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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S
Per Padmavathy S., Accountant Member
This appeal is against the final order of assessment passed by the AO u/s. 143(3) r.w.s. 144C(3) r.w.s. 144B of the Income-tax Act, 1961 [the Act] dated 28.1.2022 on the following grounds:-
Grounds of Appeal
S.No Tax Effect (in INR)
1. Assessment is bad in law and on facts The final assessment order dated 28 January 2022 passed by the National Faceless Assessment Centre, Delhi ('NFAC' or the 'AO') under section 143(3) r.w.s. 144C(3) read with section 1446 of the Income-tax Act, 1961 ('the Act'), is bad in law and on facts.
IT(TP)A No.193/2022 Page 2 of 4
2. Erroneous determination of tax liability The Ld.AO has erred in: a) Determining the total income of the Appellant at INR 1,671,738,210 and tax liability of INR 578,555,160 thereon b) Levying interest of INR 65,584,486 under section 234B of the Act c) Determining tax demand of INR 178,661,240 as per computation received along with the final assessment order for the subject assessment year Erroneous adjustment made with respect to provision for 3 2,833,389 gratuity 3.1 The Ld.AO erred in making an adjustment of INR 8,187,096 pertaining to provision for gratuity 3.2 The Ld.AO erred in making an adjustment of INR 8,187,096 despite not proposing the same in the draft assessment order and after considering the submission made during the assessment proceeding. 4 Relief 4.1 The Appellant prays that the Ld. AO be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto. Total tax effect 2,833,389
The assessee is engaged in providing Information Technology enabled Services [ITeS] as a captive service provider to its Associated Enterprise [AE]. It filed return of income on 28.11.2017 declaring total income of Rs.1,28,28,57,080. The case was taken up for scrutiny and notice u/s. 143(2) of the Act was served on the assessee. The AO referred the case to the TPO, who vide order dated 28.1.2021 made a total adjustment of Rs.54,64,23,323 attributable to the difference in the arm’s length price [ALP] of the international transactions entered into by the assessee with its AE. On objections, the DRP accepted the contentions of the assessee against the TP adjustment and gave directions to the TPO vide its order dated 15.12.2021. Consequently, the TPO passed order dated 22.12.2021 suggesting adjustment of Rs.38,06,94,036, which was IT(TP)A No.193/2022 Page 3 of 4 subsequently rectified by the TPO on the directions of the DRP making NIL adjustment towards the ALP. The AO passed the final assessment order accordingly. However, the AO considered the total income of the assessee as per intimation u/s. 143(1) at Rs.129,10,44,170 thereby making an adjustment of Rs.81,87,096. Aggrieved by this adjustment made by the AO, the assessee is in appeal before the Tribunal.
Before us, the ld. AR submitted that the CPC vide intimation dated 167.3.2018 u/s. 143(1)(a) of the Act proposed to make an addition of Rs.81,87,096 towards gratuity remeasurement loss forming part of gratuity amount of Rs.9,52,64,341 reported in clause 26(i)(B)(b) of Form 3CD. The ld. AR submitted that the gratuity remeasurement loss does not form part of Profit & Loss Account before tax and is directly recorded in the “Other comprehensive income” of the annual report. This disclosure in the financial statement is a requirement under IND-AS. The ld. AR submitted that the remeasurement loss is not included in the Profit & Loss Account and no debit or deduction was claimed for any adjustment while arriving at the taxable income under the normal provisions of the Act. Since the said expense has not been considered in the profit before the taxes, there is no question of disallowance on this count. He further drew our attention to the relevant part of the computation of income in the Profit & Loss account.
The ld. DR supported the orders of the lower authorities.
We have considered the rival submissions and perused the material on record. We notice that as per the Profit & Loss account of the assessee at page 8 of the PB, in Part III ‘Profit Before Tax’ was at Rs.103,51,17,502. In the computation of income at page 96 of the PB, the said amount is what is considered by the assessee for computing income from business or profession. We also notice that in the Profit & Loss account Part III ‘ Other comprehensive income’ consists of an amount of Rs.81,87,096 towards
IT(TP)A No.193/2022 Page 4 of 4 remeasurement loss which is not part of the ‘Profit Before Taxes’ as considered in Part III of Profit & Loss Account. We therefore see merit in the contention of the ld. AR that when the expense is not claimed or adjusted while computing taxable income of the assessee, there is no question of disallowance on this count. The ld. AR during the course of hearing submitted that the assessee has filed representation before the CPC highlighting this issue and had requested for correction in the intimation u/s. 143(1)(a) of the Act. Given this, we are of the view that the total income of the assessee should be considered at Rs.128,28,57,080 as per return of income filed by the assessee since remeasurement loss is not forming part of the ‘Profit before tax’ of the assessee. It is ordered accordingly.
In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 22nd day of July, 2022..