Income Tax Appellate Tribunal - Bangalore
Schneider Electric It Business India ... vs The Deputy Commissioner Of Income Tax, ... on 17 March, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND
Ms. PADMAVATHY S, ACCOUNTANT MEMBER
IT(TP)A No.679/Bang/2022
Assessment year : 2018-19
Schneider Electric IT Business Vs. The Deputy Commissioner
India Pvt. Ltd., of Income Tax,
Tower C, 6th Floor, Bearys Global Circle 6(1)(1),
Research Triangle, Bangalore.
Whitefield-Hoskote Main Road,
Goravigere Village,
Bangalore - 560 067.
PAN: AACCA 6398Q
APPELLANT RESPONDENT
Appellant by : Shri Rohit Tiwari, Advocate & Shri. Deepanshu Bajaj, CA
Respondent by : Shri D.K. Mishra, CIT(DR)(ITAT), Bengaluru.
Date of hearing : 15.03.2023
Date of Pronouncement : 17.03.2023
ORDER
Per Padmavathy S., Accountant Member
This appeal is against the final order of assessment passed by the ACIT, Circle 6(1)(1), Bangalore u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] dated 8.7.2022 for the assessment year 2018-19.
2. The assessee is a private limited company and is wholly owned subsidiary of Schneider Electric IT Corporation, USA. The assessee is IT(TP)A No.679/Bang/2022 Page 2 of 21 primarily engaged in manufacture of power protection equipment and undertakes trading of uninterrupted power supply [UPS] and related accessories.
3. The assessee filed return of income for AY 2018-19 on 28.11.2018 declaring a total income of Rs.248,42,98,690. Return was processed u/s. 143(1) where the income was assessed at Rs.270,97,84,460. Subsequently case was selected for scrutiny and statutory notices were duly served on the assessee. Since the assessee had certain international transactions with its AE, the case was referred to the Transfer Pricing Officer [TPO] for determination of arm's length price [ALP] of the international transactions the assessee had with its AE. The TPO made an adjustment of Rs.14,42,14,238 in the contract manufacturing segment. The AO passed a draft assessment order incorporating the TP adjustment. The AO further made the following additions:-
(i) Disallowance u/s. 37 - Rs.11,80,032
(ii) Disallowance u/s. 43B - Rs.20,94,68,603
(iii) Disallowance u/s. 40(a)(i) - Rs.34,02,443
(iv) Disallowance u/s. 40(a)(ia) - Rs.1,14,34,700
(v) Disallowance of CSR expenditure and u/s. 80G -
Rs.2,90,85,499 and Rs.5,81,70,998.
(vi) Disallowance of other amounts claimed as deduction -
Rs.58,56,17,429.
(vii) Disallowance u/s. 14A - Rs.6,80,10,000 IT(TP)A No.679/Bang/2022 Page 3 of 21
4. Aggrieved, the assessee filed its objections before the DRP who confirmed the TP adjustment and the other disallowances made by the AO. Aggrieved, the assessee is in appeal before the Tribunal.
5. The assessee raised 12 grounds and several sub-grounds contending the various disallowances made and the TP adjustment.
Ground Nos.1 to 5 and Ground 12 are general. Ground No.11 is consequential not warranting separate adjudication.
6. Ground No.6 (6.1 to 6.11) is with regard to TP adjustment. Out of this, ground No.6.1, 6.2, 6.11 are general grounds. Ground No.6.3 with regard to rejection of segmental financials of the assessee which reads as follows:-
"6.3. erroneously rejecting the audited segmental accounts furnished by the Appellant by arbitrary allocating operating specific expenses on the basis of revenue earned by the Appellant in contract manufacturing segment and distribution segment which were originally allocated by the Appellant on sound allocation keys in these segments. Thus. the Ld. AO/ Ld. TPO/ Ld. DRP erred in considering the margin of the Appellant in contract manufacturing segment as 7.32% as against the actual margin of 8.00%;"
7. The activities of the assessee is summarised as follows:-
Contract Manufacturing -- This includes procurement of certain raw materials and components from AEs and third parties which is used in manufacturing of UPS products and accessories and ape then exported as finished products to its AEs.
