Transfer Pricing Adjustments Remanded for Verification While Loss Carry Forward Entitlement Is Upheld Upon Timely Filing

Ashwani Kumar — Tue, 10 Nov 2026 07:44:05 +0000

Transfer Pricing Adjustments Remanded for Verification While Loss Carry Forward Entitlement Is Upheld Upon Timely Filing

Issue

Whether transfer-pricing adjustments relating to interest-free working capital funds and laptop expense reimbursements should be remanded for fresh adjudication upon production of corroborative evidence.
Whether an assessee filing its return by the extended due date of 30th November is entitled to carry forward and set off business losses.
Whether an Assessing Officer can make unauthorized deviations or new disallowances in the final assessment order without prior proposal in the draft order and without granting an opportunity of being heard.

Facts

The assessee, a wholly-owned subsidiary of a Singapore-based AE, was engaged in education-related SaaS and services in India and filed its return for AY 2022-23 declaring nil income and claiming carry-forward of business losses.
During TP proceedings, the assessee claimed that ₹4.70 crores outstanding in its books represented interest-free funds received from its AE for initial operational working capital, relying on an unverified director’s affidavit and unattested bank statements.
The TPO proposed a TP adjustment on the working capital and a further ₹13.38 lakhs on account of cost-to-cost laptop reimbursements procured through the parent AE, citing a lack of complete supporting records.
The assessee filed its return on 29-11-2022, well before the statutory due date of 30th November applicable to cases requiring an accountant’s report under Section 92E.
In the final assessment order under Section 143(3) read with Section 144C(13), the AO denied the set-off and carry-forward of business losses without having proposed any such disallowance in the draft assessment order.

Decision

Remand for Working Capital and Reimbursement TP Adjustments: Both transfer-pricing adjustments were remanded back to the TPO/AO for re-adjudication, subject to the assessee producing formal parent AE certificates, audited confirmations, and certified bank statements. (Matter remanded)
Entitlement to Carry Forward Losses: Having filed its return on 29-11-2022 before the statutory due date of 30th November, the assessee was fully entitled to carry forward and set off its current and brought-forward business losses. (In favour of assessee)
Invalidity of Unauthorized Final Assessment Deviations: The AO is legally barred from introducing new adverse disallowances in the final assessment order that were absent from the initial draft assessment order without granting the assessee a proper opportunity of being heard. (In favour of assessee)

KeyTakeaways

Unverified affidavits and unattested bank statements are legally insufficient to substantiate interest-free working capital funding or cost-to-cost expense reimbursements from foreign Associated Enterprises; formal parent certificates and auditor verifications are mandatory.
Taxpayer companies required to file an accountant’s report under Section 92E enjoy an extended filing deadline of 30th November, fully protecting their statutory rights to carry forward and set off business losses.
Under the dispute resolution framework of Section 144C, an Assessing Officer cannot introduce new disallowances in the final assessment order that were not proposed in the initial draft assessment order.

IN THE ITAT DELHI BENCH ‘I’

Cialfo Subcontinent (P.) Ltd.

Assessment Unit Itd.

Vikas Awasthy, Judicial Member
and AMITABH SHUKLA, Accountant Member

ITTP Appeal No. 133 (DEL) OF 2026
[Assessment year 2022-23]

OCTOBER 14, 2026

Kanchun Kaushal and Abhay Saboo, ARs for the Appellant. Mahesh Kumar, CIT(DR) for the Respondent.

ORDER

Amitabh Shukla, Accountant Member. – The captioned appeal has been preferred by the assessee against order dated 29.12.2025 of the Assessing officer arising out of direction of learned Dispute Resolution Pannel, (in short ‘ld. DRP’) 19.11.2025 passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 pertaining to Assessment Year 2022-23. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

2. The appellant assessee has raised following grounds of appeal:-

Based on the facts and circumstances of the case, the Appellant craves leave to prefer an appeal against the order passed by the National Faceless Assessment Centre (‘NFAC’) [hereinafter referred to as the ‘Ld. AO’] under section 143(3) read with section 144C(13) read with 144B of the Indian Income-tax Act, 1961 (‘the Act’) in pursuance of the directions issued by the Hon’ble Dispute Resolution Panel-II, New Delhi (‘DRP’) on the following grounds of appeal, which are without prejudice to each other:

