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2014 (10) TMI 355 - AT - Income TaxTransfer pricing adjustment – Advertising, Marketing and Promotion expenses - Held that:- The authorities have not conclusively held that the assessee could not enter into such a transaction nor had they disallowed the same by holding that such expenditure is not assessee's business expenditure - the payments are reimbursement in respect of Ms. Rita Ricken and other personnel's case to serve the interest of shareholders - By saying so they have only described the circumstance under which the international transaction has been entered by the appellant, so as to test the benefit that can be said to have reached the assessee – It cannot be said to have questioned the commercial expediency of transactions entered by the appellant - The I.T. rules contain exhaustive detail regarding nature of information and documents which are required to be maintained by the assessee. Rule 10D(1) of the I.T. Rules, 1962 also mandates the maintainability of record of uncontrolled transactions to be taken into account in analysing the comparability of the international functions entered into by the assessee - It is obligatory on part of the assessee to maintain record and produce the same before the TPO to show that it has benchmarked the international transaction at ALP - This obligation has not been discharged by the assessee. Assessee is also not shown to be willing to pay any amount for such services, if it were, so provided by an independent enterprise or if the same would have been performed in house - The DRP is found to have considered these services as non-beneficial for the recipient and did not take it as chargeable services - The perusal of e-mails and other contemporaneous record only goes to reveal that incidental and passive association benefit has been provided by the associate enterprise - there could neither be any cost contribution or cost reimbursement nor payment for such services to the AE - The TPO has rightly adopted Nil value for benchmarking the arm's length price in respect of both these services. Treatment of outstanding receivables – Held that:- There is merit in the argument of revenue, the nature and heading of expenses as made by the assessee needs to be verified - Since the approach earlier adopted by the lower authorities did not require verification of expenses and categorization of heads, in the changed scenario it will be desirable that relevant expenses are verified by the AO – thus, the matter is to be remitted back to the TPO for fresh adjudication. Disallowance of Intra Group Support Services – Held that:- Revenue has claimed that inordinate delay in receiving the outstanding amounts to passing a benefit to AE and it constitutes real income - assessee has been able to demonstrate that assessee as a policy does not charge any interest on any delayed payment irrespective of the party being AE or non AE, as it was a consistent business policy - no interest could be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship as persuasive value - there was uniformity in assessee’s act in not charging interest both from AE and non AE and delay in realization in both the cases - notional interest cannot be considered with ALP on delayed realization - the adjustment in relation to notional interest on outstanding receivables cannot be made in the case of the assessee – Decided in favour of assessee. Advances written off u/s 36(2) r.w section 36(1)(vii) – Held that:- The nature of expenditure is demonstrated by the assessee in terms - besides, the explanation has not been controverted either by the TPO or DRP in objective terms – there was no cogency or justification in the reasons applied by DRP to sustain the disallowance - the expenditure incurred was wholly and exclusively for the business purpose on revenue account - The advances have a proximate and direct nexus with assessee’s regular business operations which is explicit from the nature of expenditure remanded by the AO himself - Advances having become irrecoverable and actually written off are allowable as bad debt written off, as well as business loss/ expenditure u/s 37(1) – relying upon Badridas Daga Versus Commissioner Of Income-Tax [1958 (4) TMI 2 - SUPREME Court] – the addition is set aside – Decided in favour of assessee.
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