Income Tax Appellate Tribunal: Archroma Wins Against Deputy Commissioner Over Transfer Pricing Dispute

In a recent court decision, Archroma International (India) Private Limited won an important case against the Deputy Commissioner of Income Tax. Here's a breakdown of what happened and why it matters.

The Case Begins: Tax Returns and Disputes

Back in 2010, Archroma filed its income tax return for the year, declaring an income of over 78 crore rupees and asking for a refund of about 3.3 crore rupees. However, the tax authorities decided to take a closer look at this return, leading to a complicated series of events.

Transfer Pricing Troubles

The main issue was about transfer pricing. The tax authorities suggested a change of over 5 crore rupees related to 'Corporate Service Charges.' This change was a big problem for Archroma.

"The transfer pricing proceedings ended in an order dated 28th January, 2014."

Draft Order and Objections

In March 2014, the tax department issued a draft assessment order, increasing Archroma's total income to over 89 crore rupees. Archroma wasn't happy and filed objections with the Dispute Resolution Panel (DRP).

DRP Directions and Final Assessment

The DRP agreed with Archroma on some issues, allowing depreciation on goodwill. However, the final assessment by the tax officer didn’t fully follow the DRP's directions, leading Archroma to appeal.

Tribunal's Intervention

Archroma took the matter to the Income Tax Appellate Tribunal, which provided some relief by sending parts of the case back to the DRP for reconsideration.

"The Tribunal told the DRP to give a clear and well-explained order after giving Archroma a fair chance to present their case."

The Long Wait and Legal Battle

Despite the Tribunal's instructions, the tax authorities delayed following the DRP's directions. Archroma kept asking for action, but nothing happened. This lack of action led to the current court case.

Court's Decision: A Victory for Archroma

The court ruled in favor of Archroma, stating that the tax authorities failed to act within the required timeline. As a result, the transfer pricing adjustment was declared invalid, and Archroma was entitled to a refund.

"The proceedings before the Deputy Commissioner of Income Tax regarding the transfer pricing addition of Rs.5,26,86,111.00 are no longer valid due to time limits."

What's Next?

The court has ordered the tax authorities to recompute Archroma’s income and process the refund within eight weeks. This decision shows how important it is to stick to timelines in tax matters.

Archroma's persistence paid off, and they set an example for similar cases in the future.