2017 (4) TMI 713 - AT - Income Tax

Addition on account of reimbursement of expenses to AE as per order of Transfer Pricing Officer - invoking of section 40(a)(i) - Held that - Section 40(a)(i) of the Act has been invoked to disallow the expenditure on the ground that the requisite tax has not been deducted. The plea of the assessee is that in the subsequent year the requisite tax has been deducted and, therefore, the expenditure may be allowed as deduction in the subsequent year. In view of the aforesaid submission, the action of the Assessing Officer in disallowing the expenditure in this year by invoking of section 40(a)(i) of the Act is hereby upheld and it is further directed that the claim of the assessee for deduction in the subsequent year be examined as per law. We find no reason to adjudicate on the controversy regarding determination of the arm s length price at nil, since it would make no difference to the assessed income, inasmuch as, the said expenditure is otherwise disallowable under section 40(a)(i) of the Act even going by the stand of the assessee. - Decided in favour of assessee for statistical purposes only. Disallowance under section 14A - investment made as a strategic investment in group companies - Held that - The short point raised by the assessee is based on the decision of the Tribunal in the case of M/s. Dish TV India Ltd. vs. ACIT 2016 (12) TMI 1544 - ITAT MUMBAI whereby it is canvassed that disallowance be recomputed by excluding the Strategic Investments made by the assessee in its subsidiaries. On this aspect, the Ld. Departmental Representative had no objection and accordingly, the matter is restored back to the file of Assessing Officer to re-work the amount disallowable under section 14A of the Act by excluding the value of Strategic Investments comprised in the total investments. Thus, on this aspect also assessee succeeds for statistical purposes.

Summary

Issues:
1. Addition on account of reimbursement of expenses to AE as per order of Transfer Pricing Officer.
2. Disallowance u/s 14A.

Analysis:

Issue 1: Addition on account of reimbursement of expenses to AE:
The appeal pertains to the assessment year 2008-09 and challenges an order by CIT(A) upholding the Transfer Pricing Officer's adjustment of ?2,26,10,000 to income for reimbursement of expenses to an associated enterprise. The Transfer Pricing Officer determined the arm's length price at nil, leading to the addition in the assessment. The Assessing Officer also disallowed the corresponding expenditure under section 40(a)(i) for non-deduction of TDS. The appellant contended that the Transfer Pricing Officer exceeded jurisdiction and argued for reevaluation under section 37(1) of the Act. Additionally, the appellant stated that the TDS was deducted in the subsequent year, requesting allowance in that year. The tribunal upheld the disallowance under section 40(a)(i) for the current year but directed examination of the deduction in the subsequent year. The controversy over determining the arm's length price was not adjudicated as it did not affect the assessed income due to the disallowance under section 40(a)(i).

Issue 2: Disallowance u/s 14A:
The second issue concerns the disallowance made under section 14A of the Act. The Assessing Officer disallowed ?12,02,115 under Rule 8D(2)(iii), which was affirmed by CIT(A). The appellant relied on a Tribunal decision to exclude Strategic Investments while recomputing the disallowance under section 14A. The Departmental Representative had no objection, and the matter was remanded to the Assessing Officer for reevaluation. Consequently, the appellant succeeded on this issue for statistical purposes.

In conclusion, the appeal was allowed for statistical purposes, with directions for reevaluation of disallowances in subsequent years as per law.