Fuji Electric India Private Limited Vs DCIT (ITAT Chennai)
The appeal before the Income Tax Appellate Tribunal Chennai concerned assessment year 2020–21 and challenged additions and adjustments made pursuant to a transfer pricing order and the final assessment passed after DRP directions. The Tribunal first condoned a delay of 160 days in filing the appeal, accepting the assessee’s explanation of administrative changes.
On transfer pricing, the dispute related to an adjustment of ₹7,96,238 on reimbursements made by an associated enterprise for expenses such as travel and event-related costs. The Tribunal noted that third-party vendors were engaged by the associated enterprise, payments were routed through the assessee only for convenience, and the amounts were recovered on a cost-to-cost basis. It held that this facilitation did not amount to rendering services and that applying a markup by comparing with event management companies was incorrect. Accordingly, the transfer pricing adjustment was deleted.
The Tribunal next considered disallowances of year-end provisions for authorised service charges and sales commission. It observed that the assessee followed the mercantile system and created provisions for services already rendered during the year, with invoices received later, and reversed them in the subsequent year. Additional evidence was admitted as the assessee lacked sufficient opportunity earlier. The Tribunal held that year-end provisions, other than ad hoc provisions, are allowable when created on a scientific basis and where no credit is made to payees, thus not attracting TDS. The provision for installation and authorised services was remanded to the Assessing Officer to verify whether it was scientifically computed. These grounds were allowed in principle but remanded for verification.
