Case Law Details
3M India Limited Vs CIT (LTU) (ITAT Bangalore)
A perusal of the same would show that the assessee is making year end provision every year. The provision made in one year is reversed in the succeeding year. There is no dispute that the assessee has voluntarily disallowed the year end provision u/s 40(a), since no tax was deducted at source from the provision for Administrative and management support services made by the assessee. Under accounting principles also, when the actual payment is fully debited to the Expenditure account, the provision made in the preceding year shall be credited, so that actual payment is offset against the provision so created in the preceding year. The provision for expenses so created is allowable as deduction in the normal course. However, due to non-deduction of tax at source, the assessee has voluntarily disallowed the same u/s 40(a) of the Act in AY 2009-10. When the TDS was deducted on the actual payments made during the year under consideration, the assessee has claimed the amount disallowed in the immediately preceding year as deduction as per the provisions of sec.40(a) of the Act.
It is the case of the Ld CIT that, in AY 2009-10 no separate addition due to TP adjustment was made in respect of Rs.2.80 crores (even though the TPO had determined the ALP at NIL), since the assessee had voluntarily disallowed the same u/s 40(a) of the Act. Accordingly, it is the case of the Ld CIT that the disallowance should be considered to have been made u/s 92CA also.
It can be noticed that the Ld CIT is taking a particular view on the assessment order passed for AY 2009-10, meaning thereby, he is finding fault with the assessment order passed for AY 2009-10. After observing so, he is revising the assessment order passed for AY 2010-11. These aspects clearly show that the Ld CIT has not actually pointed out any error in the assessment order passed for AY 2010-11. There should not be any dispute that the claim of the assessee is as per the provisions of sec. 40(a) of the Act.
We notice that, under Explanation to section 92(1) of the Act, the allowance for any expense shall also be determined having regard to arms length price. Since the TPO has determined the arms length price at NIL in AY 2009-10, the entire claim made in the profit and loss account should have been considered as transfer pricing adjustment. However, the TPO has reduced the amount disallowed u/s 40(a) and made transfer pricing adjustment for the balance amount only in AY 2009-10. The question of making disallowance u/s 40(a) shall apply, only if the relevant expenditure was found to be allowable, but for the provisions of sec.40(a). Hence the action of TPO in reducing the T.P adjustment amount by the disallowance made u/s 40(a) may not be right and in that case, the error lies in AY 2009-10. Having not done so, the Ld CIT should not find fault with the claim of the assessee made u/s 40(a) of the Act on the reasoning that the TDS has been made in this year, i.e., in AY 2010-11.
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