TMI Blog2018 (1) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... that he had not doubted the incurring of expenditure, that he was of the opinion that expenditure was to be allowed in the next assessment year, that TPO had not found any defect in the method of determining the ALP of the international transaction(IT) entered in to by the assessee, that mark up of 11. 79% has not be doubted by him. It appears that the TPO, while passing order u/s. 92 took over the role of the AO. As per the provisions of the Act the only role assigned to the TPO is to find out as to whether the IT is at arm’s length or not. He is not supposed to take decision about accounting policy to be followed by the assessee, nor he should comment upon as how to compute income if an assessee follows a particular method of accounting. In the case before us, the assessee is following project completion method and showing the income from the project accordingly. Expenditure incurred by it have to considered for arriving at the taxable income of the year under appeal. There in nothing on record to negate the finding of fact given by the FAA that income corresponding to the Pre-FID expenditure was offered for taxation. So, in our opinion, there is no need to interfere with his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for deduction, that if the assessee would not deduct or pay the amount during any preceding year and subsequently if it would deduct such sum in subsequent year then in such cases expenses would be allowed to be deducted in such subsequent year, that deduction of tax on payment of such tax deducted at source prior to the amendment were independent, that if one of the condition was satisfied no disallowance was called for, that the assessee had deducted tax at source, that no disallowance was called for. He further observed that the AO had raised serious doubts regarding the deduction of tax itself, that he had made a reference to the balance sheet of the assessee wherein there was no entry of outstanding tax deducted at source, that he had held that tax was deducted on such payments. Considering the observations of the AO, the FAA directed him to verify the claim made by the assessee that tax was deducted at source and was credited in the books of accounts. He further directed that if it was found that no tax was deducted at source and tax was found to be outstanding then the disallowance made would stand confirmed. 2.2. During the course of hearing before us, the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 49, 37, 042/- on account of provisions for royalty, ignoring the provisions of Section 40(a)(i) of the Income Tax Act, 1961? The Hon ble Court discussed the issue as under: 12. The Assessing Officer disallowed and added back to the income of the assessee ₹ 49, 37, 042/- on account of royalty as unascertained liability. The Assessing Officer rejected the explanation of the assessee. The provision for royalty was made at ₹ 47, 70, 089/- which is exclusive R D Cess of ₹ 1, 66, 953/-. The aggregate of both the amount is ₹ 49, 37, 042/- is shown in the balance sheet. The CIT(A) upheld the addition made by the Assessing Officer. The ITAT found that in the books of account relevant to the Assessment Year 1991-92, the assessee had made a provision for royalty payable for the period 1. 1. 1990 to 31. 3. 1991 at ₹ 47, 70, 089/- and R D Cess at ₹ 1, 66, 953/-. The tax deductible on this payment amounting to ₹ 14, 31, 028/- was duly shown as deduction in the books of account on 31. 3. 1991. Later on, the actual amount payable to the collaborator in terms of the collaboration agreement was worked out at ₹ 44, 77, 151/- and R D ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40(a)(i) will not be attracted. The aforesaid interpretation is also supported by the proviso to section 40(a)(i) which provides that where the tax has been paid or deducted in any subsequent year then the amount of royalty shall be allowed as deduction in computing the income of previous year in which such tax has been paid or deducted. Thus, the use of two words, namely, paid or deducted do not carry the same meaning. 15. In the present case the tax has been deducted and thus in that event the provision of Section 40(a)(i) stands satisfied. This provision of Section 40(a)(i) was substituted by Finance Act (No. 2), of 2004 which puts the condition that where tax is deductible at source under Chapter XVII B, and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-Section (1) of Section 200, then the royalty shall not be deducted in computing the income chargeable under the head Profits and gains of business of profession . Thus, subsequent amendment making specific provision of deduction and payment thereof in the previous year or in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of Section 200; Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of Section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. - For the purposes of this sub-clause, - ( A) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; ( B) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of Section 9. 16. In view of the discussion made above we are of the view that since the assessee has deducted the tax during the previous year relevant to the assessment year in question i. e. A. Y. 1991-92, the conditionality of Section 40(a)(i) stands satisfied. The finding of the Assessing Officer that the royalty as claimed by the Assessee- Respondent was unascertained liability, has been found to be incorrect by the ITAT. Under the circumstances, we find no error in the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in making the disallowance, that the assessee was following percentage completion method of accounting, that in that method proporti -onate estimate of income as well as expenses has to be made, that the contract with the associated enterprise(AE)was at arm s length. Finally, he deleted the addition made by the AO. 3.2. During the course of hearing before us, the DR relied upon the order of the AO and argued that the expenses should be restricted to the income offered for taxation, that the TPO had rejected the transfer pricing study of the assessee, that the order of the FAA was non-speaking. The AR stated that the role of the TPO was to determine the ALP of the International Transactions, that he had not passed any order in that regard, that order passed by him was not a valid order, that the assessee has entered into two different agreements, that the assessee was awarded a contract by HLPL, that HLPL was constructing a plant consisting of LNG tank and terminal, that HLPL had entered into a contract with the assessee on 22/02/2002, that the assessee had to render the management contract services as per the agreement, that management fee under the management contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole sum of ₹ 5. 36 crores of Pre-FID expenses along with 11. 79 % of mark up had been offered for tax. 3. 3. We have heard the rival submissions and perused the material before us. We find that the assessee had entered in to two separate contracts, that one contract was about fees to be received by it, that the other one was about expenses to be incurred, that the AO mixed those two contracts that he had not doubted the incurring of expenditure, that he was of the opinion that expenditure was to be allowed in the next assessment year, that TPO had not found any defect in the method of determining the ALP of the international transaction(IT)entered in to by the assessee, that mark up of 11. 79% has not be doubted by him. It appears that the TPO, while passing order u/s. 92 of the Act, took over the role of the AO. As per the provisions of the Act the only role assigned to the TPO is to find out as to whether the IT is at arm s length or not. He is not supposed to take decision about accounting policy to be followed by the assessee, nor he should comment upon as how to compute income if an assessee follows a particular method of accounting. In the case before us, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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