Tribunal allows appeal against adhoc disallowances on training expenses, restores matter to AO for fresh consideration

ITAT Hyderabad allowed the assessee's appeal regarding adhoc disallowances on employee training and printing expenses. The tribunal noted that DRP failed to consider the assessee's cost-plus profit model and corresponding revenue increase. The matter was restored to AO for fresh consideration. The tribunal directed AO to follow DRP's instruction to consider returned income instead of processed income under section 143(1). For TDS credit claims, AO was directed to examine as per law. Regarding transfer pricing adjustment on interest receivables, the tribunal applied Libor +200 rate based on its previous decision in the assessee's case.

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Issues:
1. Adhoc disallowances on employee training expenses and printing and stationery expenses
2. Consideration of returned income by Assessing Officer
3. Credit of TDS claimed by the assessee
4. Benchmarking of interest receivable on outstanding towards AE

Adhoc Disallowances on Employee Training Expenses and Printing and Stationery Expenses:
The appeal arose from the Assessing Officer's order under Income Tax Act, 1961 for the Assessment Year 2018-19. The assessee, engaged in software development and ITES, contested adhoc disallowances of Rs. 1.54 Crores on employee training and printing expenses. The DRP partly affirmed the TPO's order, prompting the appeal. The assessee argued that the expenses were justified due to increased business activities, supported by financial data. The Tribunal found the DRP's decision lacking as it failed to consider the revenue and profit increase, directing the AO to reevaluate the matter comprehensively.

Consideration of Returned Income by Assessing Officer:
The grievance centered on the AO's failure to consider the returned income as directed by the DRP, instead of relying on the income determined under section 143(1). The DRP's explicit instruction was for the AO to follow the returned income determination. The Tribunal upheld the DRP's direction, ordering the AO to adhere to the returned income for assessment purposes.

Credit of TDS Claimed by the Assessee:
The contention involved the credit of TDS claimed by the assessee. The Tribunal directed the AO to examine this issue and make a decision in accordance with the law, providing an opportunity for the matter to be properly addressed and resolved.

Benchmarking of Interest Receivable on Outstanding Towards AE:
Regarding the benchmarking of interest on outstanding receivables towards the AE, the Tribunal referred to prior decisions. Citing precedents, the Tribunal determined LIBOR +200 points as the appropriate rate for benchmarking such transactions. Relying on its own previous decision, the Tribunal directed the AO to apply LIBOR +200 points adjustment without further modification to benchmark the interest on receivables. Consequently, the appeal of the assessee was allowed based on the specified terms.

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