2018 (5) TMI 1790 - AT - Income Tax

Remission/ cessation of sales tax liability u/s 41(1) - Held that:- Disallowance made by AO u/s 41(1) representing gain on repayment of deferral Sales Tax Liability stood covered in assessee’s favor in assessee’s own case for AY 2003-04 by the order of Hon’ble Bombay High Court [2014 (12) TMI 846 - BOMBAY HIGH COURT] - Decided against revenue

TP adjustment against Advertising, Marketing & Sales Promotion Expenses [AMP] - Held that:- In the absence of agreement between the assessee and its AE obliging the assessee to incur AMP expenditure on behalf of its AE, no international transaction can be presumed. Even if some indirect benefit has accrued to the AE by aforesaid expenditure, it could not be held that the same was incurred to promote the brand of foreign AE.

Merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned in Sassoon J David [1970 (2) TMI 50 - BOMBAY HIGH COURT] “the fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law” - decided in favour of assessee

Assessee received an amount from its parent company for providing certain Research & Development Services [R & D services] - Held that:- The export benefits were received by the assessee in connection with export of R & D services and had direct and intimate connection with the said receipts and therefore, there was no reason to exclude the same for the purpose of computation of margins from R & D activities. Further, the said benefit arose from usual activities carried by the assessee and part & parcel of the same transaction and therefore, formed part of operating income only. The revenue has not controverted the stated fact or brought on record any contrary judgment to refute the findings of Ld. first appellate authority. Therefore, on factual matrix, we find to reason to interfere with the stand of Ld. first appellate authority in this regard. The grounds stands dismissed.

Disallowance u/s 14A - as noted that the assessee earned tax free interest income aggregating to ₹ 6.68 Crores which called for disallowance u/s 14A read with rule 8D - Held that:- We deem it fit to restore the matter back to the file of Ld. AO to reconsider the assessee’s alternative submissions as raised before Ld. first appellate authority qua expense disallowance and also re-adjudicate the issue of interest disallowance in the light of assessee’s submissions. The assessee, in turn, is directed to substantiate his stand in this regard. Needless to add that the provisions of Rule 8D, as per settled judicial pronouncements, could be applied only from AY 2008-09 and were not applicable in the impugned AY. The assessee’s cross-objections stands allowed for statistical purposes.