TMI Blog2014 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held that the It cannot be gainsaid that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure, even though, as in the present case, the payment is made to a 100% shareholding company of the payer - That apart, u/s 40A(2) of the Act, it is only the fair value of such expenditure, which is allowable - the arm’s length price provisions take care of the payment in such transactions being at arm’s length - Neither Section 40(a)(i) nor Section 2(22)(e) of the Act are applicable – Decided in favour of assessee. Set off of brought forward business losses and unabsorbed depreciation – Held that:- Restoration to the AO would have been justified if despite his requiring the assessee to lead further evidence in support of its explanation, the assessee had failed to do so and the ld. CIT(A) had accepted the assessee’s contention without getting comments from the AO - the AO did not raise any further query on the submissions made before him in this regard – revenue has brought no material on record to demonstrate any fallacy in the explanation tendered on behalf of the assessee - no useful purpose will be served in once again se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct in recording this finding that the assessee has not been able to corroborate its analysis - where an assessee has followed one of the standard method for determining the arm’s length price, such a method cannot discarded in preference over other method - the transactional net margin method i.e. TNMM should be applied only when standard or traditional methods are incapable of being applied because while traditional method seeks to compute the price at which international transactions would normally be entered into by the associated enterprise but for their interdependence and relationship, transactional profit method seeks to compute the profit that the tested party would normally earn on such transaction with unrelated parties - TNMM method applied by the TPO for determining the arm’s length price is not the most appropriate method. The assessee company has furnished all the relevant data of the foreign party and it is not the case of the TPO that information as called for about the foreign party has not been furnished by the assessee company - by application of the TNMM method in the case of the assessee company, the price worked out is not a realistic price - The who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law in making various additions and disallowances in addition to the adhoc addition made on account of profits as above. Once such addition is made, no further addition and disallowances are called for. 5.i. On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in making disallowance of an amount of ₹ 20,99,39,042/- on account of royalty payment. ii. That the learned AO has erred in holding the above said expenditure to be of personal in nature ignoring the fact that in case of a company there cannot be an element of personal nature to any expense incurred. iii. That the learned AO has erred both on facts and in law in holding the above said amount to be a deemed dividend under Section 2(22)(e) ignoring the fact that the same is a payment made by the assessee and not a receipt, to be taxable. iv. That the learned AO has erred both on facts and in law in disallowing the above said amount under Section 40(a)(i) of the Act. 6.i. On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in making an addition of ₹ 51,58,00,000 as difference in arm s length price determined by Transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2006-07 which has been followed also by the ITAT in assessment year 2003-04 and 2004-05. 3.1 The learned DR was not having any contrary view and agreed with the contention of the learned AR. 3.2 Grounds no.3 and 4 are regarding rejection of books of account and estimation of income by applying a profit of ₹ 3200 per bike. This issue has been discussed by the Assessing Officer in Paras 4.1 to 4.4 of the assessment order. It has been stated that in the scrutiny assessment in assessment year 2006-07 this issue has been discussed in great length and a finding has been given therein that assessee s books of account do not reveal the correct profit of the assessee company. Thereafter profit has been estimated at an average profit per bike on the basis of the declared figures of M/s Hero Honda Motors Ltd. which company is also in the same business activity as that of the assessee manufacturing and trading of motorcycles. 3.3 The AO on the basis of the finding in the assessment year 2006-07 issued a show cause notice to the assessee why findings given in assessment year 2006-07 be not adopted for this year also. The assessee objected to the AO s proposal. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CIT(A) had filed the appeal. However, the ITAT approved the order of the CIT(A). The relevant finding of the ITAT reads as under :- 10. Thus, it is seen that apropos the first ground for rejection of assessee s books of account, i.e., the alleged difference in the quantity shown in Form No.3CEB and the quantitative details furnished by the assessee, as per the Assessing Officer, during the quarter April-June, 2005, as per the 3 CEB report, the figure was of 3138 motorcycles, whereas the quantitative details of 07.12.2009 showed a figure of ₹ 1025 motorcycles, giving a discrepancy of 2113 motorcycles and there was a similar discrepancy for July- December, 2005 and January-March, 2006. The assessee, in its letter dated 17.12.2009, had stated that the details contained in Form 3 CEB were with reference to the royalty paid/payable by the assessee company and they were not the details of production, i.e., not the number of motorcycles produced by the assessee company. A reconciliation had been filed by the assessee regarding the sale on which royalty had been paid and the sales during the year. The Assessing Officer did not meet this explanation of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tally ignored