2018 (6) TMI 1396 - HC - Income Tax

Additions made under ALP pricing provisions - additions u/s 40 a ia - Held that - We are of the opinion that since both the issues with regard to TP adjustments under Section 92CA of the Act as well as disallowances under Section 40 a ia of the Act the matter is remanded back by the learned Tribunal to the Assessing Officer the observations made by the learned Tribunal in Paragraph-26 will depend upon the findings of facts which are arrived at again by the Assessing Officer upon such remand by Tribunal. We consider it appropriate to leave the said question of law open for consideration after appropriate orders are passed upon fresh enquiry by the learned Assessing Officer upon such remand by Tribunal.

Summary

Issues involved:
1. Benchmarking of group IT expenses shared with Associate Enterprise.
2. Disallowance under Section 40[a][ia] for not deducting tax at source.

Analysis:
1. Benchmarking of group IT expenses shared with Associate Enterprise:
The Assessee filed an Appeal under Section 260-A of the Income Tax Act, challenging the observations made by the Income Tax Appellate Tribunal regarding the benchmarking of group IT expenses shared with an Associate Enterprise. The Tribunal remanded the matter back to the Assessing Officer for further investigation into adjustments made under Section 92C of the Act. The Tribunal highlighted the need to examine the applicability of the Double Taxation Avoidance Agreement (DTAA) and the "make available" clause in relation to IT services rendered by the Associate Enterprise. The Tribunal emphasized the necessity for a fresh look into whether technical services were provided and if the "make available" clause was satisfied. The Tribunal set aside previous orders and directed the Assessing Officer to reconsider the disallowances under Section 40[a][ia] of the Act in accordance with law.

2. Disallowance under Section 40[a][ia] for not deducting tax at source:
The issue of disallowance under Section 40[a][ia] for not deducting tax at source on payments to the Associate Enterprise was also raised. The Assessee argued that simultaneous disallowances under Section 92CA and Section 40[a][ia] could not be made on the same account. The Tribunal remanded the case back to the Assessing Officer for further inquiry into the actual carry forward loss available to the Assessee for the relevant assessment year. The Tribunal directed the Assessing Officer to verify the correct figure of carry forward loss and provide the Assessee with the benefit of the actual carry forward loss. Additionally, the Tribunal clarified that the bench marking of international transactions under Section 92CA is distinct from the disallowance of expenditure under Section 37 of the Act. The Tribunal dismissed the Assessee's claim that disallowance of expenditure towards group IT services was considered twice under different provisions, stating that these provisions operate in different spheres.

In conclusion, the High Court disposed of the Appeal, leaving the question of law regarding the observations made by the Tribunal open for consideration after fresh findings of facts are determined by the Assessing Officer upon remand. The Court allowed the Assessee to raise the contention before the Assessing Officer in case the matter is brought back to the Court through the Tribunal's order.