GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (9) TMI 19 - ITAT JAIPUR

2015 (9) TMI 19 - ITAT JAIPUR - TMI - Transfer pricing adjustment - Whether the AE has received intra group services ? - What are the economic and commercial benefits derived by the recipient of intra group services ? - Whether a comparable independent enterprise would have paid for the services in comparable circumstances? - Held that:- There is no whisper by lower authorities that the ALP work provided by the assessee suffers from any infirmity. It is not proper to go for an ALP ascertainment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

#8377; 31,01,476/- has been disallowed as the assessee could not produce any evidence except ledger account. We find no infirmity in the orders of the lower authorities. Since assessee has failed to provide any corroborative evidence in this behalf, the adjustment of ₹ 31,01,476/-made by the lower authorities cannot be found fault with. The same is upheld.

Addition on account of alleged suppressed sales of scrap - Held that:- In our considered view the approach adopted by DRP is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

crape sales have been question. The addition being presumptive and based on conjectures is deleted. This ground is allowed.

Not allowing the claim of inventories written off - Held that:- We have heard the rival contentions and perused material on the record. ITAT in assesssee’s own case has allowed the similar claim of inventory write off in AYs 2003-4 to 06-07.

Treating the revenue expenditure on account of restructuring as one time expenditure for enduring benefit, hence .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the foregoing we are of the considered view that assessee’s claim falls in the category of revenue expenses and deserve to be allowed

Disallowance u/s 40(a)(ia) - non deduction of TDS - Held that:- AO in A. Y 2008-09, raised similar issues in respect of Trade Inventive and Distributor Coverage Expenses. The AO himself accepted the same contentions of the assessee and made no disallowance qua these payments u/s 40(a)(ia). Since revenue itself has accepted no TDS liability on such tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

u/s 40(a)(ia) is deleted

Disallowance of advertisement payment made to Group M Media Pvt. Ltd. - Liability of deduction of tax at source arises u/s 195 - Held that:- Since the assessee has deducted TDS u/s 194C, it cannot be disallowed u/s 40(a)(ia). Consequently this ground of the assessee is also allowed. - ITA No. 1087/JP/2011 - Dated:- 11-8-2015 - SHRI R.P. TOLANI AND SHRI T.R. MEENA, JJ. For The Assessee : Shri Dhanesh Bafna (C.A.) and Shri P.C. Parwal (C.A.) For The Revenue : S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

