Case Number: ITA 451/DEL/2019
Appellant: Nalwa Steel Power Limited, New Delhi
Respondent: DCIT, Circle-17(2), New Delhi
Assessment Year: 2014-15
Case Filed On: 2019-01-22
Order Type: Final Tribunal Order
Date of Order: 2019-10-10
Pronounced On: 2019-10-10
The case of Nalwa Steel Power Limited vs DCIT Circle-17(2) pertains to the assessment year 2014-15 and involves several key issues including the determination of arm’s length price (ALP), managerial remuneration, and the allocation of expenses. The appeal was filed by Nalwa Steel Power Limited against the order dated 24.11.2018 passed by DCIT, Circle-17(2), New Delhi under Section 144C read with Section 143(3) of the Income Tax Act, 1961.
Nalwa Steel Power Limited, the appellant, filed its original return of income on 28.11.2014 for the assessment year 2014-15, declaring total income of Rs. 20,64,13,580/-. The case was selected for scrutiny, and notices under Sections 143(2) and 142(1) were issued. During the assessment proceedings, several issues were raised including the reference to the Transfer Pricing Officer (TPO) for determining the arm’s length price (ALP) of specified domestic transactions.
The appellant raised several grounds of appeal, challenging the additions and adjustments made by the AO/TPO/DRP:
The ITAT, after considering the submissions of both parties and perusing the relevant material on record, gave the following findings:
The Tribunal dismissed these grounds as they were general in nature and did not require specific adjudication.
The Tribunal referred to its own decision in the assessee’s case for AY 2013-14, where it was held that the remuneration paid to Ms. Shallu Jindal was allowable. The Tribunal found that the facts and circumstances of the case had not changed, and thus, the disallowance was not justified.
The Tribunal noted that the method of allocation adopted by the assessee was based on generally accepted accounting principles and was prudent. The AO/TPO/DRP had not brought any material on record to show any inaccuracy in the method adopted by the assessee. Hence, this ground was allowed in favor of the assessee.
The Tribunal followed its decision in the assessee’s case for AY 2013-14, where it was held that the rate at which the power was transferred for captive use was justified. The AO/TPO/DRP had erred in applying the IEX rate without proper basis. Therefore, this ground was also allowed in favor of the assessee.
The Tribunal referred to its decision in the assessee’s case for AY 2013-14, where it was held that CSR expenses incurred voluntarily could still be allowed as business expenses. The insertion of Explanation 2 to Section 37(1), which disallows CSR expenses, is applicable from AY 2015-16 onwards and thus, not relevant for the present case. This ground was allowed.
The Tribunal remanded this issue back to the AO for proper adjudication and directed that the assessee be given an opportunity of hearing.
The ITAT’s decision in the case of Nalwa Steel Power Limited vs DCIT Circle-17(2) for the assessment year 2014-15 addressed various contentious issues including the determination of arm’s length price, managerial remuneration, and the allocation of expenses. The ruling provides valuable insights into the principles governing these areas and underscores the importance of proper documentation and adherence to accepted accounting principles.
This decision has significant implications for taxpayers involved in transfer pricing disputes and those claiming deductions for managerial remuneration and CSR expenses. It highlights the necessity of following proper procedures and maintaining adequate documentation to substantiate claims made in the tax returns.
The ITAT’s ruling in this case reaffirms the need for tax authorities to base their assessments on solid evidence and proper justification. It also underscores the Tribunal’s role in ensuring that justice is served by correcting errors made by lower authorities. This case serves as a reminder to taxpayers to be diligent in their compliance and documentation efforts to avoid unnecessary disputes and litigations.
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