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2015 (12) TMI 1800 - AT - Income TaxTransfer pricing adjustment - payment for business services to the AE s - As per the Form 3 CEB the payment was in respect of services rendered by the AE s to the assessee vide Business services Agreement at Cost Plus 7% mark-up based on the group s transfer pricing policy - HELD THAT - 6 Given that there is no change in the facts and circumstances of the case respectfully following the decision of the Coordinate Bench in assessee own case that A.Y 2007-08 . 2015 (9) TMI 19 - ITAT JAIPUR adjustment u/s 93C(3) of the Act in respect of payment for business services to AEs of the assessee is deleted. Hence the ground No.1 of the assessee is allowed. Disallowance of restructuring expenses - revenue or capital expenditure - as per AO these are one time expenditure which resulted in enduring benefit to the assessee hence the same are in nature of capital expenditure and cannot be allowed as revenue expenditure - HELD THAT - As decided in assessee;s own case merely because expenditure results in some enduring benefit is not alone decisive of its being capital in nature. If the same increases the revenue generating apparatus then it will fall in the category of revenue expenditure despite giving enduring benefit - Merely because once for all payment is made it does not ipso facto amount to capital expenditure. Assessee incurred these expenses for shifting of Corporate office from Gurgaon to Mumbai wholly and exclusively for its business. Besides Hon ble High Court gave the permission for charging of these expenses against amalgamation reserves. In assessment year 2006-07 similar expenditure were allowed by the AO in assessment framed u/s 143(3) after considering the details as such expenditure reflected in the notes to the accounts. Thus assessee s claim falls in the category of revenue expenses and deserves to be allowed. Disallowance of advertisement expenses - whether the assessee has done TDS on the said expenditure or not ? - HELD THAT - authorities need to taken into consideration the fact that the assessee as in the instant case which have diversed operations and transactions running into thousands crores it is practically impossible to get each and every expenditure verified which has been incurred during the year. The authorities should taken into consideration the fact that the books have been statutorily audited under the requirements of the Company Law followed by the tax audit as per I.T. Act which should be taken into consideration and due weightage should be given. Further it is noted that the assessee has submitted complete party-wise detail chart on which TDS is deducted. Further detailed explanation on advertisement expenses and sample invoices were also filed vide letter dated 19.12.2011 which has apparently missed the attention of the AO. In light of that we are of the considered view that there is no basis for disallowance of advertisement expenses on purely adhoc basis hence the said addition is deleted. Disallowance on account of write off inventories - HELD THAT - It is noted that the assesee has given details about the inventory write off alongwith the ledger codes whereby the identified items of inventory are written off in the books of accounts. Further it is noted that there is no change in the accounting policy which has been followed by the assessee in respect of inventory write off as compared to earlier years. Thus addition made by the AO on account of inventories write off is deleted Disallowance of Travelling and Conveyance expenses - HELD THAT - The disallowance of travelling and conveyance expenses to the extent of 10% of the total expenditure is clearly on adhoc basis as confirmed by the ld. CIT(A). We see no infirmity in the order of the ld. CIT(A) who has deleted the said disallowances. Disallowance on account of misc. expenses - Ad hoc addition - HELD THAT - The disallowance of Misc. expenses to the extent of 10% of the total expenditure is clearly on adhoc basis as confirmed by the ld. CIT(A). We see no infirmity in the order of the ld. CIT(A) who has deleted the said disallowances.
Issues Involved:
1. Adjustment under Section 92C(3) for payment for business services to AEs. 2. Disallowance of restructuring expenses. 3. Disallowance of advertisement expenses. 4. Disallowance of inventory write-off. 5. Disallowance of traveling and conveyance expenses. 6. Disallowance of miscellaneous expenses. Detailed Analysis: 1. Adjustment under Section 92C(3) for Payment for Business Services to AEs: The assessee challenged the adjustment of Rs. 4,54,29,602/- made by the AO under Section 92C(3) concerning payments for business services to its AEs. The TPO had determined the arm's length price (ALP) of the transaction at NIL, questioning the genuineness and cost-effectiveness of the services. The CIT(A) upheld this adjustment following the DRP's order for the previous assessment year. However, the ITAT noted that in the assessee's own case for AY 2007-08, the Coordinate Bench had decided in favor of the assessee, accepting the payments as being at arm's length. Given no change in facts, the ITAT deleted the adjustment, allowing the ground in favor of the assessee. 2. Disallowance of Restructuring Expenses: The AO disallowed restructuring expenses amounting to Rs. 4,53,76,793/-, treating them as capital expenditure. The CIT(A) upheld this disallowance following the DRP's order for AY 2007-08. However, the ITAT referred to its decision for AY 2007-08, where similar expenses were allowed as revenue expenditure, citing the Supreme Court's ruling in Empire Jute Mills and Alembic. The ITAT noted that these expenses were incurred for shifting the corporate office and were allowed in earlier years. Thus, the ITAT deleted the disallowance, allowing the ground in favor of the assessee. 3. Disallowance of Advertisement Expenses: The AO made an ad-hoc disallowance of Rs. 50 lacs out of the total advertisement expenses of Rs. 68.45 crores due to lack of verification. The CIT(A) reduced this disallowance to Rs. 35 lacs, noting that expenses amounting to Rs. 3.5 crores were not verifiable as no TDS was deducted. The ITAT observed that the assessee had provided detailed explanations and sample invoices and that the expenses were consistent with past years. The ITAT found the ad-hoc disallowance unjustified and deleted it entirely, allowing the assessee's ground and dismissing the Revenue's ground. 4. Disallowance of Inventory Write-Off: The AO disallowed Rs. 1,07,38,198/- on account of inventory write-off, questioning the supporting evidence. The CIT(A) deleted this disallowance, following the ITAT's decision in the assessee's case for earlier years. The ITAT noted that the assessee had provided detailed explanations and that the accounting policy had not changed. Respectfully following the Coordinate Bench's decision, the ITAT deleted the disallowance, dismissing the Revenue's ground. 5. Disallowance of Traveling and Conveyance Expenses: The AO disallowed 10% of traveling and conveyance expenses on an ad-hoc basis. The CIT(A) deleted this disallowance, noting that the AO had not pointed out any specific defects and that the accounts were audited. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground. 6. Disallowance of Miscellaneous Expenses: The AO disallowed 10% of miscellaneous expenses on an ad-hoc basis. The CIT(A) deleted this disallowance, following the DRP's decision for the previous year. The ITAT found the ad-hoc disallowance unjustified and upheld the CIT(A)'s order, dismissing the Revenue's ground. Conclusion: The ITAT allowed all the grounds raised by the assessee and dismissed all the grounds raised by the Revenue. The order was pronounced in the open court on 18/12/2015.
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