Solution Business -- In this segment, the Company manufacture UPS products locally as per the requirements of the domestic market. For such UPS products, the Company procures battery and other ancillary components domestically and sells the UPS IT(TP)A No.679/Bang/2022 Page 4 of 21 products within the domestic market as an overall package which includes associated sales and warranty support to its customers.
Distribution -- In this segment, SEITB India imports finished products (UPS) from its AEs and third party suppliers for resale/distribution in domestic market. The Company also provides after sale support and warranty support services along with the UPS products sold to its customers.
8. The international transactions are given as under:-
International Transactions as per 3CEB Particulars Payable Receivable Method Import of goods 1,067,898,111 TNMM Sale of goods 18,314,314,500 TNMM Payment of licence fees 116,572,966 CUP Receipt of support services 38,107,811 TNMM Receipt of IPO services 43,452,748 TNMM Provision of services 109,272,276 TNMM Reimbursement of expenses 63,176,705 Other method
9. As per the Form 3CE, the margins of the assessee are computed as below:-
Particulars Contract Distribution Grand Total manufacturing Revenue Sales 18,367,378,891 725,778,476 19,093,157,367 148,559,308 148,559 308 Installation and commission and annual maintenance contract Trading Domestic 289,394,323 289,394,323 Operating Revenue (A) 18,367,378,891 1,163,732,107 19,531,110,998 IT(TP)A No.679/Bang/2022 Page 5 of 21 Expenses Direct Cost of sales 14,531,130,102 515.145,849 15.046.275,951 Direct cost installation and Corn 30,256,316 30,256,316 and AMC services Direct cost Trading Domestic 226,752,814 226,752,814 Total direct COGS (B) 14,531,130,102 772,154,979 15,303,285,081 Gross Margin (A-B)=C 3,836,248,789 391,577,128 4,227,825,917 Gross Margin % C/A=D 20.89% 34% Operating Expenses E 2,475,702,556 186,020,492 2,661,723,048 Installation and commission and 42,562,508 42,562,508 annual maintenance contract Trading Domestic 43,303,794 43,303,794 Total Operating Expenses E 2,475,702,556 271,886,794 2,747,589,350 Total Operating cost ("OC") 17,006,832,658 1,044,041,773 18,050,874,431 (B+E)=(F) Operating Profit ("OP")(A-F)=G 1,360,546,234 119,690,333 1,480,236,567 OP/TC (%) G/F=H 8.00% 11.46% 8.20% OP/OR(%) G/A=I 7.41% 10.29% 7.58%
10. The TPO recomputed the margins of the assessee as under:-
Particulars Contract Distribution Grand Total manufacturing Revenue Sales 18,367,378,891 725,778,476 19,093,157,367 Installation and commission 148,559,308 148,559,308 and annual maintenance contract IT(TP)A No.679/Bang/2022 Page 6 of 21 Trading Domestic 289,394,323 289,394,323 Operating Revenue (A) 18,367,378,891 1,163,732,107 19,531,110,998 Expenses Direct Cost of sales 14,531,130,102 515,145,849 15,046,275,951 Direct cost installation and 30,256,316 30,256,316 Corn and AMC services Direct cost Trading 226,752,814 226,752,814 Domestic Total direct COGS (B) 14,531,130,102 772,154,979 15,303,285,081 Gross Margin (A-B)=C 3,836,248,789 391,577,128 4,227,825,917 Gross Margin % C/A=D 20.89% 34% Total Operating Expense E 2,583,878,338 163,711,012 2,747,589,350 Total Operating Cost 17,115,008,440 935,865,991 18,050,874,431 ("OC")(B+E)=(F) Operating Profit 1,252,370,451 227,866,116 1,480,236,567 ("OP)(A-F)=G OP/OC (%) G/F=H 7.32% 24.35% 8.20% OP/OR(%) G/A=I 6.82% 19.58% 7.58%
11. The TPO while recomputing the margins of the assessee has allocated certain operating expenses on the basis of revenue earned by the assessee which resulted in the margins of the assessee in contract manufacturing segment to be 7.32% as against 8% as computed by the assessee. The ld AR in this regard submitted that the assessee has prepared and maintained segmental financials on the basis of transfer pricing principles wherein revenue and cost are allocated in each of the segment on the basis of a sound allocation key. The ld AR further submitted that -
IT(TP)A No.679/Bang/2022 Page 7 of 21 "1. Revenue from operation is identified on the basis of actual sales recorded under each sub-segment
2. Direct cost of sales/installation and commissioning/AMC services is identified with reference to the product references (codes-wise) bill of materials in the system of respective department i.e. of actuals.
