TMI Blog2012 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has rightly deleted the addition on finding that the expenditure was fully supported by sufficient details, that the asessee had submitted complete details of the advertisement giveaways, that genuineness of incurring this expenditure was well proved. No infirmity found in order deleting the dis-allowance. Dis-allowance u/s 40(A)(2)(a) - marketing commission to parent company GSK - Held that:- FAA has given a categorical finding that a separate agreement was entered into by the assessee with GSK for the purpose of marketing commission. Assessee had incurred the expenditure as per the said agreement. AO had not doubt the genuineness of the agreement. Though AO has held that marketing commission was excessive and justified as per the provisions of Sec. 40 A(2), yet he has not furnished any data for supporting his stand. Mere observing that payment is excessive is not sufficient to disallow the expenditure. It is not a fit case for applying section 40A(2). Deletion of dis-allowance upheld - Decided in favor of assessee - ITA No.3891/Mum/2011 - - - Dated:- 11-7-2012 - SHRI B.R. MITTAL AND SHRI RAJENDRA, JJ. Revenue by : Shri Pravin Varma, Assessee by : Ms. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance under section 14A should be restricted to Rs.11,886/- being the expenditure attributable to the earning of tax- exempt income. 3. Brief facts of the case : i). Assessee company, engaged in the business of manufacturing of pharmaceutical products, filed its return of income on 29.10.2007 declaring total income of Rs. 16.17 Crores. ii). Appellant company does not have employees. The personnel of Glaxo Smithkline Pharmaceuticals Ltd. (GSK) manage the common activities for both GSK and the appellant company. Common activities include functions such as legal, information technology, Accounts, Taxation Audit and Administration etc. iii). Costs of various departments are accounted in GSK under various cost centre codes-for example Cost Centre Code 210307023 represents Corporate Accounts department of GSK which prepares the Balance Sheet, Profit and Loss Account, Trial balance etc. for both the companies and ensures that these are audited. Similarly, the cost centre code 210307034 represents Taxation department which is responsible for preparing and filing the tax returns of both companies, representing for assessments, fling appeals etc. iv). Copies of cost allocati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue neutral. Accordingly, he held that the stand taken by the AO in treating the payment made by the assessee as unreasonable was incorrect and that the same was not sustainable. Disallowance of expenditure amounting to Rs.47.28 lacs made u/s. 40A(2)(a) by the AO was deleted. 4.2. Before us, DR submitted that there was no basis for FAA to accept the contention of the assessee, that no correspondence was produced before the AO for allowability of expenditure @ 5 to 10%, that no exercise was carried out by the FAA as whether the exercise was tax neutral.AR referred to various clauses of agreement entered into between GSK and the assessee. Page Nos. 5,6,7,13 14 of the Paper Book were also referred to. In this regard AR also relied upon the cases of V.S.Dempo Co. delivered by the Goa Bench of Hon ble High Court of Bombay and Indo Saudi Services(310ITR306).AR referred to the Circular No. 6P of 6th July,1968 of the CBDT. In the case of CIT vs. Glaxo SmithKline Asia (P) Ltd. Hon ble 4.3. Before deciding the issue before us, we would like to consider the following basic principles enumerated by the judiciary with regard to Section 40A(2) of the Act - i). For invoking the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section that payments made by the assessee for the services availed were excessive or unreasonable. As a result, we uphold the order of the FAA. First ground of appeal filed by the AO stands dismissed. 5. Next Ground of Appeal and effective cross-objection is about disallowance made by the AO u/s. 14A of the Act and FAA s directions issued in this regard. AO had disallowed Rs. 12.70 lacs u/s.14A of the Act r.w.Rule8-D.After considering the submission of the assessee, FAA directed the AO to determine the reasonable amount of disallowance. Before us, DR relied upon the order of the AO.AR submitted that disallowance was highly excessive that no expenditure was incurred for earning exempt (dividend) income, that disallowance u/s. 14A should be restricted to Rs. 11,886/-. 5.1. After considering the rival submission, we are of the opinion that order of the FAA does not require any interference. Endorsing the order of the FAA, we dismiss Ground No.2 filed by the AO. In the year under consideration Rule 8D was not applicable. FAA has directed the AO to act reasonably. In our opinion there was no reason for agitating the issue before us. With reference to the cross objection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the FAA. Ground No.3 filed by the AO is dismissed. 7. Last Ground of Appeal is about disallowance of Rs. 3.67 Crores being expenditure under the head marketing commission incurred for the purpose of business and paid to the parent company of the assessee. During the assessment proceedings, AO found that assessee had paid marketing commission to GSK. After obtaining explanation of the assessee in this regard, AO held that assessee the assessee was paying consignment sales agents commission for the reason that GSK was having wide network of consignment agent which benefited to the assessee also, that the assessee was also bearing common cost to GSK for different manpower expenses, that the allowability of marketing commission had to be seen in view of Section 40(A)(2), that all products of the assessee were sold through GSK to various consignment agencies. Invoking the provisions of the section 40A(2) of the Act he held that assessee claim made by the assessee was not justified because the assessee was bearing its share on common cost also which included expenses on account of administration GMS (goods marketing services). Deciding the appeal filed by the assesse FAA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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