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2016 (7) TMI 28 - AT - Income TaxTransfer pricing adjustment - MAM - Held that:- TP provisions were introduced in the Act to prevent the practice of transferring the profit to the AE by adopting certain dubious methods. Naturally, the target should be the transactions with the AE.s and not the all the transactions. The assessee had challenged the exclusion and inclusion of certain comparables. The DRP has not considered any of these basic issues. As stated earlier, it passed a two line order and the order is not assigning any reason for arriving at the conclusion. It is a fact that in the subsequent years the TPO has accepted the internal TNMM for TS also. We are not aware as to what distinguishing factors were there in the later years as compared to the facts of the year under consideration that the TPO had taken a diagonally opposite view. The DRP has not considered this vital issue. We agree that res-judicata is not applicable to the taxation proceedings, but, rule of consistency is very much applicable. Therefore, the DRP should have considered all the above facts and should have passed a reasoned order. In our opinion, matter needs further verification. So, in the interest of justice we are restoring back the matter to the file of the DRP who would decide the issue after hearing the assessee. It may call for comments from the TPO. Disallowance of payment made to clubs - Held that:- The action of the AO is highly objectionable and not as per the provisions of the law. The AOs have to follow the directions of the DRP-they had no choice as far as following the directions of the DRP is concerned. They are authorised to challenge the directions before the Tribunal but they cannot refuse to carry out the directions. Therefore, only on this count the appeal of the assessee has to be allowed. But, even on merits the issue is covered in favour of the assessee by several judgements relied upon by the assessee. - Decided in favour of the assessee. Disallowance made u/s. 14A r.w.r.8D - Held that:- We find that during the year under consideration the assessee had received dividend income of ₹ 37.51 lakhs, that it explain to the AO that dividend warrants were deposited into bank accounts in a routine manner along with the other checks, that the assessee had sufficient own funds to make investment, that it had made investments in subsidy companies, that on its own it had disallowed and amount of rupees 2.33 lakhs, that the AO had not given any reason as to why the calculation given by the assessee was not acceptable. He had simply applied the formula as envisaged by Rule 8D of the Rules. We are of the opinion that approach of the AO was contrary to the provisions of law.- Decided in favour of the assessee. Disallowance of product trial expenses - Held that:- While dealing with the objections filed by the assessee for the a why 2007-08 the DRP had allowed the direction under section 35 of the Act. In our opinion, the test to decide the nature of the expenditure i.e. capital or revenue expenditure the basic thing to be seen is as to whether the expenditure is for running the business of the assessee smoothly. If the expenditure is incurred for day-to-day business activities of the assessee and not for acquiring some asset it has to be allowed as revenue expenditure. In the case before us, it is a fact that no new asset came into existence. Secondly, the expenditure incurred was basically for carrying out the business. Payment to government agencies would not make any expenditure capital/revenue.- Decided in favour of the assessee. Disallowance being computer software expenses - Held that:- Expenditure incurred by the assessee on account of software and professional expenses was revenue expenditure - Decided in favour of the assessee. Disallowance of compensation paid by the assessee to Punjab Pesticides Industrial Corporation Society Limited (PPICSL) - Held that:- The expenditure was incurred considering the old relation with the PPICSL and to avoid future business complications. If an assessee makes payment which is compensatory nature, it has to be allowed. In the case before us, the payment was made in pursuance of an agreement and that was of compensatory nature i.e.it was not penal. The Hon’ble Calcutta High Court upheld the order of the Tribunal. It referred to the case of G Scammell & Nephew Ltd. (1939 (1) TMI 12 - COURT OF APPEAL) wherein it was held that the expenditure incurred for termination of a trading relationship in order to avoid losses occurring in the future through the relationship, whether pecuniary losses or commercial inconveniences, was just as much for the purpose of the trade is the making or the carrying into effect of trading agreement. Disallowance of gift expenses - Held that:- We find that the assessee had filed objections before the DRP with regard to proposed addition by the AO. However, the DRP did not adjudicate the issue. Therefore, in the interest of Justice, we are restoring that the matter to the file of the DRP to decide the issue afresh after hearing the assessee Adjustment of opening stock - Held that:- In our opinion the basic principle of taxation jurisprudence stipulate that no item can be taxed twice. Considering the fact and circumstance of the case, the AO is directed to make further verification and to allow the adjustment as per the provisions of section 145A of the Act. He is to ensure that assessee does not suffer taxation for the same amount in two different assessment years
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