1) The Learned Transfer Pricing Officer (‘Ld. TPO’), Hon’ble Dispute Resolution Panel (‘DRP’), and Learned Assessing Officer (‘Ld. AO’) (following the directions of the Hon’ble DRP), erred on facts and in law, in making TP adjustment of Rs. 4,83,60,583/- to the value of international transaction with the associated enterprise (‘AE’) after rejecting the Transfer Pricing (‘TP’) Documentation Report maintained by the Appellant and choosing to ignore the submissions made before the Ld. TPO/ Hon’ble DRP from time to time during the course of proceedings, in good faith and with due diligence, and alleging that the following international transactions have not been adequately substantiated with supporting evidences.

(a) The amount of Rs. 4,70,22,756 received by the Appellant to support the operational working capital requirement during its initial stage of business; and

(b) The amount of Rs. 13,37,827 towards reimbursement of expenses on cost to cost basis primarily for purchase of laptops.

2) The Ld. TPO / DRP / AO has erred on the facts and in the circumstances of the case and in law, by making an adjustment of Rs. 4,70,22,756 for interest free funds received by the Appellant without appreciating/ disregarding the following:-

(a) Appellant was incorporated on 20 September 2019 and in the initial stage of its business availed financial support from the parent entity to meet its day-to-day operational.

(b) The Appellant inadvertently reported the aforesaid transaction as reimbursement of expenses in the TP documentation/ books, but promptly corrected it during the course of the TP proceeding by submitting an affidavit signed by the Director of the Company confirming the nature of the transaction, details of tranches in which the amount were received and rationale for availing funds; and supported by submitting the bank statements.

(c) The unredacted bank statement was submitted before the DRP as per its directions given during the course of the hearing, which further substantiated / evidenced the receipt of funds and utilization thereof.

(d) The funds received are outstanding on the date of balance sheet.

(e) The funds received were capital in nature, and as such does not have any bearing on the profits/ income of the Appellant/ AE and therefore do not constitute an “international transaction” within the meaning of section 92B of the Income Tax Act, 1961, thus outside the purview of provisions of transfer pricing. Further, the Appellant has not considered such funds received as a deductible expense for computation of tax liability of the Appellant.

Therefore, adjustment of Rs. 4,70,22,756 towards receipt of interest free funds from its parent entity to meet day to day operational needs of the Appellant, was not justified and so may kindly be ordered to be deleted.

3) The Ld. TPO / DRP / AO has erred on the facts and in the circumstances of the case and in law, by making an adjustment of Rs. 13,37,827 towards reimbursement of expenses primarily for purchase of laptops on behalf of the Appellant without appreciating/ disregarding the following:

(a) The Appellant in its initial stage of its business was supported by its parent entity in procuring laptops and other accessories from third parties for the employees of the Appellant, and was charged on cost-to-cost basis without any mark-up.

(b) The orders for the laptops were in general placed by the employee of the Parent entity on behalf of the employee of the Appellant and shipped to their residence considering remote work setup.

(c) The details of laptops purchased employee wise along with sample invoices from third party (from Amazon, Apple) were submitted as documentary evidence.

(d) Payment for such expenses were still outstanding and classified under trade receivables.

(e) The laptops purchased were capital in nature, and only depreciation on these laptops were charged to profit and loss account.

Therefore, adjustment of Rs. 13,37,827 towards reimbursement of expenses on cost to cost basis, was not justified and so may kindly be ordered to be deleted.

4) On the facts and in the circumstances of the case and in law, the learned Assessing Officer (“AO”) has exceeded his jurisdiction and erred in not allowing a set of and carry forward of current year business loss directly in the final assessment order without appreciating/ disregarding, the following:

(a) The issue was neither proposed in the draft assessment order nor formed part of the directions of the DRP.

(b) The Final assessment order is not passed in conformity with the directions issued by the Hon’ble Dispute Resolution Panel as provided under Section 144C(13) of the Income-tax Act, 1961.

The Appellant prays that current business loss should be allowed to set off and carry forward in accordance with the provisions of the law.

5) On the facts and in the circumstances of the case and in law, the learned Assessing Officer (“AO”) has erred in making the aforesaid disallowance without granting the Appellant any opportunity of being heard thereby violating the principles of natural justice.

The Appellant prays that current business loss should be allowed to set off and carry forward in accordance with the provisions of the law.

