2023 (4) TMI 175 - AT - Income Tax

TP adjustment - reimbursement of the out of pocket expenses - HELD THAT - Appellant had not furnished third-party invoices or other supporting documents for 22% out of pocket expenses reimbursed. TPO/Assessing Officer has not pointed out any defect/discrepancy in the bills/supporting documents furnished .by the Appellant as the same have been examined and accepted. Accordingly, adopting the reasoning given by the Tribunal in the order of the Tribunal for the Assessment Year 2008-09 2022 (11) TMI 681 - ITAT MUMBAI and following the decision of the Tribunal for the Assessment Year 2010-11 2022 (11) TMI 1341 - ITAT MUMBAI we delete the transfer pricing addition made in relation to reimbursement of out of pocket expenses to AE. Accordingly, Ground No. 2 raised in the appeal is allowed TP Adjustment - reimbursement of software maintenance expenses (connectivity charges) - HELD THAT - In view of the fact that transfer pricing addition in respect of identical reimbursements to AE having been deleted by the Tribunal in appeal for the Assessment Year 2010-11 2022 (11) TMI 1341 - ITAT MUMBAI we deleted the disallowance by respectfully following the aforesaid decision of the Tribunal. Disallowance of lease rental payment in terms of 'Agreement For Provision For Warehousing Services' - HELD THAT - A perusal of financial statements for the relevant previous year shows that identical disclosures have been made. Payments of lease rentals have also been made in terms of the same agreement. Accordingly for Assessment Year 2011-12 also the issue is remanded back to the file of the Assessing Officer for adjudication afresh after giving the Appellant a reasonable opportunity of being heard. In view of the aforesaid directions Ground disposed off. Computation of Book Profit u/s 115JB - DR submitted that while passing the Final Assessment Order AO has not reduced the brought forward loss from the net profits shown in the Profit Loss Account while computing Book Profits u/s 115JB - HELD THAT - A perusal of the Profit and Loss Account pertaining to the financial year ending on 31.03.2011 relevant to the Assessment Year 2011-12 shows that the Appellant had brought forward losses. Further, in Notes to Return enclosed with the Computation of Taxable Income, the Appellant had also furnished details of brought forward loss and depreciation. As per Explanation 1 to Section 115JB of the Act, for computing Book Profits, the amount of profits shown in Profit Loss Account are to be reduced by the amount of unabsorbed losses or depreciation whichever is less as per the books of accounts. Assessing Officer is directed to verify the amount of unabsorbed losses and depreciation as per the books of accounts and compute Book Profits as per Section 115JB read with Explanation 1.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for reimbursement of out of pocket expenses.
2. Transfer Pricing Adjustment for reimbursement of software maintenance expenses.
3. Initiation of penalty proceedings under Section 271(1)(c).
4. Disallowance of lease rental payments.
5. Set-off of brought forward business loss/unabsorbed depreciation under Section 115JB.
6. Levy of interest under Section 234B.
7. Levy of interest under Section 234D.

Detailed Analysis:

Transfer Pricing Adjustment for reimbursement of out of pocket expenses:
The Tribunal addressed the transfer pricing adjustment of INR 28,67,592/- related to the reimbursement of out-of-pocket expenses. The Appellant had submitted third-party invoices for INR 1,04,13,664/- out of the total claimed INR 1,32,81,256/-. The TPO proposed an adjustment for the remaining INR 28,67,592/- considering it not at arm's length. The DRP upheld this adjustment, but the Tribunal noted that similar adjustments for previous years (AY 2008-09 and AY 2010-11) were decided in favor of the Appellant. The Tribunal found no discrepancies in the submitted documents and deleted the adjustment, allowing Ground No. 2.

Transfer Pricing Adjustment for reimbursement of software maintenance expenses:
The Tribunal reviewed the INR 30,31,427/- adjustment for reimbursement of software maintenance expenses. The TPO had proposed the adjustment due to a lack of third-party contractor bills. The Tribunal referenced a similar issue from AY 2010-11, where it was decided in favor of the Appellant. The Tribunal found the expenses justified and deleted the adjustment, allowing Ground No. 3 and disposing of Ground No. 4 as infructuous.

Initiation of penalty proceedings under Section 271(1)(c):
The Tribunal noted that penalty proceedings are separate from assessment proceedings. Ground No. 5, challenging the initiation of penalty proceedings, was disposed of as premature.

Disallowance of lease rental payments:
The Tribunal addressed the disallowance of INR 50,43,085/- for lease rental payments. The issue was similar to one in AY 2010-11, where the Tribunal remanded the matter back to the Assessing Officer for fresh adjudication. The Tribunal found similar financial disclosures and remanded the issue back to the Assessing Officer for the current year as well, disposing of Ground No. 6(a) and 6(b).

Set-off of brought forward business loss/unabsorbed depreciation under Section 115JB:
The Tribunal directed the Assessing Officer to verify the amount of unabsorbed losses and depreciation as per the books of accounts and compute Book Profits under Section 115JB accordingly. Ground No. 7 was disposed of with these directions.

Levy of interest under Section 234B and 234D:
Ground No. 8 and 9 pertained to the levy of interest under Section 234B and 234D, respectively. These were disposed of as consequential in nature.

Conclusion:
The appeal was partly allowed, with specific directions for fresh adjudication and verification of certain issues by the Assessing Officer. The Tribunal pronounced the order on 30.11.2022.