and the Assessing Officer had, referring to other nonrelevant replies of the assessee company, drawn an adverse inference against the assessee. This fact of reference to a wrong reply of the assessee was nowhere rebutted in the remand report dated 22.09.2010 by the Assessing Officer. Pertinently, in the said reply dated 23.11.2009, the assessee had maintained that there had been a change in the product mix during the year; that in the preceding year, the motorcycle Enticer had been sold, which was not so in the year under consideration; that there had been a decrease in the sale price to meet the competition in the market; that the figures were based on the books of account, in which, no discrepancy had been found; that the assessee had not been shown to have charged from its dealers any price more than that stated in the sale invoice and the books of account; and that the Assessing Officer had not pointed out any error in respect of any sale. It was on the basis of this, that the ld.CIT(A) observed that there was no justification for the Assessing Officer to make an assumption that the sale price charged by the assessee during the year was lower than that in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. Before us, nothing has been brought to support this action of the Assessing Officer. Obviously, profit can only be made when there is ability to do so. The factors pointed out by the assessee for not being able to make sales, have not been refuted. Therefore, in the presence of the said factors, without a doubt, the losses suffered by the assessee cannot be said to be either bogus, or inflated. The Assessing Officer did not prove otherwise. No discrepancy was pointed out in the books of account of the assessee company concerning the expenditure incurred and claimed by the assessee. Nothing was brought to establish that the assessee had been charging a sale price higher than that noted in the books of account. Rather, the Assessing Officer arbitrarily compared the case of the assessee with other successful companies, which can never lead to appropriate estimation of profit of a loss bearing company like the assessee. 13. In view of the above, on this issue also, the ld.CIT(A) has correctly held the rejection of the books of the assessee by the Assessing Officer to be incorrect. About the last ground raised by the Assessing Officer for rejecting the assessee s books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the price determined by the TPO. 15. It has gone unrebutted before us also, that if the contention of the Assessing Officer were to be accepted, the whole purpose of determination of arm s length price by the TPO would get defeated. To reiterate, the TPO has accepted, vide order dated 13.11.2009 (supra), the prices of export shown by the assessee to be at arm s length. 16. In view of the above, even on this score, the rejection of books of account of the assessee by the Assessing Officer does not hold good and such action of the Assessing Officer has correctly been cancelled by the ld.CIT(A). 17. For the above discussion, finding no merit therein, Ground Nos.1 and 2 raised by the Department are rejected. 3.7 Admittedly, the facts of the year under consideration are identical to the facts in AY 2006-07, the Assessing Officer himself has relied upon the finding recorded in the assessment order for AY 2006- 07 for rejecting the books of account and for estimating the profit. The DRP has refused to interfere with the order of the Assessing Officer only on the ground that appeal for the assessment year 2006-07 was pending before the ITAT. 3.8 Respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. It cannot be gainsaid that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure, even though, as in the present case, the payment is made to a 100% shareholding company of the payer. That apart, u/s 40A(2) of the Act, it is only the fair value of such expenditure, which is allowable. Besides, the arm s length price provisions take care of the payment in such transactions being at arm s length, as has been done in the present case by the TPO. The Assessing Officer proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here. Neither Section 40(a)(i) nor Section 2(22)(e) of the Act are applicable, as observed. Therefore, finding no merit therein, Ground No.4 taken by the department stands rejected. 4.5 We, therefore, respectfully following the above finding of the ITAT in assessee s own case direct the AO to delete the addition of ₹ 20,99,39,042/- and accordingly this ground no.5 is allowed in favour of assessee. 5. Ground No.10 of the assessee s appeal is against the set off of brought forward business losses from AY 2001-02 onwards a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is on page 536 of the paper book. The following is the extract of the reply advanced by the assessee before the Assessing Officer: In this regard, we would like to mention that initially the Assessee Company was incorporated as a 50:50 joint venture between Escorts Ltd. and Yamaha Motor Co., Ltd, Japan (YMC) in 1995. On may 26, 2000, 64,80,000 equity shares of the Assessee Company representing 24% of its total issued and paid up equity share capital were transferred by Escorts Ltd. in favour of YMC. Accordingly, with effect from May 26, 2000, the equity shares of the Assessee Company were held by 70,20,000 equity shares representing balance 26% of the total issued and paid up equity share capital of the Assessee Company, and the Assessee Company became a wholly owned subsidiary of YMC. Accordingly, from the assessment year 2001-2002 onwards, the Assessee Company is entitled to claim accumulated losses, since with effect from May 26, 2000, (at all times) more than 51% of the total issued and paid up equity share capital of the Assessee Company is being held by YMC. 2.6. It can be clearly seen from the above reply that the assessee made it unequivocal that 64,80,000/- equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07. From the above narration of facts, it is palpable that the