are further challenged on following counts:- i) TPO s proposed adjustments proposed in order u/s 92CA(3) dated 27.10.2010 has been relied without making any independent examination of facts by AO and section 92C(3) has been misapplied by summarily rejecting assessee s TP study. ii) Ld. TPO grossly erred in holding that assessee has not proved any need for services outsourcing such services and actually services were received by assesse. Thereby re computing the ALP of the payments of service fe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nts have been reiterated without discussing the various objections raised & documentary evidences filed before it in respect of business service received by the assessee. It has further erred in directing the TPO to verify the nature of payment of ₹ 31.04 lacs instead of deciding the issue on the basis of evidences produced by the assessee which is not as per law in terms of section 144C(8) 2. Brief facts are -assessee is a public limited listed company and is engaged in the business o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ic. 2.1. Following international transaction were entered into by the assessee with its associate enterprises during the year u/s 92: S. No. Description of the transactions Amount (In Rupees) 1. Import of raw material (stores and spares) 100,850,733 2. Import of finished goods 717,410,147 3. Export of finished goods 116,415,863 4. Import of fixed assets 16,471,604 5. Business Services received 25,197,157 6. Reimbursements received / receivable 10,496,673 7. Reimbursements paid / payable 461,256 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lue (Rs.) 1 Receipt of Business Support Services 25,197,157 2 Reimbursement of Advertisement Expenses 384,918 Total 25,582,075 2.3. Assessee filed its objections in this behalf u/s 144© to the Dispute Resolution Panel, assessee claims that DRP without considering the detail submission and independent examination of facts, summarily upheld the action of AO/TPO. Aggrieved assessee is in appeal before us on the final assessment order passed consequent to DRP directions u/s 144C. Ld. Counsel co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce Centre(GBS)to provide customized and expert services to affiliate recipients to enable them to carry out their business in a more efficient and focused manner. P& G Singapore operates as GBS Centre with its branch in Manila, Phillippines. The assessee company has entered into a Business Services Agreement with P&G, Singapore (Service Provider) effective from July 1, 2006 to obtain various support services as outlined in the said agreement. iii. As per the terms of the agreement, P& .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ove its overall efficiency and business ability. iv. The payment for these business support services is made by the assessee to the service provider at cost plus 7% mark-up. The other associates of P&G also obtained these services from the service provider for which also the payment is made by them to service provider at cost plus 7% mark up. Broadly, the services rendered by GBS are summarised below: • Accounting and Financial Reporting Services; • Employee Services; • Custom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er Tax Compliance related services Employee Services Local and Expatriates Payroll Relocation and Expatriate Services Compensation Planning Services Employee Benefits Administration Employee Data Management Travel Services Customer Logistics Financial Services Management of trade customer orders and receivables, credit risk, promotion funds, transportation and other logistics and financial services Purchases Suppliers relationship management and strategy etc. Business Intelligence Services Consu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er, each of the service mentioned in the service agreement. - Neither the documentary evidence of cost incurred by the AE for rendering each type of service nor the basis of allocation of cost amongst various entities and the basis of choosing a particular allocation key had been furnished by the assessee. - The basis on which billing is made is not provided and the rate at which such services has been rendered by AE for group companies has not been provided. - Assessee has not furnished individ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the assessee. - The higher profit of the assessee during the year does not prove that the payment made to the AE was at arm s length. - Assessee has incurred huge expenditure on manpower and other administrative expenses. Hence, it cannot be said that these services could not have been performed itself. - AE has not provided any tangible or real services to the assessee. In fact AE is in no position to provide any support services to India, as the knowledge of local conditions lies with assess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd were found to be inadequate. Ld. AO accordingly made transfer pricing adjustment of ₹ 2,51,97,157/-. (B) Reimbursement of Advertisement Expenses i. During the year the assessee received following reimbursement from its AE . (i) Relocation related expenses ₹ 9,68,246/- (ii) Reimbursement of advertising expenses, ₹ 95,28,427/- ii. The TPO in the proceedings observed that details of reimbursement of advertisements of ₹ 64.24 Lacs have been furnished, for remaining amount .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

,176/- Arms Length Operating Margin @ 12.4% ₹ 3,84,918/- Arm s Length Price ₹ 34,89,094/- Accordingly, a transfer pricing adjustment of ₹ 3,84,918/- was proposed. iii. The DRP directed the TPO to verify the nature of payment of ₹ 31.04 Lacs from the evidence produced by assessee. If it is reimbursement, then to treat it at par with ₹ 64.24 Lacs, otherwise the mark up will continue on ₹ 31.04 Lacs. The TPO vide its order dated 25.10.2011 again proposed the addi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ayroll services are carried out there, as this has low rate of man-hour cost. Singapore: IT related and logistic services are based out here because of extremely good infrastructure. • The nature of services rendered by P & G Asia PTE Ltd., Philliphines (Code LE 753) and Singapore (LE 606) to the assessee company (Code 973) and basis of charge is as under: Category of Service Basis of Charge Accounting and Financial Reporting Services No. of Postings (Accounting Entries) Purchases Net O .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cated to each of the service recipients on the basis of charge as agreed in the agreement. Monthly payment is determined on the basis of annual budget of service provider. At the year end service provider would make allocation based on actual cost and expenses for first eleven months of the fiscal year and estimated cost and expenses for the last month of the said fiscal year. The differences in actual cost vis-a-vis the budgeted cost would be charged / credited to the service recipient accordin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