3. Operating specific expenses have been allocated on the basis of relevant activity i.e. actuals.
4. Common expenses that cannot be identified directly as are allocated based on sales ratio. According to the assessee, it has followed the OECD guidelines and the segmental accounts are prepared on cogent basis which cannot be rejected without providing any reason for rejecting the same."
12. The ld DR on the other hand relied on the order of the lower authorities.
13. We heard the parties and perused the material on record. We notice that the DRP had given the following finding with regard to objections filed by the assessee in this regard:-
"9.5 Having considered the assessee submission that TPO has discussed (TPO order ) the reason for redrawing the operating expenses in contract manufacturing segment and distributing segment. The very purpose of the TP inquiry is to verify the correctness of the revenue admitted from the AE, and hence, the very same revenue cannot form the basis for a valid allocation key, as it would have a direct bearing on the profit margin, which is being tested. Besides, as already noted, the nature of revenue stream from contract manufacturing segment and distribution segment are totally different and hence revenue cannot be a valid basis to allocate various expenses. No justification given for the allocation of these expenses both under the contract manufacturing segment and distribution segment without furnishing any basis as to the revenue contribution to the contract IT(TP)A No.679/Bang/2022 Page 8 of 21 manufacturing segment. In view of these, we are convinced that the segmental margin computation given by the assessee is not reliable and liable to be rejected: Accordingly, this objection is rejected."
14. From the above findings of the DRP, it is clear that the reason for rejection is that the assessee has not provided any justification for allocation of expenses between the contract manufacturing segment and distributing segment. We also notice that the coordinate Bench of the Tribunal in assessee's own case for AY 2017-18 IT(TP)A No.185/Bang/2022 dated 1.9.2022 has remitted the issue back to the DRP for the reason that there was no specific finding. In the light of this discussion, we deem it fit to remit the issue back to the TPO for consideration of the issue afresh after giving reasonable opportunity of being heard to the assessee.
15. Ground No.6.4 to 6.7 relating to inclusion and exclusion of comparables read as follows:-
"6.4 inappropriate acceptance and rejection of companies for benchmarking the contract manufacturing segment;
6.5. erroneously including a functionally dissimilar comparable, Amara Raja Power Systems Private Limited. that fails related party filter less than 25% and manufacturing income/sales greater than 75% filter, on arbitrary / frivolous grounds;
6.6. erroneously including certain functionally dissimilar companies on arbitrary / frivolous grounds. namely. Servotech Power Systems Private Limited and Genus Power Infrastructure Limited:
6.7. erroneously excluding certain functionally similar companies on arbitrary / frivolous grounds namely, Goldstar IT(TP)A No.679/Bang/2022 Page 9 of 21 Power Limited (manufacturing) and Ador Powertron Limited
16. During the course of hearing, the ld AR presented arguments with regard to inclusion and exclusion of above specific comparables. However, we notice that the assessee did not raise any objections with regard to inclusion and exclusion of any specific comparables before the DRP which fact has not been brought to our notice during the course of hearing by the ld. AR. In this regard the relevant grounds raised before the DRP are extracted as under:-
"8.3 erroneously excluding certain functionally similar companies on arbitrary/frivolous grounds;
8.4 erroneously including certain functionally dissimilar companies on arbitrary/frivolous grounds;"
17. On perusal of the order of the DRP it is noticed that there is no specific findings given by the DRP even with regard to the above general grounds raised. We further notice that the coordinate Bench in assessee's own case for AY 2017-18 has considered similar issue of specific comparables not objected before the DRP and held that -
"8. We have heard the rival submissions and perused the materials available on record. We have perused the grounds before Ld. DRP. There was no specific ground with regard to the inclusion and exclusion of specific comparables. The grounds before Ld. DRP were very general, which are as follows:--
"d. Erroneously including certain functionally dissimilar companies on arbitrary/frivolous grounds;
e. Erroneously excluding certain functionally similar companies on arbitrary/frivolous grounds;
IT(TP)A No.679/Bang/2022 Page 10 of 21 f. Erroneously rejecting the fresh search furnished by the assessee on a without prejudice basis."
