Toyota Industries Engine India Pvt. Ltd. Vs ACIT (ITAT Bangalore)
“Once Scrutiny Starts, CPC Can’t Play Parallel Cricket” – ITAT Bangalore Quashes ₹7,778 Cr 143(1) Adjustment After 143(2) Notice
In a significant ruling, the Bangalore ITAT held that once a notice under section 143(2) is issued initiating regular scrutiny assessment, the Department cannot subsequently resort to summary processing under section 143(1) for making prima facie adjustments. The Tribunal deleted massive adjustments including ₹7,778.48 crore towards GST collections and disallowance under section 43B, holding the entire 143(1) exercise to be without jurisdiction.
The assessee demonstrated that the scrutiny notice u/s 143(2) was issued on 28.06.2022, whereas the intimation u/s 143(1) was issued later on 22.09.2022. Relying on the Supreme Court ruling in CIT vs. Gujarat Electricity Board, the Tribunal reiterated that once regular assessment proceedings commence, there is “no need for a summary proceeding under section 143(1)”. The Bench observed that the very sequence of events vitiated the CPC adjustments.
On transfer pricing issues, the Tribunal delivered multiple important findings. It directed exclusion of MSL Driveline as a comparable due to contradictory RPT disclosures and unreliable financial data, observing that comparability analysis must rest on consistent and trustworthy financials.
The Tribunal also held that Bharat Gears Ltd. and JMT Auto Ltd. cannot be rejected merely as “persistent loss makers” when they had earned profits in one of the relevant years. It clarified that the persistent loss filter should be tested using operating profits and not PBT, and a company with profit in any of the three years cannot automatically fail the filter.
Further, recognizing that the assessee operated in a capital-intensive manufacturing industry, the ITAT accepted the principle that depreciation differences materially affect comparability under TNMM and restored the issue to the AO/TPO for granting suitable depreciation adjustment after verification.
The Tribunal also reaffirmed the settled principle that TP adjustment must be restricted only to AE transactions and cannot be extended to non-AE dealings merely because entity-level margins are used. Since AE transactions constituted only 6.24% of total operating cost, the AO/TPO was directed to confine adjustment strictly to international transactions with AEs.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
