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TMI Blog2022 (11) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for deduction in subsequent year as per law. In view of the aforesaid, the adjudication of transfer pricing adjustment on account of reimbursement of expenses to AE becomes academic in nature in the year under consideration, since, the same would make no difference to the assessed income of the assessee, as the said expenditure has already been held to the disallowable under section 40(a)(ia) even in view of the submissions of the assessee. The issue of transfer pricing adjustment can be examined in the assessment year in which this expenditure is claimed by the assessee. Ground no. 1 raised in assessee s appeal is allowed for statistical purpose. Ddisallowance of Mark to Market loss - AR submitted that loss arising from forex transaction recorded on Mark to Market basis is an allowable expenditure and the same is not speculative in nature - Revenue has disallowed the loss arising on account of foreign exchange forward contract as a notional loss - HELD THAT:- As is evident from the record, in the present case, the Revenue has disallowed the foreign exchange loss on the basis that the same is notional in nature. It is also not been denied that these contracts are en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. (ii) The CIT (A) erred in law and facts in upholding order of Transfer Pricing Officer (TPOVAO treating reimbursement of expenses as payment for services rendered by AE. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. (iii) The Ld. CIT (A) ought to have held that there is no need to find ALP of reimbursement of expenses as there is no income content and it has not resulted into any direct or tangible benefit to the assessee. (iv) The Ld. CIT (A) erred in law and facts in upholding the order of A.O. in alternatively disallowing reimbursement of expenses u/s 40(a)(ia) of the Act for non-deduction of TDS. The reasons given by him for doing so are wrong, contrary to the facts of the case and against provisions of law. 2. Disallowance of MTM Loss (i) The Ld. CIT (A) erred in law and facts in upholding order of AO treating Mark to Market Loss of Rs. 4,60,56,154/- on year end open forward contracts as speculation loss on the ground that it is not a crystallized loss and notional in nature. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursement made by the assessee to its AEs. In reply, assessee submitted that the expenses amounting to Rs. 6,94,24,899 were reimbursed to the AE pertaining to the pilot project, wherein the AE was involved in the process of implementation of FITA (future business and IT architecture), standardisation set across the KUONI Group Worldwide. The TPO vide order dated 30.11.2012 passed under section 92CA(3) of the Act held that the assessee has not proved that the services availed were essential and beneficial for its business. The TPO further held that the assessee has not been able to submit any credible evidence to prove that any services has been rendered by the AE. Accordingly, the TPO determined the arm s length price of the international transaction of reimbursement of expenses to AE as Nil and proposed an adjustment of Rs. 6,94,24,899/- to the international transaction undertaken by the assessee. In conformity, the Assessing Officer ( AO‟), inter alia, passed the order under section 143(3) read with section 144C(3) of the Act. 6. The learned CIT(A) vide impugned order dated 29.02.2016 dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a)(ia) of the Act. Further, in respect of balance payment of Rs. 95,14,345/- nothing has been brought on record to show that tax was deducted at source. Accordingly, the balance payment is also disallowable under section 40(a)(ia) of the Act. It is plea of the assessee that in subsequent year the requisite tax has been deducted and, therefore, expenditure may be allowed as deduction in the subsequent year. Further, we find that the TPO has also made adjustment of Rs 6,94,24,899/- in absence of proof of rendition and benefit of the services to the assessee. In view of the above submission, we deem it appropriate to direct the AO to disallow the expenditure in this year by invoking the provisions of section 40(a)(ia) of the Act. The AO is further directed to examine the claim of the assessee for deduction in subsequent year as per law. In view of the aforesaid, the adjudication of transfer pricing adjustment on account of reimbursement of expenses to AE becomes academic in nature in the year under consideration, since, the same would make no difference to the assessed income of the assessee, as the said expenditure has already been held to the disallowable under section 40(a)(ia) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Mark to Market‟ Loss of Rs. 78,10,000/- made by the Assessing Officer on account of disallowance of loss on foreign exchange forward contract loss and not appreciating the fact that the said loss was a notional loss and hence cannot be allowed.? 15. While deciding the same, the Hon ble jurisdictional High Court observed as under: 7. The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently come to the conclusion that the transaction entered into by the Respondent assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange rate which would impact its business of import and export of diamonds. These concurrent finding of facts are not shown to be perverse in any manner In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entered into by the Respondent assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the Respondent assessee that the activity of entering into forward contract was in the regular course of its business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entered into by the assessee in the course of its business of travel agent and tour operator. Therefore, respectfully following the aforesaid decision of Hon ble jurisdictional High Court, we direct the AO to delete the addition made on account of disallowance of Mark to Market loss. As a result, ground no. 2 raised in assessee s appeal is allowed. 17. The issue arising in ground no. 3, raised in assessee s appeal, is pertaining to disallowance under Section 14A of the Act. 18. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee earned dividend income of Rs. 75,456, which was claimed as exempt from tax. Further, the assessee has invested in tax free bonds on which it has claimed interest income of Rs. 10,20,966/- as exempt from tax. In the revised return of income, the assessee suo-moto made disallowance of Rs. 4,23,716/- under section 14A of the Act. The AO vide assessment order dated 29.05.2014 made a disallowance of Rs. 21,65,141/- under section 14A read with Rule 8D of the Income Tax Rules. Since, the assessee has already made a suo-moto disallowance of Rs. 4,23,716/-, the disallowance under section 14A read with R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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