8.1 In view of this, we remit this issue to the file of Ld. DRP to specify the specific comparables which are to be included or excluded before the lower authorities. The lower authorities has to decide the issue afresh giving opportunity of hearing to the assessee."
18. Respectfully following the above decision of the coordinate Bench, we remit the issue for the current year also to the file of the DRP with similar directions. The assessee is directed to submit the relevant details with regard to the specific comparables before the DRP and cooperate with the proceedings. It is ordered accordingly.
19. Ground No.6.8 with regard to rejection of fresh search furnished by the assessee is not pressed by the ld AR during the course of hearing.
20. Ground No.6.9 is with regard to errors in the margins of the comparables considered by the TPO. In this regard, we direct the TPO/DRP to consider the correct margins of the final list of comparables while recomputing the ALP.
21. Ground No.6.10 is with regard to the working capital adjustment not being considered while arriving at the TP adjustment. In this regard, we notice that the coordinate Bench in assessee's own case for AY 2017-18 has considered the same issue and remitted to the file of DRP to grant actual working capital adjustment to the assessee in accordance with law. Respectfully following the above decision, we remit the issue back to the DRP with similar directions.
IT(TP)A No.679/Bang/2022 Page 11 of 21 Corporate issues
22. Ground No.7 is relating to the disallowance of expenditure towards corporate social responsibility u/s. 80G. The relevant ground reads as follows:-
"7. Disallowance on account of donation claimed under section 80G of the Act 7.1. That on the facts and circumstances of the case and in law.
the Ld. AO/ DRP has erred in upholding disallowance of INR 5,81,70,998 towards Corporate Social Responsibility (CSR) expenditure incurred during the subject year without appreciating that the same was already disallowed by the Appellant in its ROI. The above action of Ld. AO/ DRP has resulted in double disallowance of INR 5.81,70.998 and is therefore factually incorrect. unjustified and liable to be deleted.
7.2. That on the facts and circumstances of the case and in law.
the Ld. AO/ DRP has erred in confirming disallowance of INR 2.90.85.499 towards claim of deduction under section 80G of the Act erroneously holding that such donation is in nature of CSR expenditure and is not eligible for the deduction under section 80G of the Act.
7.3. That the Ld. AO/ DRP has failed to appreciate that the CSR expenditure is to be disallowed only under section 37 of the Act and the same does not restrict the Appellant from claiming deduction under section 80G of the Act. subject to satisfaction of conditions specified therein."
23. During the year under consideration the assessee has made a contribution of Rs.5,81,70,998 to Schneider Electric India Foundation and the same formed part of the CSR expenditure incurred by the assessee for the year under consideration. In the return of income, the assessee treated the amount as inadmissible u/s. 37 and accordingly IT(TP)A No.679/Bang/2022 Page 12 of 21 disallowed the entire amount (pg. 287 to 615 of PB). The assessee in the return of income claimed 50% of the above amount u/s. 80G of the Act. In the assessment order, the AO has disallowed the amount of Rs.5,81,70,998 which is sustained by the DRP. The ld AR in this regard submitted that the amount has already been disallowed by the assessee in the return of income and therefore the disallowance made by the AO resulting in double disallowance and accordingly prayed for deletion of the same. With regard to disallowance claimed u/s. 80G to the extent of Rs.2,90,85,499 the ld AR submitted that the reason quoted by the AO is that the assessee failed to submit the proof of payment of deduction claimed in relation to allowability of donation u/s. 80G. The ld AR in this regard submitted that the details have already been furnished before the AO (pg. 651 to 656 of the PB) and that the conditions stipulated u/s. 80G were duly satisfied which have not been considered by the lower authorities.
