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2017 (6) TMI 126 - AT - Income TaxDetermination of arms length price with regard to receipt of second line support services - Held that:- TPO has erred in holding that a subsidiary does not have to pay for audit accounting and such other functions performed by the parent company as owner of the subsidiary company and in further holding that if the subsidiary was independent company, it would neither require such services nor it would pay for the same. Hon’ble jurisdictional High Court in CIT vs. EKL Appliances Ltd. (2012 (4) TMI 346 - DELHI HIGH COURT ) followed by the coordinate Bench in assessee’s own case for AY 2007-08, held that, “it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee or those expenses have not benefited the assessee.” So, in 13 the instant case also, the duty of the TPO is to examine the quantum of expenditure as per law but the allowability of the expenses as business expenditure is required to be examined by the AO. So, following the decision rendered by the coordinate Bench of the Tribunal in assessee’s own case for AY 2007-08, we hereby restore the issue regarding determination of arms length price with regard to receipt of second line support services to the file of TPO/AO to redetermine the issue. Ad hoc disallowance being 10% of the advertisement and business promotion expenses by treating the same to be capital in nature - Held that:- Despite the fact that in case of Sony India Private Limited vs. ACIT (2008 (9) TMI 420 - ITAT DELHI-H ), coordinate Bench of the Tribunal has deleted similar disallowances on the ground that expenditure incurred by the assessee company on advertisement and sales promotion has not resulted in accrual of any advantage of enduring nature and the same are in the nature of Revenue field and not in the capital field so as to treat the same as capital in nature. Ld. DRP has merely directed the AO to make disallowance of 10% of advertisement expenses only after ascertaining the fact that if the department has accepted the judgment of Tribunal rendered in case of Sony India Private Limited (supra). But till date the department has not come up if findings returned by the Tribunal in Sony India Private Limited (supra) have been overturned. So, in these circumstances, ad hoc disallowance made by the AO is not sustainable. Addition back of provisions for leave encashment and provision for gratuity for computation of income - Held that:- In the face of the undisputed fact that the issue as to the allowability of provision of gratuity and leave encashment for the purpose of section 115JB of the Act has already been determined by the Tribunal in assessee’s own case for AY 2001-02 to 2004-05 and for AY 2005-06, CIT(A) has deleted the addition made by the AO and no such addition 15 has been made in the preceding AY 2007-08, the addition is not sustainable. This addition has only been made as directed by DRP on the basis of assumption that in case, the department has already accepted the Hon’ble High Court and Tribunal’s order in favour of the assessee for earlier assessment years by not filing further appeal the benefit should be extended to the AO otherwise AO shall retain the aforesaid additions. However,the Revenue has failed to bring on record if decisions rendered by Tribunal in assessee’s own case have been overturned by the higher forum. So, the addition is not sustainable in the eyes of law
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