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2022 (8) TMI 1017 - AT - Income TaxNature of expenditure - deduction of expenditure incurred towards advertisement - whether allowable as business expenditure or cash irretrievably lost? - HELD THAT:- Benefit derived from the impugned expenditure is not at all for the assessee and it goes directly to the AE only. It was also held that such transactions would be international transaction. Following the same, the ground raised by the assessee was dismissed. The assessee has taken an alternative plea that such expenditure should be allowed as business expenditure or irretrievable cash loss. It has been submitted by Ld. AR that even if the expenditure is not incurred by the assessee for its business activity, however, it was incurred in the course of business and the same being an irreparable loss would be allowable as business income. However, we decline to accept this argument in view of the fact that the dispute under consideration is determination of ALP of advertisement expenditure as paid by the assessee. The payment of the same is not under dispute by revenue. This transaction has been held by the bench to be an international transaction and therefore, the same has be benchmarked as per Transfer Pricing mechanism. TPO has determined the ALP of the same as ‘Nil’ despite the fact that the assessee has incurred actual expenditure. The point in dispute is ALP of advertisement expenditure and nothing more. The said disallowance has not been made u/s 37(1). Therefore, this ground stand dismissed. Interest on advances granted by the assessee to its AE - We find that this issue has been decided by the bench for AY 2003-04 [2016 (5) TMI 1589 - ITAT CHENNAI] as held that non-charging of interest attracts Transfer pricing provisions and it is appropriate to charge interest @LIBOR+2% as held by Mumbai Tribunal in M/s Aurinpro Solutions Ltd. [2013 (11) TMI 806 - ITAT MUMBAI]. Respectfully following the same, Ld. AO is directed to compute the interest at LIBOR+2%. This ground stand partly allowed. Apportionment of Common Expenses for Sec.80-IC - Allocation of expenditure - HELD THAT:- Only design and development cost and assembly share of common facilities have been allocated on the basis of number of watches produced. The Ld. AO has apportioned the same on the basis of turnover. In our considered opinion, design and development cost and assembly share of common facilities are not proportional to the number of watches produced. The expenditure is largely salary expenditure of the two departments. It could not be said that the expenditure would be directly proportional to the number of watches produced. Rather, such expenditures would largely depend upon the decision of the management to decide as to how much expenditure was to be incurred to design / develop new products and the same may vary to a great extent in different periods. In such a case, the quantum of expenditure would have no relation with the number of watches and allocating the same on such basis would give absurd results as held by lower authorities. Therefore, the more appropriate method of allocation would be based on turnover as done by the assessee for other overhead expenses. Therefore, we concur with the stand of lower authorities, in this regard and find no reason to interfere in the same. This ground stand dismissed. All the ground stand disposed-off in terms of our above order.
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