×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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All are assessee’s appeals for the A.Ys 2012-13, 2013- 14 & 2014-15 respectively against the assessment orders passed u/s 143(3) r.w.s 144C(5) of the Act.
ITA No. 382/Hyd/2017, A.Y 2012-13:
2. Brief facts of the case that the assessee company efiled its return of income for the A.Y 2012-13 on 29.06.2013 declaring a total income of Rs. 28,40,38,800/- under normal provisions of Income Tax Act and Rs. 7,05,33,184/- under the provisions of Sec. 115JB of the Act. During the assessment proceedings u/s 143(3) of the Act the A.O noticed that the assessee has entered into international transactions exceeding Rs. 50 crores with its associated enterprises and therefore, for the determination of arm’s length price of the said transactions, the A.O referred the matter to the TPO u/s 92CA of the Act.
2.1 The TPO, vide orders dated 30.01.2016, suggested certain transfer pricing adjustments. He held the transaction of provision of Information Technology Engineering Services (ITeS in short) to be within (+/-) 5% of the average margin of the comparables and hence he did not propose any adjustment. Further, with regard to reimbursement of expenses also the transaction was held to be at arm’s length price. The A.O, thereafter, observedthat the assessee has not charged interest on receivables from associated enterprises. The assessee submitted that he did not charge interest on receivables from nonassociate enterprises as well, and therefore, the same is treated to be at arm’s length price. The TPO, however, did not agree with the assessee and held that the SBI PLR rate of 14.75% p.a should be the interest chargeable on receivables. Accordingly, he proposed an adjustment of Rs. 75,70,716/-.
2.2 In accordance therewith, the draft assessment order was passed, wherein the A.O also examined the allowability of reimbursement of expenses made by the assessee to M/s. Satyam Computer Services Ltd without making any TDS therefrom. The assessee claimed that he has reimbursed expenses towards salary to its associated enterprises without any markup and therefore no deduction of tax at source u/s 194J of the Act was required. However, theA.Oobserved that the services rendered by M/s Sa yam Computer Services Ltd, are in the nature of ‘fees for technical services’ and therefore, the assessee was required to make TDS and for failure of the assessee to have made TDS, the A.O proposed the disallowance u/s 40(a)(ia) of the Act. Against the draft assessment order, the assessee preferred its objections to the DRP, which confirmed the draft assessment order, but in respect rate of interest on receivables, the DRP held that it should be at the interest rates on short term deposits and not the lending rate of the SBI. Therefore, the rate of interest was reduced to the applicable rates for the relevant period as mentioned in page 4 of its orders after granting credit period of 90 days.
2.3 As regards Sec. 40(a)(ia) disallowance, the assessee had submitted that though the assessee did not make TDS,the recipient has offered the income to tax in its hands and therefore the proviso to Sec. 40(a)(ia) of the Act would apply and no disallowance u/s 40(a)(ia) of the Act should be made. The DRP called for a remand report from the A.O. The A.O submitted that the proviso to Sec. 40(a)(ia) of the Act would apply only prospectively from the A.Y 2013- 14 and hence was not applicable for the A.Y 2012-13. Taking the same into consideration, the DRP rejected the objections of the assessee. In accordance with the DRP directions, the A.O passed the final assessment order, against which, the assessee is in appeal before us by raising the following grounds of appeal:
“1. The order of the Ld. A.O is erroneous in law and on facts of the case.
Disallowance u/s 40(a)(ia)
2. The A.O / DRP erred in making disallowance of Rs. 10,18,50,289/- for the reimbursement of salary and other cost under the erroneous presumption that such an amount is liable for tax deduction u/s 194J.