The Chandigarh ITAT  deleted TP-Adjustment for loss making section 80IC unit.

The assessee company is a private limited company engaged in the business of manufacturing and dealing in automotive parts like gears, axles and shafts etc. having its office and works at Parwanoo, Kalka, Barotiwala and Rajgarh. For the year under consideration, the assessee company filed its return of income declaring total income at Rs. 4,62,20,060 after claiming deduction under section Chapter VI-A amounting to Rs. 1,83,750 only on account of donation and not in respect of deduction under section 80IC of the Act.

The case of the assessee was referred to the TPO as the case was selected for scrutiny and one of the reasons being the TP Risk Parameter. Thereafter the TPO passed the order under section 92CA(3) of the Act.

The assessee has not claimed any deduction under section 80IC of the Act during the year under consideration and our reference was drawn to the returned income as well as computation of income which is placed at pages 67-70 of the paper book. It was submitted that only an amount of Rs. 1,83,750/- was claimed on account of certain donation made by the assessee, however, it is crystal clear on the face of the return of income that there is no deduction which has been claimed under section 80IC of the Act. It was accordingly submitted that even where the adjustment so proposed by the TPO is upheld by the DRP which the assessee wishes to contest separately, in absence of any deduction claimed u/s 80IC, AO has wrongly added the amount of Rs. 5,63,07,943/- to the returned income of the assessee.

The TPO has returned a finding that Unit V is eligible for deduction u/s 80IC as per claim of the assessee and its inter-unit transactions have to be benchmarked as per section 92CA read with section 80-IA(8)/80IC of the Income Tax Act, 1961 and there cannot be any dispute in this regard. 

Further, the TPO has noticed that the assessee has declared profit of Rs. 8,45,95,489/- for Unit V which has been adjusted by brought forwarded earlier years’ losses of Rs. 10,65,85,348/- and carried forward loss of Rs.2,19,89,859/- as per the information filed and any downward adjustment made in the present order u/s 92CA(3)/80- lA(8)/80IC would lead to reduction in profit for the current year and increase in carried forward of loss for the purpose of deduction u/s 80IC. The TPO thereafter has proposed an adjustment of Rs 5,63,07,943/- and which has been upheld by the DRP. 

The ITAT held that the adjustment made by the TPO and upheld by the DRP cannot lead to enhancement by way of addition to the returned income as has been done by the AO while passing the final assessment order. The adjustment will lead to increase in carry forward of losses to the subsequent years. The addition of Rs 5,63,07,943 is directed to be deleted.

Case Title: Milestone Gears Private Limited v/s ACIT