TaxTMI 
TaxTMI 
2018 (6) TMI 279
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....the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) since assessee had entered into international transactions with its Associate Enterprises (AEs). The TPO vide his order dated 27.01.2016 made upward adjustment to the arm's length price amounting to Rs. 62,81,151. On receipt of the TPO's order, the Assessing Officer issued a draft assessment order dated 29.02.2016 wherein the taxable income was re-computed to Rs. 37,06,59,137 by making the following additions :- (i) Disallowance of provision for legal and professional charges Rs.1,12,19,079 (ii) Disallowance u/s 36(1)(va) Rs. 33,32,307 (iii) Transfer Pricing adjustment Rs. 62,81,151 2.2 On receipt of the draft assessment order, the assessee filed its objection u/s 144C(2)(b) of the I.T.Act before the Dispute Resolution Panel (DRP). The DRP vide its order dated 12.08.2016, disposed off the objections of the assessee. The direction of the DRP are as follows:- (i) Disallowance of provision for legal & professional charges was enhanced to Rs. 1,74,48,290 instead of Rs. 1,12,19,079 disallowed by the A.O. (ii) Disallowance under section 36(1)(v....
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....was admitted by the assessee that the provision was made on an estimated basis and this was not known as to how much amount was actually due to each person, to whom payments on account of legal and professional charges was to be made, as such persons were not identified. Thus the provision was not based on any scientific basis and was contingent in nature. So the action of the assessing officer cannot be faulted with. Further, from the details provided by the assessee it is evident that the provision was of Rs. 1,74,48,290 and on the entire amount of tax at source was not deducted. So the findings of the AO, that of the total provisions tax at source had been deducted on an amount of Rs. 62,29,21l is found to be wrong, as the said amount was not part of the above provision. The above facts could not be controverted by the assessee during hearings. So the total disallowance of Rs. 1,74,48,290 should have been made by the AO instead of disallowance of only Rs. 1,12,19,079. The assessing officer is thus directed to make disallowance of Rs. 1,74,48,290/- instead of Rs. 1,12,19,079. Further, in view of provisions of Section 194J Explanation (c)/Section 195 Explanation I, the assessee sh....
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....for software and testing charges. On perusal of the same, it is clear that the parties have been identified, however, only the amount i.e. to be paid to each of the parties are not quantified. It is stated that the assessee's billing arrangement with its vendors is time cost basis, and therefore, it was contended that the amount paid will crystallize only at a later stage post all negotiations. Out of the total provision created amounting to Rs. 1,74,48,290, the assessee-company itself had disallowed a sum of Rs. 62,29,210 by adding the same to the total income. This is evident from the return of income filed by the assessee, which is placed at page 28 of the paper book filed by the assessee. The DRP had directed that the total provision amounting to Rs. 1,74,48,290 has to be disallowed. This direction of the DRP was wrong obviously for the reason that the assessee itself had disallowed Rs. 62,29,211 u/s 40(a)(ia) of the I.T.Act since it had not complied with the TDS provision in respect of the above said expenses. With regard to the balance amount of Rs. 1,12,19,079, the party-wise details are placed on record, however, the quantification of the amount due to the parties was done ....
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....es needs to be adjudicated afresh and accordingly we restore the matter to the files of the A.O. The A.O. shall look into the party-wise details of the provision created for software development and testing charges and shall also examine whether the TDS provision has been duly complied in respect of such provision before the due date of filing of the return. The A.O. shall take a decision as expediously as possible after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. 3.6 In the result, ground No.1 is allowed for statistical purposes. 4. Ground No.2. The assessee had claimed an amount of Rs. 32,72,175 and Rs. 60,132 being employees contribution towards PF and ESI u/s 36(1)(va) of the I.T.Act. The said payments made by the assessee were after the due date specified under the respective statutes. The Assessing Officer disallowed the employees contribution to PF 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....
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.... It may be noted that the matter has not attained finality in light of following developments with respect to following rulings by the Kerala High Court on similar issue: CIT v Merchem Limited [2015] 378 ITR 443- an SLP has been filed with the Supreme Court against such ruling. The SLP is currently posted for hearing on 17 July 2018 (Annexure 4); Popular Vehicles & Services Pvt. Ltd. (ITA 172/2016) - the Court has referred the dictum of dictum of Merchern Ltd. (supra) to a larger Bench for reconsideration." 4.2 The learned Departmental Representative, on the other hand, submitted that the issue in question is covered in favour of the Revenue by the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. M/s.South India Corporation Ltd. (supra) and the recent judgment of the Hon'ble Kerala High Court in the case of CIT v. Merchem Limited [(2015) 378 ITR 443 (Ker.)]. 4.3 We have heard 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....
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....tion of international transaction in section 92B of the I.T.Act. Therefore, the contention of the assessee that the A.O. cannot impute interest on balance outstanding from its AEs, is rejected. 5.4 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 prudent businessman would always recover the outstanding amounts at the earliest point of time. The funds are the lifeline of any business and any amounts outstanding from a debtor would be the focal point of any businessman / industry for the earliest recovery. As rightly pointed out by the DRP, will assessee allow such amounts to remain outstanding for long period if it is in the case of third partes? The answer would be in negative. Therefore, the above plea of the assessee is rejected. We are of the considered 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 asses....