2023 (6) TMI 577 - AT - Income Tax

TP Adjustment - international transaction for reimbursement of expenses, which has been determined by the assessee to be at arm's-length price by adopting any other method - AO determined the ALP at Rs. Nil for the reason that assessee has failed to furnish the requisite details with respect to the actual rendition of the services, benefit derived by the assessee and services are rendered not duplicative in nature - HELD THAT - On perusal of the debit memos, we find that the narration of the services are in a foreign language. Except the address of the assessee and the amount in Euro, everything else is in foreign language. The three invoices/debit notes shows that two debit notes are of Euro 9225, and one debit note of Euro 11,118. The English words in the debit notes refers to the Microsoft and SAP details for three quarters. The two quarters pertaining to 2017 and first quarter of 2018. The details are not also supported by any agreement. We fail to understand that how the lower authorities have reached at a conclusion on the 3 Sample debit notes which are in a foreign language. Assessee has also not narrated the facts properly that how the above expenditure cross-charged to the assessee company by its associated enterprises. Even the complete breakup of the expenditure showing the nature of expenditure was also not submitted. Set-aside ground back to the file of the learned transfer pricing officer with a direction to the assessee to substantiate the nature of such expenditure, and how such expenditure have benefited to the assessee. The learned TPO may examine the same and decide the issue afresh in accordance with the law. Disallowance of foreign exchange losses - DRP upheld the disallowance holding that there is no evidence submitted by the assessee that the expenditure of foreign exchange loss is allowable as business expenditure HELD THAT - Additional evidence furnished by the assessee shows that the assessee submitted description of expenditure, foreign currency in which transaction was incurred, amount of expenditure in foreign currency, date of booking, exchange rate used on date of booking, amount of expenditure booked in Indian rupee, date of actual payment, exchange rate on date of payment, resultant foreign exchange gain or loss, landed cost number, invoices number, vendor details and bank payment reference. All these details conclusively shows that the assessee has incurred foreign exchange loss during the course of business transaction. Without examining these details, it is unfair to treat the expenditure incurred on foreign exchange loss by the assessee as non business expenditure - we set-aside the whole issue back to the file of the learned assessing officer with a direction to examine the claim of the foreign exchange loss incurred by the assessee. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Adjustment in respect of reimbursement of expenses.
2. Disallowance of foreign exchange loss on remittances under section 43AA of the Act.
3. Initiation of penalty proceedings under section 270A of the Act.

Summary:

Issue 1: Adjustment in Respect of Reimbursement of Expenses
The assessee challenged the adjustment made by the Transfer Pricing Officer (TPO) regarding the reimbursement of expenses amounting to INR 32,51,464. The TPO determined the Arm's Length Price (ALP) of the international transaction at NIL, arguing that the assessee failed to furnish back-to-back invoices and other necessary documentation to substantiate the claim. The assessee argued that these expenses were third-party costs reimbursed on a cost-to-cost basis without any markup and were for administrative convenience. The Tribunal found that the assessee did not provide sufficient evidence to substantiate the nature and benefit of the expenses and remanded the issue back to the TPO for fresh examination.

Issue 2: Disallowance of Foreign Exchange Loss on Remittances
The assessee claimed a foreign exchange loss of INR 3,65,84,150, which was disallowed by the Assessing Officer (AO) under section 43AA of the Act. The AO held that the evidence provided by the assessee was insufficient and possibly forged. The Dispute Resolution Panel (DRP) upheld this disallowance, stating that the assessee did not produce any record to suggest that the expenditure was incurred wholly and exclusively for business purposes. The Tribunal noted that the assessee was not given sufficient time to furnish the requisite details and remanded the issue back to the AO for a fresh examination, directing the assessee to demonstrate that the loss was incurred during the course of business.

Issue 3: Penalty Proceedings
The Tribunal found that the initiation of penalty proceedings under section 270A of the Act was premature and dismissed this ground of appeal, stating that it did not require adjudication at this stage.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal remanding the issues of reimbursement of expenses and foreign exchange loss back to the respective authorities for fresh examination. The penalty proceedings were dismissed as premature.