30th June 2007 which shows net profit before tax at $ 12035 (13249 - 1214) on revenue of $ 292553 (291971 + 582) giving net margin of 4.13%. This margin is less than the mark up charged from assessee which indicates that services are rendered by the AE on cost to cost basis. Besides the withholding tax is borne by AE. • Evidence as to the services rendered by AE in shape of Electronic Vouchers prepared by the employee of AE along with his name and code with reference to Travelling Expenses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng the Income Tax return in India. Copy of the return for AY 2011-12 is enclosed from which also it is evident that tax has been paid by them on the income which has accrued to it on account of services given by it to various group Indian Companies. • Besides ld. TPO in assessee s own case for AY 2011-12 has accepted the very same payments to AE and has not even proposed any ALP adjustment in this behalf. Revenue on the same facts cannot apply such variable treatment. In view of above obser .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s reduced to ₹ 33.71 Crores as against ₹ 42.47 Crores in the last year. The list of employees who were retrenched from the services during the year. (ii) Purchased services cost has reduced to ₹ 2.57 Crores as against ₹ 9.58 Crores in the last year. (iii) Other expenses (which generally comprises of professional expenses, misc administrative expenses) have also reduced significantly from ₹ 10.16 crores in last year to ₹ 6.70 crores during the period under cons .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Y 2006-07 F Y 2005-06 Gross Turnover 650.28 598.49 525.45 412.14 Expenses as % of Gross Turnover Percentage ( % ) Payment to and Provisions for Employees 6.66 6.58 6.42 10.30 Travelling, Conveyance and Vehicle Expenses 0.53 0.70 1.08 2.41 Communication Expenses 0.09 0.08 0.23 0.57 Purchase Services 0.12 0.14 0.49 2.32 Other expenses 0.49 0.24 1.28 2.47 These figures demonstrate that the expenses on Employees cost has shown decrease from 10.30% in year 2005-06 (i.e. the year in which outsourcing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Y 2006-07 F Y 2005-06 Gross Turnover 650.28 598.49 525.45 412.14 Expenses as % of Gross Turnover Percentage ( % ) Payment to and Provisions for Employees 6.66 6.58 6.42 10.30 Travelling, Conveyance and Vehicle Expenses 0.53 0.70 1.08 2.41 Communication Expenses 0.09 0.08 0.23 0.57 Purchase Services 0.12 0.14 0.49 2.32 Other expenses 0.49 0.24 1.28 2.47 to 525.45 Crores as against 412.14 Crores giving a 27% growth in business. Further profit before taxation increased to ₹ 101.84 Crores (aft .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ample of the benefit derived by the assessee on account of outsourcing its activities and these figures justify that the economic and commercial value derived by the company over the years by concentrating on the core areas. (vi) It is surprising to note from the order of TPO that due to non-providing of individual service wise calculations of reduction in cost, TPO has assumed that cost benefit analysis is not proved for annual results. The assessee company through its audited accounts and SAP .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t 12.40%. Further the AO himself has considered the margin of 12.40% as reasonable in respect of adjustment made by him for reimbursement of expenses. Therefore the mark up of 7% charged by the AE is at lower to mark up of 12.40% charged by benchmarked service providers. (ii) As far as the benchmarking of the transaction by AE is concerned, AE (Service Provider) has the policy of charging a mark-up of 7% from all the service recipients on the total operating cost for the various services it prov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sistent with the global, regional and segment results and meets the arm s length standard. This is how AE has benchmarked the international transaction. Ld. Counsel further contends that detailed explanation is offered in Form 35A explaining the commercial rationale and expediency for availing these services and the details of actual receipt of services, which has not been controverted. The decision to outsource the service is a business decision of the assessee and it s prudence ought not be qu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ansfer pricing audit report in case of Gillette Diversified Operations Pvt. Ltd. and Procter & Gamble Home Products Ltd. in this connection is also submitted. For this reliance is placed on the following cases; S. A Builders Ltd. Vs. CIT 288 ITR 1 (SC) - CIT Vs. EKL Appliances Ltd. 345 ITR 241 (Del.)(HC) - Ericson India Pvt. Ltd. VS. DCIT 17 ITR (Trib) 79(Delhi) - Dresser Rand India Pvt. Ltd. Vs. ACIT, 13 ITR (Trib.) 422 - Thyssen Krupp Inds India Pvt. Ltd. (2013) 55 SOT 497 (Mumbai) - Castr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

