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2017 (3) TMI 1727 - AT - Income TaxTPA - benchmarking approach of the Appellant of applying Transactional Net Margin Method ('TNMM') as the most appropriate method for determining the arm's length price of management services fees - Held that:- As perused the evidence of services rendered and the nature of services in question, on random sample basis. There is reasonable evidence of the rendition of service and it cannot be open to TPO to proceed on the basis that the services were not rendered. The method of ascertaining the arm’s length price, on the basis of TPO’s subjective perception about worth of services, is not sustainable in law either. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to delete the impugned ALP adjustments. Ground nos 2 to 8 are, therefore, to be allowed. Allowing deduction with respect to the additional duty of customs ('ADC') written off and the service tax credit ('STC') written off -Held that:- these credits were duly accounted for and that is how these were shown in the books of accounts as an asset. The present position is, and that appears to be undisputed, that the assessee is no longer eligible for these credits. Clearly the assessee has an incurred a business loss in respect of the credits so lost. The admissibility of deduction is thus beyond any dispute or controversy. There is also no dispute that the assessee has not claimed this deduction in any other year as the loss is written off in the current previous year and as such bonafides of this claim is also not in doubt. On these facts, in our considered view, the pedantic approach being adopted by the Assessing Officer, in demanding conclusive evidence of loss having crystallized in the current previous year, in wholly unjustified. As the assessee has recognized this loss in the present year, and as incurring of loss is beyond any doubt or controversy, we deem it fit and proper to direct the Assessing Officer to delete the impugned disallowances. Determining the arm's length price for payment of management services fees under the provisions of section 92CA(4) - addition to be deleted DRP proposing a cost plus mark-up of 3% instead of 10% in respect of fees of information technology services availed - Held that:- We did ask the learned Departmental Representative about the basis on which 3% margin was adopted and he justified the same on the ground that when software is being procured from outside and simply being distributed by the AE, such a margin is more than reasonable. No specific comparables were, however, pointed out. Such being the position, as learned counsel rightly points out, there is no basis for adoption of 3% as an acceptable mark up for the information management services. This variation in the mark up is based on the perceptions of the TPO and not any cogent material. There is, in any case, no reason for rejecting the comparables from IT sector only because the AE is not developing the software on its own and providing the software obtained from outside vendors. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the related ALP adjustment. Disallowing Additional Duty of Customs ('ADC') adjusted against provision for doubtful loans and advances as an expense u/s 37(1) - Held that:- The learned representatives fairly agree that whatever we decide on these issues for the assessment year 2009-10 will equally apply here as well. Vide our decision for the assessment year 2009-10 earlier in this order, we have deleted these additions. We see no reasons to take any other view of the matter in this year. We, therefore, uphold the grievances of the assessee on these points. Disallowing advances as adjusted against provision for doubtful advances as an expense u/s 37(1) - Held that:- We find that the advances written off were in respect of advance payments for creditors for supplies in the course or normal business. The claim of the assessee was thus justified and it is upheld. The Assessing Officer is directed to delete this disallowance Disallowing sales promotion expenses as an expense u/s 37(1) - Held that:- purpose of making the impugned payment is undisputedly increased sale of the assessee inasmuch as if at any point of time IJL is to procure its related raw material from any other supplier, the entire costs borne by the assessee are to be refunded to the assessee. The benefit derived from the expenses is thus directly relatable to the revenue field of sales. The costs incurred by the assessee for supply of moulds, developing engineering resins and development of thermoplastic head lamp reflector has a direct bearing with sale of the assessee and in that sense, even though it may result in enduring advantage, it must be treated as revenue expenditure, as dominant purpose of expenses was for increasing sales. In view of these discussions, in our considered view, the assessee deserves to succeed on this plea - decided in favour of assessee
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