Assessing Officer got three opportunities to examine the assessee s contention about YMC acquiring further 24% shares on 26.5.2000 apart from its original holding of 50%., firstly during the course of assessment proceedings and then during two remand proceedings. The assessee s pointed submission in this regard came to be rejected by the Assessing Officer during the original assessment proceedings without any reason worth the name and the same position continued during the two remand proceedings as well. It is trite that when an assessee furnishes an explanation on a specific query, the same is treated as accepted unless some inconsistencies are found by the AO on its vetting or the assessee fails to substantiate the same on being called upon to do so. If the Officer does not dispute the correctness of the specific explanation tendered by the assessee, the same is considered as correct and binding of the AO. It is totally impermissible to dub the explanation given by the assessee as a cooked up story without any evidence to the contrary. Here is a case in which the Assessing Officer got three opportunities of examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Method used by the assessee Amount (in Rs.) 1. Import of components/ spare parts from AEs CPM 21,80,38,285 2. Import of capital goods from AEs CPM 4,92,82,900 3. Export of spare parts CPM 5,86,41,575 4. Export Motorcycles RPM 147,11,88,466 5. Royalty to AEs CUP 20,99,39,042 6. Payment of interest on advance received for financing exports CUP 81,60,357 7. Reimbursement of warranty claims to AEs 44,56,259 8. Reimbursement from AEs 9,32,71,033 Total 208,71,97,173/- 6.1 The Assessing Officer referred the matter to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Difference 272.49 % of difference with ALC 27.20% 7.2 Since the margin has been calculated using OP/Sales and the operating revenue of ₹ 808.10 crs includes international transaction relating to export sale of motorcycles and spares of ₹ 152.98 crs, the percentage of international transaction of sales to the total sales is 18.93% (152.98 / 808.10). The Arm s Length Cost shall be accordingly worked out proportionately at 18.93% and the adjustment is computed as below: Arm s Length Cost Difference 272.49 crs 18.93% of the same 51.58 crs 7.3 In view of the above, an adjustment of ₹ 51.58 crs is to be made to the income of the assessee, being the amount relating to international transaction in the total difference between the arm s length cost and the cost charged by the assessee from its AEs for manufacturing and sale of motorcycles on proportionate basis. The Assessing Officer shall enhance the income of the assessee by an amount of ₹ 51.58 crs while computing its total income. 6.3 Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions in the form of export of motorcycles and spare parts to Yamaha, Japan. The total value of such transactions was of ₹ 152.96 crs. The assessee has submitted a detailed transfer pricing study and has used Resale Price Method in relation to transaction of export of motorcycles to Yamaha, Japan. This was the method being used in the preceding year i.e. A.Y. 2006-07 also and the TPO has accepted the same. Same method was also used in the assessment year 2005-06 and the same was accepted by the TPO as is evident from the orders passed by the TPO placed in the paper book at pages 446-447 and 444-445. It was the contention of the learned AR that the facts being identical and there being no change there was no reason for the TPO to take a different view than the view taken in the earlier years. 6.5 The learned AR also submitted that the TPO was not justified in using TNMM method ignoring the facts of the case. In this regard attention was invited to letter dated 22nd February, 2010 placed at paper book page 320 whereby it was pointed out that assessee company has earned overall gross margin of negative 9%. However, the company has earned a gross profit m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /125/150 32,518 66,97,98,246 20,598 Hero Honda Motors Ltd. 100/125/150 7,227 17,15,06,492 23,731 Yamaha Motor India Pvt. Ltd. 100/106/125/150/153 55,373 1,55,25,67,975 28,038 On the basis of the above, it was argued that all exercises carried out by the TPO for determination of the arm s length price by using TNMM method is totally incorrect. 6.8 The further contention of the learned AR was that as per section 92C, the arm s length price in relation to international transaction is to be determined by any of the five methods being the most appropriate method having regard to the nature of the transaction or class of transaction or such other relevant factors as may be prescribed. In this regard Rule 10C provides that the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction and which provide the most reliable measure of an arm s length price in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout prejudice to the above contention there are factual errors in the use of the TNMM method. The TNMM worked out is not of the export of motor bike but an entity level which is mainly of domestic transaction, not on export. This very basis adopted for computation of TNMM is not correct. The TPO has not taken into account the value of export of the motor bikes for working out the TNMM in respect of the comparables used by him. The fact that assessee is making substantial losses per motor bike in uncontrolled transactions in domestic sale has been totally ignored as against the substantial profit being made per motor bike of ₹ 3200 by the comparables. The domestic transaction loss has been accepted in the case of the assessee company. There was no reason to ignore these facts and use these internal comparables while computing arm s length price in respect of export of motor cycles to associated enterprise. It was further submitted that the assessee has not been able to utilize its capacity and the same has been totally ignored. The assessee has just sold 270588 units during the year as against 3336756 units by Bajaj Auto. Further it is not only a case of under utilization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price, the TPO was correct in applying the TNMM method as it has many practical advantages. In this regard he invited attention to the order of the TPO where on page 9 he has given the justification for using the TNMM method. In regard to the contention of the assessee company that the price charged by the assessee company per motorbike is better than the per motor bike price charged by the other companies in the same field, it was submitted by the learned DR that once TNMM method is invoked then these facts and figures become irrelevant so far determination of arm s length price is concerned. 