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2016 (8) TMI 605 - ITAT DELHIDisallowance made u/s 40A(2)(b) - excessive or unreasonable expenditure - transactions with relative or associate concern - Held that:- In the case on hand the adhoc disallowance made by the A.O. in our view is arbitrary and without any basis. The A.O. has not given a finding as to what as per him, is the fair market value. Even if it is assumed that the payment made is excessive and unreasonable, such arbitrary and baseless, adhoc disallowances cannot be upheld. On this ground also the assessee has to succeed. Taking up the issue as to whether the assessee has discharged the burden of proof that lay on it that, the expenditure paid by it to its sister concern, is not excessive or unreasonable. In this case the assessee has filed Transfer Pricing Reports in both the cases justifying the price paid by it for the services obtained, after conducting a Transfer Pricing Study. The Revenue authorities have not uttered a whisper as to why the transfer pricing report is not acceptable. The methodology of determining the ALP has been laid down in the Act and has been made mandatory for international transactions with Associated Enterprises (A.E.). Simply saying that these provisions do not apply to a domestic company transactions with its A.Es. for this particular A.Y. does not suffice. When the assessee has chosen to use these transfer pricing provisions to demonstrate its claim that the expenditure in question is at arm’s length and that the same is not excessive or unreasonable, the revenue authorities are bound to rebut this claim of the assessee with reasons before coming to a conclusion to the contrary. When these transfer pricing reports submitted by the assessee are not rejected, we have to conclude that the assessee has discharged the burden of proof that lay on it on this issue. On this ground also the assessee succeeds. In both the cases the assesses have filed detailed alternative submissions in support of its contentions as to why the payment made to Amway is reasonable and commensurate with the nature of services provided by them and to demonstrate that the disallowance is bad in law. We allow the appeals of the assessees in both the cases by deleting the disallowance made u/s 40A(2)(b) of the Act for the reason that the assessee has proved that the price paid is at arm’s length and not excessive or unreasonable and as the disallowance made on ad-hoc basis is arbitrary. There is no evasion of tax also warranting invocation of S.40A(1) of the Act. Hence we delete the disallowance in both the cases to the extent confirmed by the Ld.CIT(A). - Decided in favour of assessee.
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