2022 (5) TMI 1523 - AT - Income Tax

TP adjustment - reimbursement of expenses - item titled as Reimbursement of Expenses paid Share based payments cross charged - item titled as Reimbursement of Expenses paid Share based payments cross charged - HELD THAT - We are of the view that this reimbursement forms integral part of cost of services provided by the assessee and accordingly it cannot be treated as separate international transaction. In our considered view the assessee has rightly aggregated the same with the cost of services. A.R also submitted that the TPO himself has aggregated this expenditure as part of cost of services in the succeeding year. TPO was not correct in treating this reimbursement as separate international transaction and determining its ALP as NIL - we direct the AO/TPO to delete the transfer pricing adjustment made in respect of this reimbursement. It should be aggregated with the cost of providing software development services/ ITE services and the ALP determined for these transactions after including this expenditure under TNM method would meet the requirements of law. Disallowance of vehicle lease rental expenses - As per AO assessee has actually purchased the vehicles and the lease rent payments have been made towards the cost of purchases of vehicles - above said amount consisted of repayment of principal portion and repayment of interest amount - HELD THAT - We notice that it is an recurring issue and identical disallowance made in the assessee s own case relating to AY 2010-11 2017 (1) TMI 1673 - ITAT BANGALORE has been deleted following the decision rendered by Hon ble Supreme Court in the case of ICDS Ltd 2013 (1) TMI 344 - SUPREME COURT wherein it was held that the lessor shall be entitled to depreciation on assets leased out by him. Consequently the lease rental payments made by the lessee is allowable as expenditure in his hands. In the instant case the assessee herein is the lessee and hence the lease rental payments are allowable as expenditure. Decided in favour of assessee. Deduction claimed u/s 10A - AO computed revised export turnover reducing some expenses from Export turnover - DRP directed the AO to reduce the above said expenses from total turnover also - plea of Ld A.R was that the AO should have allowed the deduction as per the direction given by Ld DRP - HELD THAT - Deduction was allowed as claimed by the assessee. Section 10A is a beneficial provision and the said deduction has to be computed in accordance with the provisions of sec.10A of the Act. The mistake if any made by the assessee in computing the quantum of deduction in our view cannot be a ground to reduce the amount of deduction. What is allowable as per law should have been allowed by the AO. Accordingly we direct the AO to allow deduction u/s 10A of the Act as per law irrespective of the quantum of deduction claimed by the assessee. Liability to deduct tax at source from year-end provisions - TDS u/s 194C - disallowance of sub-contracting expenses - Disallowance u/s 40(a)(ia) - A.R submitted that the assessee should be allowed deduction in the subsequent year when the TDS was deducted - HELD THAT - We notice that this bench of Tribunal has analysed the issue relating to liability to deduct tax at source from year-end provisions in the case of Biocon Ltd. 2022 (4) TMI 795 - ITAT BANGALORE wherein the Tribunal has analysed the TDS liability under different situation and rendered its decision on each of the situation. Different kinds of situations are warranted since the year-end provisions are made on estimated basis and most of the times it is so made without receipt of invoices from the goods supplier/service provider. Accordingly we are of the view that this issue requires fresh examination at the end of AO.

Summary

Issues Involved:
1. Transfer pricing adjustment in respect of reimbursement of expenses.
2. Disallowance of vehicle lease rentals.
3. Restricting the deduction claimed u/s 10A of the Act.
4. Disallowance of provision for sub-contracting expenses.

Detailed Analysis:

1. Transfer Pricing Adjustment in Respect of Reimbursement of Expenses:
The assessee contested the transfer pricing adjustment related to the reimbursement of expenses, specifically the "Reimbursement of Expenses paid Share based payments cross charged" amounting to Rs.2,29,82,094/-. The TPO treated this as intra-group services and deemed it non-beneficial, determining its ALP as NIL. The assessee argued that these were part of the operating costs and were included in the cost of services provided to its AE, which was recharged with a markup. The tribunal concluded that the TPO's treatment was incorrect and directed the AO/TPO to delete the transfer pricing adjustment, recognizing the reimbursement as part of the operating costs.

2. Disallowance of Vehicle Lease Rentals:
The AO disallowed vehicle lease rental expenses of Rs.1,34,61,853/-, considering them as capital expenditure towards the purchase of vehicles. This disallowance was upheld by the DRP. The tribunal noted that similar disallowances in previous years were deleted based on the Supreme Court's ruling in ICDS Ltd vs. CIT, which allowed lease rental payments as deductible expenses. Following this precedent, the tribunal directed the AO to delete the disallowance.

3. Restricting the Deduction Claimed u/s 10A of the Act:
The AO restricted the deduction u/s 10A to Rs.74.50 crores, despite the DRP's direction leading to a revised deduction of Rs.90.68 crores. The tribunal held that the AO should compute the deduction as per the law, irrespective of the amount initially claimed by the assessee, and directed the AO to allow the deduction accordingly.

4. Disallowance of Provision for Sub-Contracting Expenses:
The AO disallowed Rs.14,69,04,475/- towards sub-contracting expenses due to non-deduction of TDS u/s 194C, which was upheld by the DRP. The assessee argued that the provision was reversed in the subsequent year and TDS was deducted when payments were made. The tribunal noted that the issue required fresh examination in light of the Biocon Ltd case, which dealt with TDS liability on yearend provisions. The tribunal set aside the AO's order on this issue and remanded it for fresh examination.

Conclusion:
The tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the issues of transfer pricing adjustment, vehicle lease rentals, deduction u/s 10A, and provision for sub-contracting expenses based on the detailed analysis and legal precedents.