Significance of the ITAT Decision
The Income Tax Appellate Tribunal (ITAT), Hyderabad, has ruled that due to the absence of a claimed deduction under Section 80IA of the Income Tax Act, 1961, the Transfer Pricing adjustments under Section 92BA are not valid. This ruling has significant implications for companies with specified domestic transactions that have not requested such a deduction.
Background
Sanghi Industries Limited, a major cement manufacturer in India, operates a captive power unit eligible for deduction under Section 80IA. The company transferred power from this unit to its own cement plant and reported the transaction on Form 3CEB. Conversely, it did not claim the corresponding deduction due to the trading losses.
The Transfer Pricing Officer (TPO) questioned the Comparable Uncontrolled Price (CUP) method employed by the company and applied an average price based on third-party transactions, resulting in an adjustment of Rs. 154.38 million, which was upheld by the Dispute Resolution Panel (DRP).
Arguments Presented
The company appealed to the ITAT, arguing that, having failed to claim a deduction under Section 80IA, Section 92BA was not applicable. It relied on precedents such as the case of Star Paper Mills Ltd vs. DCIT, where the Transfer Pricing adjustments did not apply without the deduction.
On the other hand, the tax authority argued that the eligibility for the deduction and the filing of Form 3CEB were sufficient to trigger Section 92BA, regardless of whether the deduction was actually claimed.
Tribunal’s Decision
The ITAT concluded that, without a claimed deduction under Section 80IA, the Transfer Pricing adjustments under Section 92BA lack merit. The tribunal noted that the lower authorities erred in applying such adjustments without a claimed deduction. Accordingly, the adjustment of Rs. 154.38 million was deleted.
Implications for Companies
This ruling underscores the importance of understanding the interaction between Sections 80IA and 92BA. Businesses should carefully evaluate whether filing transactions on Form 3CEB and eligibility for tax deductions may trigger additional liabilities, even if no specific deductions are claimed.
Conclusion
The ITAT decision clarifies the application of the Transfer Pricing provisions regarding unclaimed tax deductions. Companies must review their tax and reporting practices to ensure compliance and avoid unnecessary adjustments.
For a further detailed understanding of this ruling, please see the original source on Taxscan.