6) Without prejudice to above grounds of appeal, based on the facts and in the circumstances of the case and in law, the Ld. AO has erred in concluding that return of income is a belated return of income disregarding the fact that the transfer pricing provisions apply to the Company and thus has erred in the following:

(a) Not granting a set off and carry forward of current year business loss of INR 5,66,68,813 against the TP adjustment of INR.4,83,60,583.

(b) Not allowing a carry forward of remaining business loss after set off against TP adjustment; and

7) Without prejudice to above grounds of appeal, based on the facts and in the circumstances of the case and in law, the Ld. AO has erred in not allowing the following:

(a) Carry forward of current year business loss

(b) Carry forward of brought forward business loss of INR 1,51,69,442.

Ground no 6: A rectification application under section 154 of the Act has been preferred on the above issue. In the event the said rectification is allowed, and the issue is appropriately resolved, this ground may be withdrawn.

8) Without prejudice to above grounds of appeal the Ld. AO, on the facts and in the circumstances of the case and in law, has erred in computing a tax liability payable and levying interest under section 234 A/B/C of the Income tax act,1961 ignoring the fact that the company has a net loss for carry forward even after TP adjustment is considered and hence there is no tax payable

9) The Ld. AO erred on the facts and in law in initiating penalty proceedings under section 270A of the Income Tax Act in the present case.

3. Brief factual matrix of the case as culled out from the records of the lower authorities is that the appellant assessee namely Cialfo India is a wholly-owned subsidiary of Cialfo Pte. Ltd., Singapore, incorporated on 20 Sept 2019. It is engaged in the business of providing educational and training products, services, contents, internet-based problem and infrastructure in India including but not limited to various universities and educational institutions. It facilitates access to information post-secondary education (PSE) opportunities globally, software as a service model, offering platform on subscription basis primarily to high schools and independent counsellors. The Cialfo Pte. Ltd (‘AE’ or ‘Parent entity’) is headquartered in Singapore and builds web-based platforms and related services enabling global higher education access. The Appellant filed its return of income for AY 2022-23 on 29 Nov 2022 declaring the income of NIL and claimed carry forward of losses amounting to INR.5,66,68,813. The case was selected for scrutiny, and a reference was made to Ld. TPO u/s 92CA. The ld. TPO noted that as per note-7 in the audited financial statements, the appellant had shown an amount of Rs.4,83,60,5383/- as outstanding /payable as on 31.03.2022. Before the ld. TPO, the appellant had submitted that an amount of INR 4,70,22,756 was inadvertently reported as reimbursement of expenses, whereas in substance it represented interest free funds transferred by AE to meet operational working capital requirements as the Appellant was in its initial phase of business and only INR 13,37,827 pertained to reimbursements made on a cost-to-cost basis for Laptops, accessories, office supplies and other operating expenses. The ld. TPO rejected the arguments of the appellant assessee and proceeded to make transfer pricing adjustment of Rs.4,83,60,583/-. The ld. DRP concurred with findings of the ld. TPO. The ld. Assessing Officer also did not allow the set of and carry forward of current year business losses.

4. The first issue raised by the appellant assessee through ground of appeal no.2 including its sub-grounds, is the Transfer Pricing Adjustment of Rs.4,70,22,756/- reportedly received by the appellant from its parent AE to support operational working requirement during initial stages of its business. The ld. Counsel vehemently argued against the action of the ld. TPO and DRP. It was submitted that the assessee realized its mistakes of wrongly reporting the impugned amount as an outstanding/payable item qua related parties in Note-7, during scrutiny proceedings and that immediately it attempted to rectify the same. It was submitted that before the TPO it had given complete details of the datewise funds received from the parent AE between the period 28.07.2021 to 17.02.2022. It was submitted that the entire money was received in the bank account of the assessee and that the same was deployed to meet business purposes of the assessee. The ld. Counsel further argued that it had also provided an affidavit from one of the directors namely Ms. Swati Seth indicating that the impugned amount of Rs.4.70 Crores approximately was received from the parent AE and which were utilized for assessee’s operational requirements. The ld. Counsel accordingly argued that there was no need for any separate contract for this support from parent AE to the assessee. The ld. Counsel further submitted that it had provided copies of the bank account indicating above entries. It was argued that merely because the said bank account was digitally generated on the letter head of the bank, no adverse view can be taken. It was submitted that the requirement of submitting a copy of attested bank account was therefore unnecessary. The ld. Counsel accordingly requested for directing deletion of the impugned adjustment.

