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2022 (11) TMI 233 - AT - Income TaxDisallowance u/s 40(a)(ia) - Addition on account of reimbursement of expenses to AE as per order of TPO - CIT upholding order of Transfer Pricing Officer (TPO)/AO making adjustment to income on account of reimbursement of expenses to AE by determining ALP at Rs. Nil - HELD THAT:- Since, in the present case, it is an accepted fact that no TDS has been deducted in respect of payment therefore, the same is disallowable under section 40(a)(ia) of the Act. Further, in respect of balance payment nothing has been brought on record to show that tax was deducted at source. Accordingly, the balance payment is also disallowable under section 40(a)(ia) of the Act. We find that the TPO has also made adjustment in absence of proof of rendition and benefit of the services to the assessee. In view of the above submission, we deem it appropriate to direct the AO to disallow the expenditure in this year by invoking the provisions of section 40(a)(ia) - AO is further directed to examine the claim of the assessee for deduction in subsequent year as per law. In view of the aforesaid, the adjudication of transfer pricing adjustment on account of reimbursement of expenses to AE becomes academic in nature in the year under consideration, since, the same would make no difference to the assessed income of the assessee, as the said expenditure has already been held to the disallowable under section 40(a)(ia) even in view of the submissions of the assessee. The issue of transfer pricing adjustment can be examined in the assessment year in which this expenditure is claimed by the assessee. Ground no. 1 raised in assessee’s appeal is allowed for statistical purpose. Ddisallowance of Mark to Market loss - AR submitted that loss arising from forex transaction recorded on Mark to Market basis is an allowable expenditure and the same is not speculative in nature - Revenue has disallowed the loss arising on account of foreign exchange forward contract as a notional loss - HELD THAT:- As is evident from the record, in the present case, the Revenue has disallowed the foreign exchange loss on the basis that the same is notional in nature. It is also not been denied that these contracts are entered into by the assessee in the course of its business of travel agent and tour operator. Therefore, respectfully following the aforesaid decision of D. Chetan & Company [2016 (10) TMI 629 - BOMBAY HIGH COURT] we direct the AO to delete the addition made on account of disallowance of Mark to Market loss. As a result, ground no. 2 raised in assessee’s appeal is allowed. Disallowance u/s 14A - HELD THAT:- We find that the claim of the assessee is supported by the decision of Vireet Investment (P) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] wherein it was held that only those investments are to be considered for computing average value of investments, which yield exempt income during the year. Accordingly, we direct the AO to only considered those investments for the purpose of computation of disallowance u/s 14A read with Rule 8D of the Rules, which yield exempt income during the year. As a result, ground No. 3 raised in assessee’s appeal is allowed for statistical purpose.
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