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TMI Blog2013 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... India. Besides the main activity of distribution of air conditioners, the assessee was also engaged in import of compressors and air-conditioner parts from other associated enterprises for sale in India and in the provision of maintenance services for the products sold in India. The assessee company had infrastructure like branch offices, warehouses and dealer network at all important towns throughout the country." 4. The first issue of consideration in both the appeals as the transfer pricing adjustment made in regard to advertisement, marketing and sales proportion expenditure. The grounds of appeal read as follows: "ADDVERTISEMENT, MARKETING AND SALES PROMOTION ("AMP") EXPENDITURE 2.1 That on the facts and circumstances of the case and in law, the AO/Dispute Resolution Panel (UDRP") has erred, in upholding the adjustments made by the Transfer Pricing Officer (UTPO"). 2.2 That on the facts and circumstances of the case and in law, the Learned TPO / AO / DRP has erred in making an adjustment of INR 151,632,834 to the income of the appellant and in holding that the transactions between the appellant and its associated enterprises were not at an arm's length price as defined un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f AMP expenditure incurred by comparable companies. 2.11 The learned AO / TPO has erred in law and on facts, by excluding few companies from the set of comparables while benchmarking the percentage of AMP expenditure incurred by the Appellant against the percentage of AMP expenditure incurred by comparable companies in an ad-hoc manner. 2.12 That on the facts and circumstances of the case and in law, the Learned TPO I AO I DRP has not placed correct reliance on OECD Transfer Pricing Guidelines and other international commentaries and jurisprudence, particularly with reference to determination of arm's length price for marketing intangibles. 2.13 That the Learned TPO I AO I DRP has erred on facts and in not appreciating that the appellant had used Transactional Net Margin Method to benchmark its international transactions and thus individual comparison of expenditure is not called for. 2.14 That the Learned TPO I AO I DRP has erred in law and on facts, by treating AMP expenses as a separate line of activity and receiving a markup on the same. 2.15 The Learned TPO I AO I DRP has erred in law and on facts, by arbitrarily determining the mark-up for the deemed services rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Supra), we set aside the issue to the file of the AO for fresh adjudication in accordance with law. 6. To make the fresh exercise for arriving at the arm's length price, in line with the principles laid down by the Special Bench of the Tribunal, we are of the opinion that the assessee should be granted liberty to furnish fresh transfer pricing study report, with comparables obtain by undertaking of fresh search. The TPO should also be at liberty to conduct a fresh search and arrive at appropriate comparable/conclusions. The ld. counsel for the assessee submitted that the assessee incurred expenditure on sales commission to the tune of Rs.7,79,07,784/- for the A.Y. 2007-08 and to the tune of Rs.9,73,58,499/- for the A.Y. 2008-09 and that if the ratio of the decision of the Special Bench is applied, then the sales commission expenditure should not be considered as a component of advertising marketing and promotional expenditure. The principle laid down by this Special Bench of the Tribunal is very clear in this regard. The AO is directed to verify this claim of the assessee and follow the directions of the Special Bench on the issue. In result this ground of the assessee for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the draft assessment order. The Assessing Officer is accordingly directed make necessary correction, if any required in this regard. As far as the rate of depreciation applicable to the computer peripherals is concerned, the issue is now settled in favour of the assessee by the Delhi High court in the case of BSES Rajdhani Powers Ltd., ITA No. 1266/2010. The department's SLP against this judgement has also been rejected. The AO is accordingly directed to allow depreciation @ 60% on the computer peripherals as claimed by the assessee." 12. As the issue is admittedly covered in favour of the assessee by the decision of the jurisdictional High Court, we allow this ground of the assessee. 13. Ground no. 5 is on the disallowance of loss on sale of fixed asset. 14. The DRP at Para 8.1 & 8.2 at page 7 of its order of the A.Y. 2007-08 held as follows: 8.1 The assessee objected to the proposed disallowance of Rs. 3,03,095/- in respect of loss on sale of assets without appreciating that the amount was already disallowed by the assessee in its Return of Income. The assessee explained that during the previous year, the assessee had incurred a loss of Rs. 3.03.095/- on sale of fixed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein the assessee has reproduced the details of slow- moving finished goods devalued during the year. Extracts from such sheet are reproduced herein for your ready reference: I have gone through the submission of the assessee carefully. On going through the details it was noticed that devaluation in finished stock of Rs.20,15,811/- consist 100% devaluation on many of the items. Similarly the devaluation in manufacturing stock has not been justified except giving technical code name of the items. Devaluation in joints and accessories as well as in spares is also not properly justified by the Assessee company. In view of the above out of the devaluation claimed of Rs.1,24,61,626/- a sum of 20% being Rs.24,92,325/- is disallowed and added back into the income of the assessee company. (Addition of Rs.24,92,325/-)" 18. The DRP at page 8 Para 9.2 upheld the disallowance by observing as follows: "9.2 The DRP has considered the assessee's objections as well as the arguments of the AO. It is seen that the AO has not disputed the principle of devaluation of stock and infact has allowed 80% of the claim made by the assessee. The disallowance of the remaining 20% is on account of lack of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well on such project during the relevant year itself That appeared to be in consonance with principle of matching cost and revenue as well. However, in the projected scenario of the instant case, the entire exercise was revenue neutral. It was a matter of record that against the provision of Rs. 139lakhs, the assessee had to actually incur expenditure of Rs. 218.03 lakhs, i.e., more than the provision made. It was undisputed that the expenditure incurred by the assessee on the project was admissible deduction. The only dispute that the revenue sought to raise was regarding the year of allowability of expenditure. Considering that the assessee was a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure would, in any case, be / revenue neutral. [Para 11] In such circumstances, no substantial question of law arose for consideration and, therefore, the appeal was to be dismissed. [Para 14]." 24. Respectfully applying the propositions laid down in those cases to the facts of this case we allow this ground of the assessee. 25. Ground no. 7 is on the disallowance of provision for installation expenses. The AO as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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