5. The ld. DR vehemently argued in favour of the order of the lower authorities. The ld. DR submitted that the ld. TPO has drawn correct conclusions in the light of evidences placed before him.

6. We have heard rival submissions in the light of material placed on records. Upon consideration of the arguments put forth by the ld. Counsel, we are not inclined to concur with the same. The simple argument of the assessee is that it had by mistake shown the amount of Rs.4.70 Crores approximately in its books as outstanding/payable qua related parties and that the same was actually interest free funds received from parent AE. The mistake was attempted to be corrected through the affidavit of the Director Ms. Swati Seth and the production of unattested copy of the bank statement. We have noted that the affidavit of Ms. Swati Seth nowhere alludes towards any mistake and merely states that it had received the amount of Rs.4.70 Crores approximately from its parent AE on account of interest free funds for meeting operating expenses. It is not known as to why no reference to the committed mistake was made. Further, we do not understand as to why the assessee was shy of providing the ld. TPO a certified copy of bank account when it had confidently submitted that the amounts were received from the parent AE. We are also unable to comprehend as to why the assessee did not file any confirmation from its auditor who was actually responsible for commitment of the impugned mistakes in the books of accounts. Pertinently, the books of accounts of the assessee are duly audited and therefore such mistakes, if any, have to be certified by the auditor. We are also unable to comprehend as to why the parent AE did not come to the rescue of its subsidiary by given a certificate regarding transfer of the interest free funds for meeting the operational requirements. The arguments put-forth by the appellant assessee therefore cannot be accepted on their face value. Be that as it may be in the interest of justice, we deem it appropriate to remit the matter back to the file of the ld. TPO for re-adjudication of the matter. We however direct the appellant assessee to file before the ld. Assessing Officer a certificate from its parent AE, regarding transfer of the interest free funds for meeting the operational requirements, duly attested certified copy of the bank statement, which shows transfer of the funds from parent AE to the appellant assessee and a certificate from the auditor regarding the commission of the said inadvertent mistake. The ld. Assessing Officer is directed to re-adjudicate the matter in the light of said evidences after giving due opportunity of being heard to the assessee. It is clarified that this remission is only in respect of Transfer Pricing Adjustment of Rs.4,70,22,756/-. The ground of appeal no.2 is therefore allowed for statistical purposes.

7. The next issue raised by the appellant assessee through ground of appeal no.3 is regarding transfer pricing adjustment of Rs.13,37,827/- towards reimbursement of expenses for purchase of laptops on behalf of the appellant. The ld. Counsel for the appellant submitted that during the initial phase of its business operations, the Appellant was supported by its parent entity in procuring laptops and other accessories from third-party vendors for use by the Appellant’s employees, aggregating to INR 13,37,927. Such expenses were incurred by the parent entity purely for operational convenience and were reimbursable on a cost-to-cost basis, without any mark-up. It was submitted that order for these laptops were placed by selective employees of parent entity and the same was delivered to the employee of the Appellant Company at their residence considering these employees work remotely from their home. To substantiate that the reimbursed expenses primarily relate to the procurement of laptops and accessories on cost-to-cost basis, the Appellant had furnished copies vendor invoices on sample basis before the Ld. TPO vide its submission dated 18 June 2024. The appellant had admitted that no formal agreement existed between the Appellant and its AE with respect to the aforesaid reimbursement of expenses. The ld. TPO however observing that appellant had not provided ledger entries, third party agreements or attested complete bank statement copies proceeded to recommend the transfer pricing adjustment of Rs.13,37,870/-. The ld. DRP concurred with the findings of the ld. TPO.

8. The ld. Counsel for the assessee vehemently argued that these expenses were initially absorbed by parent entity and subsequently reimbursed through appellant on cost-to-cost basis. It was argued that such reimbursement transaction does not necessitate a formal contractual agreement. It was stated that it had submitted that copy of sample invoices. It was also argued that the impugned amount is still outstanding and is payable to the parent AE. The ld. Counsel submitted that it had provided a redacted bank statement digitally available on banks letter head to the ld. TPO. It was argued that the appellant has recorded these laptops into the asset account of its books and claimed depreciation.

