2014 (1) TMI 77 - AT - Income Tax

Disallowance made u/s 144C(5) of the Act - Transfer pricing adjustment - Management fees paid to its Associated Enterprise (AE) Held that - The assessee has filed additional evidence which was not available before the authorities below - The assessee has forcefully contended that this new material which has been collected by the assessee subsequent to the orders and this is a material evidence in support of the assessee s claim to show that the payment of management fee was paid by the assessee against the service rendered by the AE - order set aside and the matter remitted back to the record of the Assessing Officer/ TPO for verification and examination of the fresh evidence filed by the assessee. Disallowance of claim u/s 40(a)(ia) of the Act Held that - There are conflicting observations by DRP & AO on the aspect - the factual aspect requires verification whether the expenditure in question pertains to the assessment year 2005-2006 or to the assessment year under consideration and whether the same were disallowed in the assessment year 2005-06 for want of deduction of tax at source - order set aside and the matter remitted to Assessing Officer for limited purpose of verification Decided in favour of Assessee.

Summary

Issues Involved:
1. Transfer Pricing adjustment in respect of management fees paid by the assessee to its Associated Enterprise (AE).
2. Disallowance of claim under Section 40(a)(ia).

Issue 1: Transfer Pricing Adjustment in Respect of Management Fees:
The appellant challenged the disallowance of Rs. 76,93,979 by the Assessing Officer (AO) based on a Transfer Pricing adjustment made by the Transfer Pricing Officer (TPO) regarding management fees paid to its Associated Enterprise (AE). The appellant contended that the DRP and TPO erred in concluding that no services were rendered by the AE against the management fees paid. The appellant submitted additional evidence before the tribunal to support its claim that services were indeed provided. The tribunal remitted the issue back to the AO/TPO for verification of the new evidence to determine if the management fee was paid for services rendered by the AE.

Issue 2: Disallowance of Claim under Section 40(a)(ia):
The appellant claimed a deduction of Rs. 99,37,274 for payments disallowed in the previous year under Section 43B, paid during the current assessment year. The AO disallowed the claim citing lack of documentary evidence. The DRP directed the AO to verify if TDS was subsequently deducted from the remittance made. The AO rejected the claim stating the expenses were debited to the profit and loss account for the current assessment year. The appellant argued that the expenses related to the preceding assessment year, and TDS was paid during the current year, thus justifying the claim. The tribunal observed conflicting observations by the DRP and AO, requiring verification if the expenses pertained to the previous assessment year and if they were disallowed due to non-deduction of TDS. Consequently, the tribunal remitted the issue back to the AO for verification and a decision based on the findings.

In conclusion, the tribunal allowed the appeal of the assessee for statistical purposes, emphasizing the need for further verification and examination of the issues raised regarding Transfer Pricing adjustment and the disallowance of the claim under Section 40(a)(ia).

(Order pronounced on April 26th, 2013)