Tax Exemption can’t be allowed in the absence of Evidence substantiating Claim of Reimbursement of Expense as Cost to Cost Basis: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that tax exemption can’t be allowed in the absence of evidence substantiating the claim of reimbursement of expense on a cost-to-cost basis.

The assessee company M/s Eversendai Construction Private Limited (“M/s.ECPL") is a subsidiary of Eversendai Constructions (s) Pte Ltd, Singapore. The company is engaged in the business of engineering, design, detailing, steel fabrication, and development of residential buildings and commercial complexes.

The TPO noticed that the assessee has adopted TNMM as the most appropriate method on both segments i.e. EPC & EDS.  The TPO has accepted international transactions with AE to the EDS segment at ALP. 

In respect of the EPC segment, the TPO has conducted a fresh TP study and has rejected three comparables selected by the assessee and worked out an average PLI of 13.82% and then, compared with the PLI of the assessee at 8.96% and suggested TP adjustment of Rs.85,15,716/- to the international transaction of the assessee with its AEs. 

The AO had also made additions towards the disallowance of employee contribution to PF & ESI for belated remittances under respective Acts and also disallowed excess depreciation claimed on the printer, UPS and port switches, etc.

The DRP vide their order passed u/s.144C(5) of the Income Tax Act, dated 05.05.2017 rejected the objection filed by the assessee and upheld the TP adjustment proposed by the TPO as well as other Corporate Tax additions made by the AO. 

Under the DRP directions, the AO has passed the final assessment order u/s.143(3) r.w.s.144C(13) of the Income Tax Act, on 30.06.2017 and determined a total income of Rs.1,80,55,800/- by making additions towards TP adjustment, excess depreciation on printer, UPS & port switch, and disallowance of reimbursement of expenses.

The assessee challenged the disallowance of reimbursement of expenses u/s.40(a)(i) of the Income Tax Act,1961. The DRP observed that in absence of any details about the claim of reimbursement of expenses and also after considering the nature of expense opined that payment towards reimbursement of expenses is nothing but FTS and was liable for TDS.  The DRP made disallowance u/s.40(a)(i) of the Act.

A Coram consisting of Shri V. Durga Rao, Judicial Member and Shri G Manjunatha, Accountant Member observed that the assessee, although, claimed before the DRP that reimbursement of expenses is on a ‘cost to cost’ basis without any mark-up, but no details or explanation was submitted by the assessee. 

While allowing the appeal, the Tribunal set aside the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, and direct the TPO to re-examine the claim of the assessee by the law.

To Read the full text of the Order CLICK HERE

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