7.2 As regards the contention of the learned AR that Bajaj Auto Ltd. cannot be used as a comparable the learned DR submitted that assessee company can claim low capacity utilization adjustment. In support of the various contention, the learned DR relied upon the judgment of the Delhi ITAT in the case of Interra Information Technologies (India) Pvt. Ltd. vs. DCIT and also in the case of Ranbaxy Laboratories Ltd. vs. DCIT. 8. We have heard both the parties and has perused the material on record. The main dispute between assessee and revenue authorities is regarding adjustment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter vide letter dated 27th September, 2010 (placed at paper book page 469) the TPO asked for further details in respect of the export of the motorcycles. In this letter it was stated that the transactions have been benchmarked at Resale Price Method and it is shown that during the financial year Yamaha, Japan has earned a gross profit margin of 5.17% on resale of motor cycles exported by the assessee. On this basis the details of the gross profit margin of 5.17% and the financials of Yamaha, Japan were called for. The assessee vide letter dated 8th October, 2010 submitted a reply which is placed at paper book page 476 onwards. In Para 9 of this letter it was clarified that the invoice-wise details of the gross profit earned by Yamaha Motor Co. Ltd., Japan have been submitted vide letter dated 22nd February, 2010 and copy of the same was again enclosed for ready reference. In the transfer pricing analysis report, copy of the invoices raised by Yamaha Motor Co. Ltd., Japan for resale of the motorcycles exported by the company were enclosed as evidence in support of the resale price charged by the Yamaha Motor Co. Ltd., Japan. The basis of computation of the gross profit margin in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been given for ignoring all these facts so as to justify the rejection of the method adopted by the assessee company. Accordingly we hold that the TPO was not justified in rejecting the method used by the assessee company. 8.3 As regards the contention of the learned DR that the Resale Price Method would be a wrong choice of method, it is argued that the basic necessity of RPM as per Rule 10B(1)(b) is that the price should be that at which property or services obtained by the enterprise from an associated enterprise is resold or are provided to an unrelated party. On this basis it was contended that the assessee should be buying from an associated enterprise and selling to a non-associated enterprise only then Resale Price Method can be applied. Since in the case of the assessee, it is selling to an associated enterprise and the associated enterprise will be reselling and hence resale price method cannot be applied. In support of this contention a reference was made to Rule 10B(1)(b) to demonstrate that the conditions for applicability of RPM allows the use of this method where the associated enterprise sells to a non-associated enterprise. The assessee cannot choose associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trolled transaction, or a number of such transactions; (iii) the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between 3[the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm s length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise; On going through the above method we note that this is one of the method applicable. As per this method the price at which property purchased or services obtained is sold to an unrelated enterprise, the price at which this property is sold less margin of the associated enterprise is to be reduced for determination of the resale a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. 8.5 The above definition of enterprise and associated enterprise in the Act nowhere indicates that the enterprise shall mean the assessee and the associated enterprise will mean other than the assessee. Thus the contention of the learned DR that resale price method cannot be used in the case of the assessee company is devoid of any merit. This view gets further supported by the fact that there is no such condition or prohibition provided in Section 92C as well as Rule 10B. In the absence of any such condition or prohibition it cannot be read into the Rule to mean that resale price method shall not be applicable in case the assessee company is selling its product to an associated enterprise. 8.6 We have also gone through the OECD guidelines in respect of resale price method. On going through the same we note that Rule 10B(1)(b) in respect of resale price method is para materia with OECD guidelines. Further in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most appropriate method. 