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TMI Blog2018 (6) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning / explanation of international transaction in section 92B - hence AO cannot impute interest on balance outstanding from its AEs. As regards the claim of the assessee that a period of six month should be considered as reasonable for making recovery of cost incurred by it from the AE, we are of the view that such a plea cannot be entertained - A period of 60 days is reasonable period within which the expenses ought to have been recovered by the assessee from its AEs - thus AO is directed to impute the interest on the outstanding amounts for a period exceeding 60 days at any point of time during the year in consideration Adoption of rate of interest - Held that:- Since the expenditure has been incurred in Indian currency and not in dollars thus adoption of LIBOR is rejected - weightage average interest of SBI-PLR on FDs has been worked out by the DRP at 8.15%. We are of the considered view that only 8.15% should be adopted while calculating ALP interest on the amounts outstanding from the assessee’s AEs. - IT(TP)A No.489/Coch/2016 And SA No.60/Coch/2017 - - - Dated:- 30-5-2018 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144C r.w.s. 92CA of the I.T.Act and issued the demand notice u/s 156 of the Act raising a total demand of ₹ 9,38,08,666. 2.4 Aggrieved by the final assessment order, the assessee company has filed the present appeal and the stay application before the Tribunal. The synopsis of the grounds argued by the learned Counsel for the assessee are as follows:- Sl. No. Particulars Ground Reference Amount involved (Rs.) 1. Disallowance of provision for legal and professional charges 1 1,74,48,290 2. Disallowance under section 36(1)(va) of the Act on late payment of employees contribution to PF and ESI 2 33,32,307 3. Erroneous imputation of interest on amounts which are not in the nature of loan 4 6,72,554 4. Erroneous granting of credit period which is short in normal course of business 5 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to make disallowance of ₹ 1,74,48,290/- instead of ₹ 1,12,19,079. Further, in view of provisions of Section 194J Explanation (c)/Section 195 Explanation I, the assessee should have deducted tax at source while making such provision. Since the assessee failed to do so, the amount becomes disallowable as per provisions of section 40a(i)/(ia) also. AO is free to inform the concerned TDS authorities regarding non deduction of Tax at source by the assessee at the relevant time of making provision, so that appropriate action can be taken by such authorities for such default. Considering above, the objections of the assessee are not accepted. 3.2 Aggrieved by the order of the DRP, the assesseecompany has raised this issue before the Tribunal. 3.3 The learned Counsel for the assessee submitted that during the previous year relevant to the assessment year 2012-2013, the assessee had incurred expenditure of ₹ 11,50,59,429 as software development and testing. Out of the same, a sum of ₹ 1,74,48,219 was pertaining to provision created. It was submitted that details of such provision created are annexed at page 520 of the paper book filed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the TDS provision in respect of the above said expenses. With regard to the balance amount of ₹ 1,12,19,079, the party-wise details are placed on record, however, the quantification of the amount due to the parties was done beyond the close of accounting year, hence, the provision was created. According to the assessee, the provision created was based on scientific estimate and past years trend. The learned AR had relied on the judgment of the Hon ble Supreme Court in the case of Rotork Controls India (p.) L.d v. CIT [(2009) 314 ITR 62 (SC)] . We noticed with regard to the expenditure of ₹ 1,12,19,079, the assessee had complied with the TDS provision before the due date of filing of the return, hence, there could not have been disallowance u/s 40(a)(ia) of the I.T.Act. The question is whether the provision created for such an amount is part of scientific estimate and past years trend. The comparative analysis of the gross turnover to the provision created in ratio for assessment years 2011-2012 and 2012-2013 are placed on record and is annexed as Exhibit 19 of the DRP Exhibit. As mentioned earlier, the party-wise details of the provision created for the software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ESI by placing reliance on the judgment of the Hon ble Kerala High Court in the case of CIT v. M/s.South India Corporation Limited [(2015) 58 Taxmann 208 (Ker.)] (judgment dated 27.03.2015). The view taken by the Assessing Officer was confirmed by the DRP. 4.1 Aggrieved by the final assessment order, the assessee has raised the issue before the Tribunal. The learned Counsel for the assessee had made the following submissions:- Section 36(1)(va) to be read in conjunction with section 43B of the Act: Section 43B applies to 'any sum payable by the assessee as an employer' by way of contribution to PF/ESI. Also, section 43B contains a non-obstanate clause which implies that provisions of section 43B shall override the other provisions of the Act. Since the contribution made by the employee is a contribution to the welfare fund held in trust by the employer who is bound to deposit the same, employee's contribution towards ES) and PF has to be treated at par with employer's contribution. Hence, employee's contribution to PF/ES) would also get covered under section 43B of the Act. Since 43B allows the deduction of contributions subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the rival submissions and perused the material on record. The Hon ble High Court in the case of Merchem Limited (supra) had categorically held that the employees contribution towards PF and ESI u/s 36(1)(va) of the I.T.Act cannot be allowed as a deduction if the said payment has been made after the due dates specified under the respective statutes. In view of the judgment of the Hon ble jurisdictional High Court we dismiss ground No.2 raised by the assessee. 5. Ground Nos. 3, 4 5 The assessee-company had met travelling and accommodation expenses on behalf of its AEs. It is claimed that these expenditure have been subsequently recovered by the assessee from the AEs at the cost based on third party invoices. No interest was charged on the outstanding amount, since according to the assessee, the same is not in the nature of a loan. However, the TPO / AO imputed interest of ₹ 6,72,554 on the balance outstanding by considering credit period of 15 days. The view taken by the TPO / AO was confirmed by the DRP. 5.1 Aggrieved, the assessee has raised this issue before the Tribunal. The learned Counsel had made the following submissions :- The Appellant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view that a period of 60 days is reasonable period within which the expenses ought to have been recovered by the assessee from its AEs. The period of 15 days granted by the DRP is too short of period considering the business transaction undertaken by the assessee with its AEs. Therefore, the A.O. is directed to impute the interest on the outstanding amounts for a period exceeding 60 days at any point of time during the year in consideration. 5.5 As regards the issue of rate of interest, the TPO/AO adopted ALP interest at the rate of 17.06% being average SBIPLR rate with the spread of 3%. The TPO/AO while adopting average SBI-PLR rate, rejected the assessee s plea that only LIBOR rate should be applied. The DRP reduced the ALP rate to 12.75% instead of 17.06% adopted by the TPO/AO. The DRP considered inter-company deposits interest rates at 9.75% and a spread of 3%. 5.6 Before the Tribunal, the learned AR reiterated the submissions that LIBOR rate should be adopted. The learned DR supported the DRP s directions. 5.7 We have heard the rival submissions and perused the material on record. In the instant case, the assessee had incurred expenditure on behalf of its AEs in In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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