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2013 (9) TMI 564 - AT - Income TaxApplicability of Transfer pricing provisions - transactions with joint venture - transaction with associated enterprises - international transaction - DTAA with Malaysia - Held that:- all the decisions relating to the affairs of the Joint Venture are taken in India and the business is executed in India through a Joint Venture Agreement in India. Indisputably, Joint Ventures are residents in India. Even otherwise, Clause 3 of Article 4 of Malaysia provides that a person which includes AOPs also shall be deemed to be residents of the State in which its place of effective management is situated. On perusal of the Joint Venture agreements, it can be seen that all the decisions relating to the Joint Venture are taken in India and, therefore, the JVs are to be treated as "residents" only. The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act. After considering the entire facts and circumstances of the present case and the findings of the DRP, we are of the opinion that the transactions taken place are with domestic enterprises and at least one among the AEs are not non-resident. Both the assessee and other parties which whom the assessee entered into transactions are the residents for the purpose of Indian Taxation. Any transaction between them will not constitute an international transaction. The transactions between the assessee and IJMII do not fall under section 92B(2) of the Act and same is the position in case of other entities with whom assessee carried on the impugned transactions - Provisions of transfer pricing not applicable - Decided against the revenue. Nature of expenses - whether for the purpose of business - genuineness - Deduction was not allowed on the reason that this payment is not verifiable and they doubted the genuineness of the payments. - Held that:- The claim of payment of subcontract by the present assessee was not disqualified for deduction under the Act - Now, coming to next question as to whether the expenditure was capital expenditure or not, we are of the opinion that the expenditure was not a capital expenditure since the assessee did not acquire any capital asset. Whether the payment was in the nature of personal expenditure or not, again, in our opinion, this was not the payment relating to personal benefit of any employees or directors of assessee-company - Being so, it was not personal expenditure. Whether the expenditure was incurred wholly and exclusively for the purpose of business - In the case of Sassoon J. David & Co. Ltd. v. CIT [1979 (5) TMI 3 - SUPREME Court ] - the expression 'wholly and exclusively' used in s. 10(2)(xv) does not mean 'necessarily'. Ordinarily, it was for the assessee to decide whether any expenditure should be incurred in the course of his or its business - Such expenditure may be incurred voluntarily without any necessity and it was incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure - The fact somebody other than the assessee was also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfied otherwise the tests laid down by the law - The entire payment of subcontract cannot be disallowed as there was no evidence for such payment. Whether the assessee had established the payment of subcontract by producing the necessary evidence - Held that:- Commissioner Of Income-Tax Versus Sigma Paints Limited [1990 (9) TMI 52 - BOMBAY High Court] - The payment vouchers giving the relevant details, including the names of the payees, and also bearing the signatures of the payees as recipients, had been produced by the assessee-company before the Assessing Officer - The payment vouchers contained full details of the nature of transaction - In other words, the details of all transactions in respect of which the subcontract payment had been paid by the assessee-company were duly recorded in the payment vouchers and other evidence - The only missing link was the address of the payees, which it was all along submitted and, however, the letters written by the Assessing Officer to those parties were returned by the postal authorities and these things cannot jeopardise the claim of the assessee-company - The payments were correlated to the transactions which the assessee had with those persons - The only missing link was stated to be the names of the particular parties to whom the payments were made - This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things. The initial onus and burden of proof was on the assessee - In the instant case, such initial onus and burden of proof had been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers-and other documents giving full details as to the nature of transactions, which necessitated the payment of such subcontract works and that this was an accepted norm and established in this line of business and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the Assessee Company all along. However, in this case the inflating of expenditure by the assessee cannot be ruled out. Considering the entire facts and circumstance of the case and chances of inflating the expenses by the assessee, to meet the ends of justice, we are inclined to disallow 15% of this payment. - Decided partly in favor of assessee.
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