7, binding on the Assessing Officer. Thus, it becomes all the more important to clarify the extent of the TPO s authority in this case, which is to determining the ALP for international transactions referred to him or her by AO, rather than determining whether such services exists or benefits have accrued. That exercise of factual verification is retained by the AO u/s 37 in this case. - Indeed, this is not to say that the TPO cannot after a consideration of the facts state that the ALP is nil g .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

these services it was noted that remarks concerning, and the final decision relating to, benefit arising from these services are properly reserved for the AO. - In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and cannot be second-guessed by the Revenue. (iv) It is vehemently contended that the operating margin of the assessee is far better than other comparable cases as mentioned on page-4 of the TPO order. This has been accepted by the TPO. Once this is accepted it is incorrect to disturb one part of the cost to arrive at the operating profit and make the addition. Further the AO has not rejected the TP documentation rather he has relied on the same for charging mark up of 12.40 % in respect of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

much more experience of operating in India, most of its salesis in India and therefore AE is in no position to provide any support service to India or help it to develop the India market as the knowledge of local conditions lies with the assessee not the AE. (vi) While making this assumption it has been totally ignored that due to globalization and specialization, the outsourcing of routine activates have become an established global business methodology due to number of business advantages flow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion or service. (j) Lower ongoing investment required in internal infrastructure.(k) Greater ability to control delivery dates (eg: via penalty clauses)(l) Lack of internal expertise(m)Increase flexibility to meet changing business conditions.(n) Purchase of industry best practice. (o)Improve risk management.(p)Acquire innovative ideas. (q) Increase commitment and energy in non core areas. ® Improve credibility and image by associating with superior providers. (s) Generate cash by transferr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on a very settled and widely accepted legal principle that business entities only best know, how to conduct their business keeping in view its needs, prudence and business acumen. Tax authorities or any other outside authorities cannot decide how business should be conducted and usurp the decision making authority of the company. 2.4. It has not been disputed that assessee did neither employ the requisite manpower nor incur expenditure for services which are outsourced from AE. TPO did not visua .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has outsourced number of its activities including PAN allocation to NSDL and UTI. Therefore, these observations made by TPO are untenable, hypothetical and irrelevant. 2.5 The services availed are intra-group services in the nature of Accounting and Financial Reporting Services, Employee services etc. as explained above. These are routinely outsourced by no. of companies in India and other countries because of their economic and commercial needs and availing of Intra group services are recogniz .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oviding the intra group services and basis of allocation of cost to various AE s as is evident from the documents placed at. (iv) There is no material with the AO to hold that a comparable independent enterprise would not have paid for these services in comparable circumstances. In fact the similar services received by other group concern has been accepted by the TPO in those cases. (v) In view of above the ALP of the business services determined by the AO on the basis of TPO report by applying .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es and accordingly the same is accepted by AO/TPO as reimbursement of expenses. 3.1. However in respect of the remaining amount of ₹ 31,04,176/- which is also the reimbursement of cost of production film, as explained vide letter dated 08.10.2010 the copy of invoice could not be furnished as the same was misplaced but the copy of the ledger account was furnished where the amount of ₹ 64,24,251/- is also debited to evidence that nature of the reimbursement of ₹ 31.04 Lacs is the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t ofRs.64.24 Lacs is shown as DI in the ledger account and therefore both the transactions are not the same. 3.4. From the ledger account, it can be noted that both the transactions are recorded in the account of Gillette Co. Boston. Assessee in his reply dated 08.10.2010 has specifically stated that amount of ₹ 31.04 lacs is in respect of production of films which the assessee paid initially and sought reimbursement from its AE later. The abbreviation SC and DI in the ledger account only .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sement then no addition for mark up is to be made. Such directions given by DRP is beyond its scope as section 144C(8) specifically provides that DRP may confirm, reduce, or enhance the variation proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub sec.(5) for further enquiry in passing the assessment order. Therefore having once accepted that the same ledger account shows both the amounts, the direction given to the TPO to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

