transactions carried out at market price between eligible units and AEs of the Assessee.

Hon’ble Tribunal’s Order

On legal principles, Hon’ble Tribunal upheld the following:

• Existence of arrangement between the deduction seeking units and other associated enterprises is a pre-condition for invoking the rigor of section 80- IA(10) of the Act and needs corroboration.

• Mere close connection cannot per se lead to an inference that there is an arrangement which has resulted into higher profits.

• Extraordinary profits cannot per se lead to the conclusion that there is an arrangement between the parties.

• The concept of PLI cannot per se be applied to hold that the Assessee has earned super normal profits in carrying on its business.

• The onus is on Revenue to establish the existence of arrangement on the basis of some material while seeking adjustment in the deduct ion claimed with the aid of Section 80IA(10) read with proviso thereto.

Admitting the additional evidence, Hon’ble Tribunal noted as under:

“When seen in totality, we are inclined to agree with the plea of the Assessee on first principles that rigours of Section 80IA(10) of the Act are not applicable in a case where neither the AO has discharged its onus to establish existence of arrangement nor such arrangement is demonstrable on factual analysis. The findings of the TPO/AO holding existence of arrangement between the eligible units and AEs merely on the basis of higher operating profits of the eligible units cannot be upheld on first principles in the instant case. The Assessee has placed additional evidences to rebut the unsupported finding of the TPO/AO to dislodge existence of arrangement and transactions between the eligible units and AEs to be at market price.

40. Hence, to the limited extent of verification of additional evidences, we deem it appropriate to remit the matter back to the file of the AO. The AO shall be at liberty to verify the correctness of the claim of the Assessee that transactions of purchase undertaken by the eligible units with its AEs are at ordinary and comparable market price to justify ALP. The assessee shall also be entitled to benchmark transaction of the eligible unit by applying CUP method as most appropriate method to justify lack of any arrangement contemplated under Sect ion 80IA(10) of the Act . To this limited extent , the matter is set aside to the file of the AO. The assessee shall be entitled to adduce such evidences as may be considered expedient to support its plea on comparability of purchase transactions carried out by eligible units with its AE viz. uncontrolled transactions.”

- Dismisses Revenue’s Miscellaneous Application citing non-following previous trend of findings could not be considered ‘mistake apparent’ under Section 254(2) of the Act – Whirlpool of India Ltd [TS-155-ITAT-2024(DEL)-TP]

Facts:

• The Hon’ble Tribunal in its order for AY 2010-11 to AY 2014-15 had set aside the matter of Advertising Marketing and Promotion (‘AMP’) expenses to the file of Assessing Officer. However, for AY 2015-16, Hon’ble Tribunal deleted the adjustment.

• The Revenue Department filed a miscellaneous application stating there is a visible and apparent error & contradiction in this year in as much as the Hon’ble Tribunal has deleted the adjustment as opposed to setting aside the issue to the file of AO/TPO for passing assessment order after considering the decision of Hon’ble Supreme Court.

Hon’ble Tribunal’s Order

Dismissing the MA, the Hon’ble Tribunal noted as under:

“After considering the submissions, we are of the considered view that the alleged mistake apparent from record, that there is a visible and apparent error & contradiction in this year in not following previous trend of findings, is not the one in regard to which we can exercise the limited power of correcting the errors and the indulgence as desired by Revenue will result in a Review of the order which is beyond the jurisdiction u/s 254(2) of the Income Tax Act 1961. The scope of jurisdiction of Tribunal, under Section 254(2), as per, the Hon’ble Supreme court, in the case Commissioner of Income Tax v. Reliance Telecom Ltd., 2021 SCC OnLine SC 1170, decided on 03.12.2021, is that the powers are only to correct and/or rectify the mistake apparent from the record and not beyond that. They are akin to Order XLVII Rule 1 CPC and thus while considering the application under Section 254(2) of the Act, we cannot re-visit earlier order of Co-ordinate Bench and to go into detail on merits again.”