24. We heard the parties and perused the material on record. We notice that the coordinate Bench in assessee's own case for AY 2017- 18 has considered the similar issue and held that -
"11.2 We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that the claim of the assessee has to be examined by the Ld. DRP on production of the requisite details by the assessee. The Ld. DRP also directed to consider the order of the Tribunal in the case of First American (India) (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1762 (Bang.) of 2019, dated 29-4- 2020], wherein held that "assessee cannot be denied benefit of claim of deduction under Chapter VIA of the Act in relation to payments, which form part of CSR expenses since that would IT(TP)A No.679/Bang/2022 Page 13 of 21 lead to double disallowance, which is not the intention of legislature." Accordingly, this issue is remitted to the file of Ld. DRP for fresh consideration."
25. Accordingly following the above decision of the coordinate Bench, we remit the issue back to the DRP with similar directions.
26. Ground No.8 is with regard to the disallowance of deduction claimed under the head 'any other amount allowable as deduction' u/s.
37. The AO during the course of assessment has made the disallowances based on the following breakup mainly based on the ground that the assessee has not furnished any supporting evidences with regard to the claim.:-
Particulars Amount Allowance u/s 37 disallowed by the earlier years 49,463,050 Amortisation of Preliminary Expenses u/s 35D 100,000 Amortisation of expenditure under Voluntary 4,521,899 Retirement Scheme - u/s 35DDA Notional interest income from fair valuation under Ind 521,732,696 AS Car Lease rental principal payments on Finance Lease 3,629,839 Actuarial loss on revaluation of gratuity - Other 7,169,945 Comprehensive Income Total 586,617,429
27. With regard to disallowance of Rs.4,94,63,050 u/s. 37 the ld AR submitted that the amount has been claimed as a deduction during the year under consideration on the basis of the fact that the said amount has already been disallowed during the previous financial year. In this regard, we notice that the DRP has sustained the disallowance for the reason that the assessee has not submitted any details or documentary evidence to substantiate the claim. We therefore remit the issue back to IT(TP)A No.679/Bang/2022 Page 14 of 21 the DRP with a direction to verify the claim of the assessee based on the evidences furnished after giving reasonable opportunity of being heard.
28. With regard to disallowance of preliminary expenses also, we notice that the DRP has sustained the disallowance stating that no evidence is furnished. Accordingly we remit the issue back to the DRP for examination of the allowability considering the evidences that may be furnished by the assessee and in accordance with law.
29. The assessee claimed a sum of Rs.45,21,899 towards expenses of voluntary retirement scheme. We notice that the DRP has sustained the disallowance stating that no evidence is furnished. We further notice that the coordinate Bench in assessee's own case for AY 2017- 18 has considered the same issue and remitted the issue back to the DRP with the direction to the assessee to produce necessary details as sought by the Ld. DRP. The issue being identical for the year under consideration we remit the issue back to the DRP for examination of the allowability considering the evidences that may be furnished by the assessee and in accordance with law.
30. Ground No.8.4 is as under:-
"8.4. Disallowance with respect to IND AS Adjustments 8.4.1. That on the facts and circumstances of the case. the Ld. AO/ DRP has erred in upholding disallowance of INR 52.17.32.696 towards Notional Interest Income arising from fair valuation under Ind AS. The Ld. AO/ DRP has erred in facts and in law in not appreciating that the said IT(TP)A No.679/Bang/2022 Page 15 of 21 amount does not represent real income of the Appellant and hence cannot be subjected to tax.
8.4.2. That on the facts and circumstances of the case, the Ld. AO/ DRP has erred in confirming disallowance of INR 71.69,945 towards actuarial loss on revaluation of gratuity claimed by the Appellant in its ROI for the subject year."
31. We notice that the DRP has sustained the disallowance stating that no evidence is furnished.
32. The ld AR furnished a detailed written submission in this regard which is taken on record. The ld AR submitted that the IND AS adjustments are purely accounting in nature and that there cannot be any documentary evidences that can be produced as required by the lower authorities.
