TMI Blog2013 (10) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... ses amounts to ₹ 53,88,834/- - Held that:- Market promotion expenses are reimbursement of the expenses paid to third party for services rendered by them in marketing the website - TPO and DRP considered it as intra-group services and analysed the same on the benefit principle – However, reimbursement of expenditure, the issue of benefit principle may not arise in this case - Both the TPO and DRP went on wrong consideration in determining the market promotion expenses at Nil, treating the transaction as intra-group service – Reliance has been placed upon the judgment of Hon’ble Delhi High Court in the case of CIT Vs. EKL Appliances Ltd [2012 (4) TMI 346 - DELHI HIGH COURT], wherein it has been held that TPO has no power to restrict the ALP at Nil, but is supposed to have determined the ALP of the international transaction as per the methods provided. The TPO has to examine the price paid by the assessee and determine the ALP under the provisions of Transfer Pricing and its Rules. It does not authorize the TPO to disallow any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same nor on the reason that the assessee has not j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely disregarding the provisions of the Act and the judicial precedence. 7. The learned Dispute Resolution Panel (DRP) legally erred in merely endorsing AO/TPOs action in respect of issues explained in the earlier grounds. 8. Any other ground that may be urged at the time of hearing with the previous approval of the Hon'ble Tribunal." 2. Briefly stated, assessee Social Media India Ltd. is a deemed Public Ltd. company wherein 96% of the equity is held by Northgate Technologies Ltd. and 4% is held by the promoters of the company. Assessee is engaged in carrying on business of providing online information, advertisement and mass media communication. For the AY 2008-09, assessee filed its return of income declaring loss of Rs. 44,60,778/-. Assessee has reported international transactions done with AE and filed audit report along with transfer pricing study report, copies of invoices in respect of transactions with AEs and agreements, and also justification for price charged for acquiring web portal in the course of proceeding. A reference u/s 92CA(3) of the IT Act, 1961 has been made to Transfer Pricing Officer (TPO), Hyderabad. The TPO examined the transactions of assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating as under: "27. The TPO treated the arms length price of payment made towards market promotion expenses for Rs. 53,88,834/- at Rs. "NIL" by treating the transaction as Intra-group services. The assessee company availed advertising and marketing services from Axill Europe Ltd., its AE. An amount of Rs. 53,88,834/- was incurred towards the same by AE and was paid by the assessee at cost i.e. without mark up as detailed in the Transfer Pricing Report. The advertising and marketing services were availed for promoting social media exchange. The TPO has thus adjudged the value of this service on the Benefit Principle. 28. A standard involving a willingness to pay or existence of a benefit (benefit rule), as enunciated in the OECD Guidelines and US regulations is, by far, the most important factor that determines whether a related-party service recipient would pay for an intra-group service and, therefore, whether the service provider can justify a charge for the provision of the intra-group services. The objective of the benefit rule is not only to determine the quantum of benefit, but also the relative proximity of the benefit derived to the intra-group services rendered (i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es India (P.) Ltd., [2012] 27 Taxmann.com 334 (Mum.) wherein it was held that the TPO cannot determine the ALP at Nil as jurisdiction provided to him is to determine the ALP on the transactions under the methods provided under the Act. Further, he relied on the decision of the coordinate Bench of ITAT, Bangalore Bench "A" in the case of Festo Controls (P.) Ltd., [2013] 30 Taxmnann.com 16 (Bang.) wherein the same principle was reiterated. He also referred to ITAT Mumbai decision in case of SC Enviro Agro India Ltd., Vs. DCIT [2013] 34 taxmann.com 127 (Mum.) wherein also similar principles were laid out that the rule does not authorize the TPO to disallow any expenditure. 7. With reference to the determination of ALP at Nil on market promotion expenses to its AE, it was the contention of the learned counsel for the assessee that this amount was only reimbursement of expenses paid to third party ComScore.com and no services have been rendered by AE and, therefore, the observation of the TPO as well as by the DRP that the assessee has not justified on benefit principle does not arise, as services were rendered by third party and payments were routed through the AE and expenditure is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts use. We find that there is no dispute with reference to the delivery of the intangible asset as the assessee has done business on this website. In fact, it was submitted and also recorded by the DRP vide paras 15 16 in its order, about the visits to the site and also that assessee company generated revenues of Rs. 4.47 crores constituting 45% of the total revenues from Bharatstudent.com. Even after explaining that the intangible asset was actually used by the assessee in earning the revenues to the company of Rs. 4.47 crores, what else is required to establish is not understandable. Further, the assessee also furnished the valuation report where the valuer adopted the cost method and the assessee has paid only the cost incurred by AE. As seen from the order of DRP, the DRP stated that valuer arrived at the cost of website at Rs. 5,38,31,832/-, as against the cost valued by the Valuer at Rs. 3,67,82,863/-. We are unable to understand from where the said price was taken up by the TPO/DRP. Be that as it may, the assessee has paid only the cost price to its AE and justified the same by providing a valuation report as external CUP. Nothing has been brought on record by the TPO or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been recognized in the tax jurisprudence of our country earlier. It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. We may refer to a few of these authorities to elucidate the point. In Eastern Investment Ltd. v. CIT, (1951) 20 ITR 1, it was held by the Supreme Court that "there are usually many ways in which a given thing can be brought about in business circles but it is not for the Court to decide which of them should have been employed when the Court is deciding a question under Section 12(2) of the Income Tax Act". It was further held in this case that" it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned". In CIT v. Walchand Co. etc., (1967) 65 ITR 381, it was held by the Supreme Court that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. 22. Even Rule 10B(1)(a) does not authorize disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was un- remunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule l0B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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