9. The ld. DR placed reliance upon the order of the authorities below.

10. We have heard rival submissions in the light of material placed on records. Upon consideration of the matter, we have noted that the issue involves role of parent AE in facilitating procurement of laptops. We find force in the argument of the appellant assessee that as the amount is still outstanding and was not paid during the year under consideration, no corresponding entry would be available in the bank account of the assessee. Be that as it may be, in the interest of justice, we are of the considered view that this issue also needs remission back to the Assessing Officer for re-adjudication. The assessee would however to require to produce before the ld. Assessing Officer a certificate from its parent AE regarding the supply of laptops to assessee’s employees and its claims of expenses as reimbursement from the assessee. The ld. Assessing Officer is directed to readjudicate the matter in the light of said evidences after giving due opportunity of being heard to the assessee. It is clarified that this remission is only in respect of Transfer Pricing Adjustment of Rs.13,37,827/-. The ground of appeal no.3 is therefore allowed for statistical purposes.

11. The grounds of appeal no.4, 5, 6 and 7 are regarding the action of ld. Assessing Officer in not allowing a set of and carry forward of current years business loss amounting to Rs.5,66,68,813/- and of Rs.1,51,69,442/- against TP adjustment of Rs.4,83,60,583/-. Ld. Counsel for the assessee has vehemently argued that the ld. Assessing Officer had not indicated any such disallowance in the draft order and that therefore the action of the ld. Assessing Officer in incorporating the same in the final order without giving it an opportunity of being heard is wrong.

12. The ld. Counsel for the assessee has submitted that the ld. Assessing Officer has taken recourse to the Circular No.20 of 2022 dated 26.10.2022, which had extended the time line for furnishing of returns u/s 139(1) from 31.10.2022 to 07.11.2022. The ld. Counsel submitted that the action of the Assessing Officer is wrong as the impugned extension was only with reference to cases falling in clause (a) of Explanation-2 to sub-section 1 of section 139. It was submitted that it had filed its return on 29.11.2022, a fact which is not disputed by the Revenue. The ld. Counsel has invited our attention to provisions of section 139(1) as under:-

Explanation 2.—In this sub-section, “due date” means,—

(a) where the assessee other than an assessee referred to in clause (aa) is—

(i) a company; or

(ii) a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or

(iii) a ⁴⁰[***] partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being

in force ⁴¹[or the spouse of such partner if the provisions of section

5A applies to such spouse],

the ⁴²[31st day of October] of the assessment year;

(aa) in the case of an assessee ⁴³[, including the partners of the firm or the spouse of such partner (if the provisions of section 5A applies to such spouse), being such assessee,] who is required to furnish a report referred to in section 92E, the 30th day of November of the assessment year;

(b) in the case of a person other than a company, referred to in the first proviso to this sub-section, the 31st day of October of the assessment year;

13. The Appellant submits that the provisions of transfer pricing is applicable to the Appellant, and the company is required to furnish report under section 92E. Therefore, due date applicable for filing of return of Income by Appellant for the year under consideration is 30 Nov 2024. It was argued that the ld. AO may be directed to allow it the set off of current year losses as well as brought forward losses.

14. The ld. DR argued in favour of the ld. AO relying upon the CBDT Instructions dated 26.10.2022 (supra)

15. We have heard rival submissions in the light of material available on record. At the outset, we find force in the argument of the appellant assessee that the ld. AO was not empowered to make any deviation from the draft order without giving due opportunity of being heard to the assessee. We have further find force in the argument of the assessee that its case is covered by Clause (aa) of section 139(1) extracted hereinabove. Accordingly, the assessee was required to file Return till 30th November and since it filed on 29th November, the assessee will be legally entitled for the set off of current year losses as well as brought forward losses. We therefore direct the ld. AO to allow the assessee the set off of current year losses as well as brought forward losses in accordance with law in the assessment order passed after receiving recommendation of TPO in line with our direction given hereinabove. The ground of appeal nos.4, 5, 6 and 7 are allowed for statistical purposes.

16. Ground of appeal no.8 and 9 are regarding imposition of interest and invocation of penalty proceedings, the same are consequential and hence dismissed as premature.

Cialfo Subcontinent (P.) Ltd. Archives - Tax Heal

Transfer Pricing Adjustments Remanded for Verification While Loss Carry Forward Entitlement Is Upheld Upon Timely Filing