33. We heard the parties and perused the material on record. We notice that the similar issue has been considered by the coordinate bench in assessee's own case for AY 2017-18 where the issue has been remitted back to the DRP for fresh consideration. Respectfully following the above we remit the issue for year under consideration also back to the DRP for examination of the issue afresh considering the evidences that may be furnished by the assessee and decide in accordance with law.
34. Ground No.8.5 is with regard to disallowance of car lease rental principal amount claimed as deduction. The AO has disallowed the claim on the ground that no documentary evidence is furnished. The DRP sustained the disallowance for the same reason.
IT(TP)A No.679/Bang/2022 Page 16 of 21
35. The ld AR in this regard submitted that the car lease being under finance lease, the depreciation of the leased asset is disallowed in the computation statement and the entire lease rental including interest and principle is to be allowed as a deduction. The ld AR further submitted that since the principal amount is not routed through the P&L account, it is claimed separately in the computation statement and therefore the disallowance should be deleted.
36. We heard the rival submissions. We notice that the lower authorities have not examined the facts of the case properly and have made the disallowance on the only ground that the assessee has not furnished any details. We therefore remit the issue back to DRP to examine the issue afresh in the light of the submissions made as above and based on any futher details that may be called for in this regard. The assessee is directed furnish the relevant details and evidences to support the claim and coorperate with the proceedings. It is ordered accordingly.
37. Ground No.9 is as follows:-
9. Disallowance under section 14A of the Act 9.1. On the facts and circumstances of the case and the law, the Ld. AO/ DRP has erred in confirming an addition of INR 6.80.1 0.000 under section 14A of the Act read with rule 8D of the Income tax Rules. 1962 (`the Rules') to the returned income of the Appellant for the subject year.
9.2. The Ld. AO/ DRP has erred in sustaining the above disallowances in absence of proper satisfaction in the IT(TP)A No.679/Bang/2022 Page 17 of 21 impugned Assessment Order before confirming the above disallowance.
9.3. That the Ld. AO/ DRP failed to appreciate that no expenditure directly or indirectly was incurred by the Appellant for earning any income which does not form part of the total income and hence, the provisions of section 14A of the Act read with Rule 8D are not applicable in the instant case.
9.4. That the Ld. AO/ DRP failed to appreciate that for the purpose of disallowing any expenditure under section 14A of the Act. there must be an actual receipt of income which is not includible in the total income during the relevant previous year.
9.5. That the Ld. AO/ DRP has erred in holding that section 14A of the Act is automatic and it comes into operation as soon as the dividend income is claimed exempt. without taking into cognizance that no dividend income was received by the Appellant during the subject year. In absence of any exempt income the provisions of Section 14A are not applicable in the instant case."
38. During the course of assessment proceedings the AO sought clarification from the assessee in relation to expenses incurred for earning exempt income. The assessee in response submitted that the assessee has not earned any exempt income during the year under consideration and that no expenses are incurred warranting disallowance u/s.14A of the Act.
39. The argument of the Ld. A.R. is that assessee has no exempted income as such there cannot be any disallowance u/s 14A of the Act.
IT(TP)A No.679/Bang/2022 Page 18 of 21
40. We heard the parties and perused the material on record. We notice that the coordinate Bench in assessee's own case for AY 2017- 18 has considered the similar issue and held that -
"13.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if there is no exempted income, there cannot be any disallowance u/s 14A read with rule 8D of the I.T. Rules. Accordingly, we remit this issue to the file of Ld. DRP to examine the file of financials of the assessee and if there is no exempted income, there cannot be any disallowance u/s 14A read with rule 8D of the I.T. Rules or if there is no exempted income, there cannot be any disallowance."
41. Accordingly following the above decision of the coordinate Bench, we remit the issue back to the DRP with similar directions.
42. Ground No.10 is as under:-
"10. Other disallowance/ additions 10.1. Disallowance under section 40(a)(i) and 40(a)(ia):
10.1.1. That on the facts and circumstances of the case, the Ld. AO/ DRP has erred in confirming addition of INR 34,02,443 to the returned income of the Appellant under section 40(a)(i) of the Act in respect of non-deduction of tax at source on payments made to the non-residents.
