The Tribunal held that although the assessee had deducted tax at source on the interest payment, instead of reducing that from the payment made to the associated enterprise, they had grossed up the tax-deducted portion to the interest paid to the associated enterprises and claimed it as a deduction. Such a procedure was contrary to the agreement between the parties as well as to the provisions of the law. Therefore, there was no error in the reasons given by the Transfer Pricing Officer or the Dispute Resolution Panel to disallow the grossed-up portion of the tax deduction on interest paid to the associated enterprises on external commercial borrowings in terms of section 40A (2). (AY. 2012-13, 2013-14)
Lite-On Mobile India Pvt. Ltd. v. Dy. CIT (2022)96 ITR 352 (Chennai) (Trib)
S. 40A(2) : Expenses or payments not deductible-Excessive or unreasonable-International Transactions-Deduction of tax at source-External commercial borrowing from Foreign Company-Assessee Liable to Deduct Tax on Interest Payment-Grossing up tax deducted portion with interest paid and claiming deduction-Contrary to inter-party agreement and law. [S. 92C]