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2021 (3) TMI 48 - AT - Income TaxTP Adjustment - determining ALP of project management services - HELD THAT:- In the instant case, assessee has brought on record plethora of evidence for availing of the technical services and payment made for technical services received on the basis of USD 1600 per man-month on actual time spent by the relevant personnel, copy of technical services agreement between the taxpayer and the Huawei, China and also brought on record invoices filed on sample basis for availing technical services, but all these documents have not been examined by the TPO/DRP rather benchmarked the technical services/project management services availed of by the taxpayer from its AE at nil by mechanically dealing with the issue by applying the benefit test and commercial expediency test and has not provided opportunity of being heard to the taxpayer at the time of abruptly applying the other method. So, in the given circumstances, we are of the considered view that this issue is liable to be remitted back to the TPO to decide afresh by examining all the evidences brought on record by the taxpayer and to decide the issue in the light of the decisions discussed in the preceding paras and by following the rule of consistency as in the earlier years i.e. in AY 2004-05 onwards, TPO himself has accepted availing of technical services at arm’s length price as determined by the assessee. Disallowance being 30% of the total advertisement expense - Declining assessee's contentions that these advertisement expenses have been incurred wholly and exclusively for the purpose of taxpayer’s business and not for any benefit to any group company or to a third party - HELD THAT:- As relying on J.J. Enterprises vs. CIT [2001 (9) TMI 6 - SUPREME COURT] disallowance of 30% of the advertisement expenses by the AO and confirming the same by the ld. DRP is not sustainable for the reasons inter alia that commercial expediency of any expenditure incurred by the taxpayer has to be examined with businessman standpoint and not with the perspective of tax authority; that advertisement expenses are revenue in nature; that merely because of the fact that advertisement expenditure incurred by the taxpayer has benefited the third party, the same cannot be disallowed; and that disallowance of any expenditure on ad hoc basis is not permissible in law, hence ordered to be deleted. Disallowance of provision for customer claim - Addition on the ground that the amount provided by the taxpayer pertaining to actual delays/defaults occurred as per the terms of the contract entered between the taxpayer and its customers and as such is an “ascertained liability” - HELD THAT:- Provision for customer claim is a liability which can be used only by using a substantial decree of estimation. When the taxpayer has brought on record ample evidence in the form of credit memo in relation to liquidated damages and details of liquidated damages, chart showing trend and utilization of provision of customer claims from AYs 2010-11 to 2014-15 and extract of audited financials for AYs 2010-11 to 2016-17, to show that the details of customer claims and extract of contract entered into between the taxpayer and the customer claims, available from pages 6 to 26 of the convenience paper book, this provision has to be measured by using substantial decree of estimation. Moreover, historical trend brought on record by the taxpayer also shows the actual use of provision for customer claim. As relying on Rotork Controls India P. Ltd [2009 (5) TMI 16 - SUPREME COURT] evidence brought on record by the taxpayer shows that required conditions have been fulfilled and as such, provision made qua the amount provided by the taxpayer pertaining to actual delays and defaults occurred in terms of the contract entered into between the taxpayer and its customers is to be considered as “ascertained liability”. So, AO/DRP have erred in making disallowance on account of provision for customer claims. So, it is ordered to be deleted subject to verification of data brought on record by the taxpayer as discussed in the preceding paras. Addition of advances written off - as contented once the advance has been written off in the books of account, it is sufficient to claim the deduction of the advances written off u/s 37 of the Act and taxpayer is not required to prove that the advances written off is irrecoverable as per section 37(1) of the Act - HELD THAT:- Hon’ble Supreme Court in case of TRF Ltd [2010 (2) TMI 211 - SUPREME COURT] held that, “After 1st April, 1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.” The taxpayer has given complete detail of advances given at page 30 of the convenience paper book in tabulated form. So, in view of the matter, we are of the considered view that let this issue go back to AO to verify the facts if these advances were given for business purposes and decide afresh in the light of findings returned hereinbefore by providing opportunity of being heard to the taxpayer.
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