10.1.2. That on the facts and circumstances of the case, the Ld. AO/ DRP has further erred in confirming addition of 1NR 1,14,34,700 to the returned income of the Appellant under section 40(a)(ia) of the Act in respect of non-
deduction of tax at source on payments made to resident.
10.1.3. The Ld. AO/ DRP has erred in disregarding the fact that the Appellant had already made an aggregate disallowance of INR 1,48,37,143 in its ROI for the subject year. The above action of Ld. AO/ DRP in confirming this disallowance has resulted in double IT(TP)A No.679/Bang/2022 Page 19 of 21 disallowance of INR 1.48.37.143 and is therefore factually incorrect, unjustified and liable to be deleted.
10.2. Addition on account of disallowance under section 37 of the Act amounting to INR 11,80,032 That on the facts and circumstances of the case, the Ld. AO/ DRP has erred in confirming addition of INR 11.80,032 under section 37 of the Act without taking into consideration that the same has already been disallowed in its ROI for subject year without giving any findings and/ or observations in the impugned Assessment Order. The above action of Ld. AO/ DRP confirming this disallowance has resulted in double disallowance of 1NR 11.80.032 and is therefore factually incorrect, unjustified and liable to be deleted.
10.3. Addition on account of excess amount allowed as per section 43B of the Act 10.3.1. That on the facts and circumstances of the case, the Ld. AO/ DRP has erred in confirming addition of INR 20.94.68.603 on account of alleged difference in section 43B allowance claimed in ROI as against amounts reported in the Tax Audit Report for AY 2018-19 (TAR).
10.3.2. The Ld. AO/ DRP has erred in not considering that the difference in amounts reported as section 43B allowance claimed in ROI as against amounts reported in TAR is on account of expenditure incurred and paid in the current year i.e. FY 2017-18 for reporting purposes. and hence cannot be disallowed under the provisions of the Act. The Ld. AO/ DRP has erred in confirming the above addition without giving any findings and/ or observations in the impugned Assessment Order."
43. With regard to the disallowance of Rs.11,80,032 made u/s.37, and Rs.34,02,443 & Rs.1,14,34,700 made u/s.40a(ia)/(i) the ld AR submitted that these amounts have already been disallowed in Sr.No.23 of Part A of Schedule BP of the Return of Income and that the IT(TP)A No.679/Bang/2022 Page 20 of 21 disallowance made once again by the AO amounts to double disallowance. We remit this issue back to DRP to examine and deleted the disallowance accordingly.
44. With regard to disallowance of leave encashment made u/s.43B, the ld AR submitted that the assessee had disallowed the entire provision of Rs.2,63,91,233 made during the year in the return of income and out of this an amount of Rs.52,76,361 is paid before the due date for filing the return of income. In the absence of any specific field for claiming the allowance u/s.43B with respect to this amount, the assessee added the same to the allowance u/s.43B for leave encashment pertaining to the previous which is claimed based on payment during the year. It is therefore submitted that the assessee has claimed the amount correctly based on actual payment only in accordance with the provisions of section 43B. The ld AR submitted that with regard to Bonus also the claim is made on same basis and accordingly prayed that no disallowance towards bonus is warranted u/s.43B.
45. We notice that the lower authorities have made the disallowance for the reason that the assessee has not furnished any documentary evidence explaining the difference between the tax audit report and the other information. We therefore consider it appropriate to remit the issue back to the DRP to consider the submissions of the assessee afresh and allow the claim based on evidences in accordance with law.
IT(TP)A No.679/Bang/2022 Page 21 of 21 Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.
46. In the result, the appeal of the assessee is allowed for statistical purposes Pronounced in the open court on this 17th day of March, 2023.
Sd/- Sd/-
( BEENA PILLAI ) ( PADMAVATHY S. )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore,
Dated, the 17th March, 2023.
/Desai S Murthy /
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore.
By order
Assistant Registrar
ITAT, Bangalore.