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2014 (10) TMI 365 - HC - Income TaxTransfer Pricing Adjustments - Advertisement and publicity expenses disallowed - Non disclosure in form 3CEB – Whether the expenses incurred on advertisement and publicity incurred wholly for the benefit of the assessee or it benefited the principal who was an associated enterprise – Held that:- The contention of the revenue cannot be accepted because there was no proper disclosure of the benefit before the Transfer Pricing Officer cannot now be a reason to entertain the questions and the order of Transfer Pricing Officer is final - the assessee is an agent of foreign principal and would naturally benefit from advertising carried on by agent in India - the assessee has not suppressed any information - It has offered to tax its income from both business, namely, distribution business as well as advertisement and promotion business – AO has proceeded to grant 33.33% of the total advertising expenses as allowable deduction – there was no justification for such restriction of the same - the Transfer Pricing Officer had followed a possible view which cannot now be faulted. Relying upon Sassoon J. David And Co. Pvt. Limited Versus Commissioner of Income-Tax, Bombay [1979 (5) TMI 3 - SUPREME Court] - it cannot be said that the expenditure was not wholly or exclusively for benefit of the assessee - The mere fact that foreign principals also benefited does not entail right to deny deduction u/s 37(1) - all the amounts earned by the assessee were brought to tax, especially in view of the fact that the payment of expenses were made to Indian residents and there payments were not required to be included in form 3CEB since Section 92 which governs the effect of form 3CEB covers only international transactions – assessee’s income from subscription fee is variable and through commission received on the advertising sales is 15% of the value of Ad-sales - there is a direct nexus between advertising expenditure and revenue albiet the fact that there may be a lean period before revenue picks up notwithstanding high amount spent on such publicity - the foreign enterprises must compensate the Indian agent for the benefit it receives or it may receive from the advertisement and promotion of its channels by agent in India - The agent in India earns commission from ad sales and distribution revenue, both of which have sufficiently compensated the assessee – Decided against revenue.
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