2025 (12) TMI 1500

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....filing the appeal and adjudicate the same on the basis of grounds of appeal raised. 3. Ground No.1 is general in nature and no specific argument has been raised for these grounds by the Ld.AR. Hence, Ground No.1 of the Assessee does not call for any adjudication. 4. Ground No.2 is in relation to transfer pricing adjustment of Rs. 7,96,238/- towards reimbursement of expenses. 5. The Ld.AR contended that the Assessee is engaged in the sale, manufacturing, and trading of power backup and power conditioning products, including Stabilizers, Transformers, UPS (Single and Three Phase), Inverters, Solar Power Generating Systems, Active Harmonic Filters, Industrial Drives. These products are sold and serviced across India. During the year under consideration, for the purpose of administrative convenience the Assessee incurred certain expense of Rs. 97,45,873/- such as air tickets, hotel accommodation, cabs etc. for its Associated Enterprise (AE) - Fuji Electric Co. Ltd. These expenditure were in the nature of reimbursement and therefore the Company recovered these costs from AE on cost-to-cost basis. The invoices were also submitted before the Transfer Pricing Officer (TPO) and he ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ere incurred on behalf of AE does not require a separate mark-up and hence the adjustment of Rs. 7,96,238/- is deleted. Accordingly, this ground of appeal relating to transfer pricing adjustment of Rs. 7,96,238/- is allowed. 9. The Assessee has created two provisions in the year end viz., 1) Provision for Installation and Authorised services: Rs. 65,50,563/- and 2) Provision for Sales Commission: Rs. 1,85,56,926/-. 10. In the Draft Assessment Order, the AO has disallowed the same on the ground that provision is not allowable as per the Act. Aggrieved, the Assessee filed objections before DRP. The DRP sustained both the additions made by the AO on the premise that year end provisions without payment of TDS are not allowable. Against the final assessment order, now the Assessee is agitating both the aforesaid issues before us and the Ld.AR submitted as under: "Background of Business Operations * The Appellant is engaged in the manufacture, sale, and trading of power backup and power conditioning products, including Stabilizers, Transformers, UPS (Single and Three Phase), Inverters, Solar Power Generating Systems, Active Harmonic Filters, and ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....9-20, alongwith copy of such invoices / supporting's. ‐ Vendor wise sales commission invoices (covering 81.56% of provision) accounted in subsequent financial year, corresponding to provisions accounted for during the FY 2019-20, alongwith copy of such invoices / supporting's. Non-Applicability of Section 40(a)(ia) * Without prejudice to above, the Appellant submits that the Assessing Officer has not invoked Section 40(a)(ia) of the Act in the assessment Order. * Even if considered, the disallowance under this section is not applicable due to the following: * Section 40(a)(ia) applies only in cases of non-compliance with Chapter XVII-B (TDS provisions). * TDS is not attracted on mere provision entries. Provisions are based on best estimates as of 31 March, and liability crystallizes only upon receipt of invoices. * As per Section 199, TDS is applicable only when payment is made or credited to a specific payee's account. Section 199 provides - "Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....the Assessee did not have sufficient time to furnish the same before the lower authorities and therefore we admit the additional evidence filed by the Assessee and hereby adjudicate the case on merits of the issue. 13. Firstly, we are cautious of the fact that these year end provisions are relating to the expense of the subject AY but the Assessee would not have received the invoices and/or initiated the payment. Therefore, these year end provisions are created and then reversed immediately in the succeeding financial year. These accounting treatments are done on the basis of the Accounting Standards prescribed by ICAI to reflect the true and correct picture in the financial statement of a particular year. We are also of the view that year end provisions, other than ad hoc provisions, are allowable as deduction as long as they are reversed in the immediately succeeding financial year. Further, though these provisions are created, the respective parties account is not credited and therefore the question of TDS does not arise. Therefore, we hereby conclude that the year end provisions, other than ad-hoc provisions, are allowable as deduction. 14. Apart from these aspects, we ar....