8.9 The above view is also supported by the OECD guidelines regarding selection of the most appropriate transfer pricing method. As per the OECD guidelines the selection of a transfer pricing method always aims at having the most appropriate method for a particular case. For this purpose the selection process should take into account the respective strengths and the weakness of the recognized methods. As per OECD guidelines, Comparable Uncontrolled Price Method (CUP method), Resale Price Method (RPM) and the Cost Plus Method (CPM) are considered to be traditional transactions method. The Profit Split Method and the Transactional Net Margin Method (TNMM) are considered to be transactional profit methods. The traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm s length. This is because any difference in the price of a controlled transaction from the price in a comparable uncontrolled transaction can normally be traced directly to the commercial and financial relations made or imposed between the enterprises and the arm s len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if taxpayer takes foreign entity as tested party, he should furnish relevant data for comparable and he cannot take a stand that such data cannot be called for from him. Thus in this case also it has not been held that foreign entity cannot be used as a tested party in view of Rule 10B(1)(b). On the contrary this case law supports the view that foreign party can be used as a tested party if relevant data is available. 8.12 In the present case, as noted above, the assessee company has furnished all the relevant data of the foreign party and it is not the case of the TPO that information as called for about the foreign party has not been furnished by the assessee company. Thus this contention of the learned DR is not justified and cannot be accepted. 8.13 The approach adopted by the TPO in applying TNMM method is also not justified in the facts and circumstances of this case. It is noted that the export price realized per motor bike in the case of the assessee company is much better as compared to the export price per motor bike in respect of the others in the same line of business. 8.14 In the present case the assessee company has submitted the details and information that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, if the facts so supports, appropriate adjustment needs to be allowed for low capacity utilization while applying TNMM. But in the present case TNMM cannot be considered to be an appropriate method. The transfer pricing mechanism is a method to determine the arm s length price. It is not a mechanical way of determination of arm s length price by applying a set of rules ignoring the facts and circumstances of the case. The statute provides for five methods and further puts an obligation that the most appropriate method best suited to the facts and circumstances of the case has to be applied. In this regard we further note that as per OECD guidelines following aspects are important while applying Resale Price method:- i) Where applicable resale price is available and resale transaction is made within a reasonable time after the controlled sale; ii) Where the distributor or reseller does not add significant amount to the value of the property by altering the product before resale; iii) Where the time gap between the purchase of goods and its sale by the reseller is small. In the present case considering the facts of the assessee company we are of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otor bike of Hero Honda Motors Ltd. whose product profile/volume is different and particularly ignoring the fact that the Hero Honda Motors Ltd. has been held to be noncomparable by the TPO itself in view of the related party transactions exceeding 25%. (iii) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in ignoring the contention of the appellant that the Transfer Pricing provisions are not applicable to domestic sales and even under provisions of Section 40A(2) disallowance if any can be made only in respect of the expenditure incurred in relation to related parties. 5(i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in disallowing an amount of ₹ 9,40,16,621/- on account of royalty expenses. (ii) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in disallowing the royalty expenses ignoring the contention of the appellant that the losses cannot be a ground for disallowance of the royalty expenses. (iii) That the above disallowance has been made ignoring the explanation and submissions made by assessee in this regard and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles. (vi) On the facts and circumstances of the case, the DRP has erred both on facts and in law in ignoring the contention of the appellant that the comparison with the operating margin of the comparables as a whole enterprise instead of international export transactions per se is wrong. 10(i) On the facts and the circumstances of the case, the DRP has erred in allocation of operating expenses to export of motorcycles made by the assessee to AEs on pro- rata basis. (ii) On the facts and the circumstances of the case, the DRP has erred in arbitrarily rejecting the basis on which expenses have been allocated by assessee to its domestic and export operations despite the fact the assessee has given complete details of cost incurred by the assessee for manufacture of various models of motorcycles. 11. Without prejudice to the above, even if the assessee accepts the contention of the learned TPO, the learned TPO has failed to appreciate that the motorcycles exported by the assessee to its AEs have been resold to unassociated persons/entities at a very low gross profit margin of 2.80%. 12. On the facts and circumstances of the case, the learned AO has erred in disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the assessee s business. The assessee has not placed any evidence on record to prove that the expenditure incurred was in connection with extension of its undertaking or setting up of its unit. Therefore, the assessee s case is not covered u/s 35D(1) in the first place. Without prejudice to this, even the expenditure does not fall in any of the clauses of sub-section (2) of section 35D. The assessee has stated that its case falls in section 35D(2)(c). For ready reference this section, sub-section and clause, and sub-clause is reproduced below: (c) where the assessee is a company, also expenditure (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; A perusal of the above shows that the assessee s case does not fall even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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