2025 (10) TMI 132 - AT - Income Tax

Ruling deletes disallowance for provision adjustment, remands transfer pricing and unbilled revenue issues for fresh verification

ITAT HYDERABAD (AT) deleted the disallowance for adjustment to a provision for technical services where the amount was not claimed as expenditure in the ... Disallowance of an amount which is an adjustment to provision for expense on account of technical services received - HELD THAT:- As no claim towards the same expenditure has been made by the assessee in A.Y. 2018-19. Therefore, in our considered opinion, no disallowance for any expenditure can be made against an expenditure which has not been claimed during the year under consideration. There is no dispute about the fact that the assessee has not claimed it as expenditure during the year under consideration. Hence, we are of the opinion that, sum has not been claimed as expenditure during the A.Y. 2018-19, no disallowance can be made on this account during the A.Y. 2018-19. Accordingly, we direct the Ld. AO/Ld. TPO to delete the addition made on account of technical services. Adjustment on account of international transactions involving receipt of technical services by the assessee from MV, Singapore as NIL - Although at para no.2.6, Ld. DRP has noted the objection of the assessee relating to determination of ALP with regard to international transactions involving receipt of technical services by the assessee from MW, Singapore as NIL by the Ld. TPO, but the Ld. DRP failed to give any finding on the same. Therefore, we deem it fit to set aside the issue to the file of Ld. DRP to verify the same and give its finding on the issue as per law. TP adjustment by treating the ALP as NIL in relation to the international transactions involving receipt of regional support services by the assessee from its Associate Enterprises (“AEs”) -Respectfully following the findings of the co-ordinate bench of ITAT in assessee's own case (supra), we remand the issue to the file of Ld. AO/Ld. TPO with a direction to verify the evidences filed by the assessee and decide the issue as per law. Addition towards unbilled revenue - As the addition has been made by the Ld. AO without hearing the assessee on merits, we are of the considered view that, in the interest of justice, one more opportunity may be provided to the assessee so that the issue can be decided on merits. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition can be made in the assessment year under consideration in respect of an expenditure provision that was created and claimed as deduction in an earlier assessment year. 2. Whether the Dispute Resolution Panel's failure to adjudicate on an objection to a transfer-pricing adjustment (treating ALP as nil for receipt of technical services) requires remand for fresh decision. 3. Whether additional evidence filed at the appellate stage (relating to regional support services and transfer-pricing adjustment) should be accepted and the matter remanded to the Assessing Officer/Transfer Pricing Officer for verification. 4. Whether an addition for unbilled revenue can be sustained where the Assessing Officer finalized assessment without granting the taxpayer the time requested to produce submissions (principles of opportunity to be heard/natural justice). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Disallowance in respect of a provision/expenditure already claimed in an earlier year (grounds 3 & 4) Legal framework: Taxability/deductibility follows the accounting treatment and the year in which the expense is claimed; an assessing officer cannot disallow an expense in a year in which it has not been claimed. Principles of double taxation and year of claim are relevant. Precedent treatment: The Tribunal examined the transfer-pricing officer's remand reports for the relevant years and relied on those factual findings; no contrary higher-court precedent was invoked in the text. Interpretation and reasoning: The record (TPO remand reports for AY 2017-18 and AY 2018-19) showed the provision of Rs. 4,83,39,374 was created and claimed as expenditure in AY 2017-18 and that in AY 2018-19 there was only a book adjustment to clear the earlier provision with no claim in the profit & loss account for AY 2018-19. Therefore, the Assessing Officer's addition in AY 2018-19 challenged the absence of an expense that was not claimed in that year. The Tribunal held that an addition cannot be made against an expenditure not claimed in the year under consideration; doing so would amount to taxing (or disallowing) an item not before the tax computation for that year. Ratio vs. Obiter: Ratio - where an expenditure/provision was claimed and allowed in an earlier year and not claimed in the year under assessment, no disallowance can be made in the later year for that item. This is a binding reasoning for the facts before the Tribunal. No broader obiter was expressed. Conclusion: The addition of Rs. 4,83,39,374 was deleted; grounds 3 and 4 allowed. Issue 2 - Failure of the Dispute Resolution Panel to adjudicate a specific TP objection (grounds 5 & 6) Legal framework: DRP directions must address objections raised by the assessee; where a statutory adjudicatory body notes an objection but fails to give a finding, the matter may require remand for proper adjudication in accordance with the statutory scheme. Precedent treatment: No express higher-court authority cited; the Tribunal relied on the statutory expectation that issues raised before the DRP be adjudicated. Interpretation and reasoning: The DRP's order recorded the objection on the ALP being treated as nil for technical services but contained no adjudicatory finding on that objection. The omission amounted to non-adjudication of a live issue. The Tribunal concluded that the appropriate remedy is to remit the specific issue back to the DRP to verify and decide the objection in accordance with law. Ratio vs. Obiter: Ratio - where a DRP records an objection but fails to give a finding, the issue should be remitted to the DRP for fresh adjudication. This is the operative direction of the Tribunal. No obiter expansions were made. Conclusion: Grounds 5 and 6 are set aside and remitted to the DRP for adjudication. Issue 3 - Admission of additional evidence at the appellate stage and remand to AO/TPO for verification (ground 7) Legal framework: The appellate forum may admit additional evidence in appropriate circumstances and may remit matters back to the AO/TPO for verification where evidence was not placed before the AO/TPO originally and requires verification. Precedent treatment: The Tribunal expressly followed a coordinate-bench decision in the taxpayer's own case for AY 2017-18, where additional evidence was accepted and the matter remanded; that co-ordinate bench's approach was applied by analogy. Interpretation and reasoning: The assessee sought to furnish voluminous additional evidence at the Tribunal level which could not be produced before the AO. The Revenue objected. Given the analogous acceptance of such additional evidence by a co-ordinate bench in the taxpayer's own matter and the need for factual verification by the AO/TPO, the Tribunal considered remand appropriate to allow the AO/TPO to examine and verify the material and to decide the TP adjustment in accordance with law. Ratio vs. Obiter: Ratio - where additional evidence, not produced before the AO/TPO, is tendered at the appellate stage and a co-ordinate-bench precedent permits its admission, remand to the AO/TPO for verification is appropriate. This is the operative holding for the issue remitted. The application of that co-ordinate-bench decision is binding at least for the panel and persuasive generally; no broader obiter pronouncement beyond remand was made. Conclusion: Ground 7 is allowed for statistical purposes and remitted to the AO/TPO with direction to verify the additional evidence and decide as per law. Issue 4 - Addition for unbilled revenue where AO finalized assessment without granting requested time to be heard (ground 11) Legal framework: Principles of natural justice require that a taxpayer be given an opportunity to be heard; assessments should not be finalized without affording reasonable opportunity to produce submissions/evidence, subject to statutory time constraints. Precedent treatment: The Tribunal relied on the well-established procedural principle that where an AO finalizes assessment without hearing the assessee on a disputed issue, remedial relief by way of remand is appropriate. No specific case citation was recited. Interpretation and reasoning: The assessee had requested two weeks to submit supporting material on unbilled revenue; the AO, constrained by time-bar considerations, finalized the assessment without allowing that opportunity and made the addition of Rs. 4,35,87,337. The Tribunal found that the addition was made without hearing the assessee on merits, thereby infringing the opportunity-to-be-heard principle. In the interest of justice and to allow adjudication on merits, the Tribunal directed remand to the AO with instruction to provide the assessee an opportunity and decide the issue afresh as per law. Ratio vs. Obiter: Ratio - where an AO finalizes an assessment without affording the taxpayer requested time to file submissions/evidence on a disputed item, the matter should be remanded for fresh decision after giving the taxpayer an opportunity to be heard. No obiter dicta beyond this remedial direction was expressed. Conclusion: Ground 11 is allowed for statistical purposes and remitted to the AO for fresh decision after affording opportunity to be heard. Overall Disposition The Tribunal deleted the specific disallowance relating to the provision/expenditure already claimed in the earlier year and remanded other contested transfer-pricing and non-TP issues to the appropriate authorities (DRP or AO/TPO) for fresh adjudication/verification after affording opportunities to the assessee; the appeal is allowed for statistical purposes.