What are the economic and commercial benefits derived by the recipient of intra group services ? (3) In order to identify the charges relating to services, there should be a mechanism in place which can identify (i) the cost incurred by the AE in providing the intra group services and (ii) the basis of allocation of cost to various AEs. (4) Whether a comparable independent enterprise would have paid for the services in comparable circumstances. Reliance is placed on VVF LTD. (2010)-TIOL-55(MUM) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aking into account prices at which similar transactions have been entered into by the assessee with unrelated parties (Internal CUP) or at which other unrelated parties have entered into similar transactions inter se (External CUP). None of these inputs have anything to do with the costs; they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arms length prices, at .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

transaction therefore is of foreign currency lending by unrelated parties. The ld. D/R further contends that - (a) The tax payer s agreement with the associated enterprises related to intra group services is to be examined to see as to what kind of services were to be provided by the AE to the tax payer. As normally such agreements refer to a large number of services which could be rendered by the AE, the tax payer has to specify the services (s) which is actually received by it for which the p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es. (d) Whether an independent person would have paid such amount in comparable circumstances. (e) Whether the expected benefit is commensurate with the payment. (f) Whether the tax payer has separately incurred any expenditure on similar services and if so the necessity of making further payment to the AE for the same activity or it is a duplicate payment. (g) Whether the payment is in the nature of shareholder s activity or largely for the benefit of the AE. (h) Whether the AE is rendering suc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AT-BANG-TP). Deloitte Consulting India Pvt. Ltd. Vs. DCIT in ITA Nos. 3910 & 3911(MUM) of 2009 & 579, 1272 & 1273 (MUM) 2011. Nike India (P) Ltd in ITA Nos. 653 & 654 (BANG.) OF 2011. M/s. Knorr-Bremse India Pvt. Ltd in ITA No. 5097/Del/2011. M/s. Petro Araldite Pvt. Ltd in ITA No. 6217/Mum/2012. For other grounds, the ld. D/R relied on the orders of TPO/AO/DRP. 5. We have heard the rival contentions and perused the material available on the record on this issue. It emerges from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ved that - (a) The assessee is a start up company which is not correct as it was already an established company came into new regime of P & G business consolidation. Similar services have provided by the AE not only to the assessee but to various other units on a uniform business policy. (b) The authorities below have not controverted the fact that assessee has not claimed any other expenditure in respect of the services which are claimed to be received from AE. In our considered view, the b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

similar kind of payment of services has been accepted and amount paid also have been held to be ALP. The order thereof is placed on record. 5.1. Similarly in assessee s own case for AY 2011-12 ld. TPO/AO have unhesitatingly accepted these payments and no any ALP adjustments in this behalf are made. 5.2. Further in the case of Cushman and Wakefield India Pvt. Ltd. (supra) it has been held that commercial wisdom of the assessee cannot be called into question. Therefore, we are unable to subscribe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee s business could not be ascertained. The details of services provided are mentioned as cited above, besides assessee has not incurred any expenditure on its own in this behalf. It cannot be accepted that assessee will provide even the scratches of information about rendering of services which is otherwise discernible from the facts. The questioned judgement also takes in stride the fact that the quantum of benefit availed by the assessee in terms of its business yields cannot be quest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

roper to go for an ALP ascertainment without finding any fault with the assessee s working. The TP services provide that the AO himself first record its objections on the merits of the working of the assessee. Without doing so, the ALP determination becomes a questionable exercise. In the entirety of facts and circumstances we hold that the TP adjustment to the ALP as furnished by the assessee is without any justification. The same is deleted. 5.3. Apropos the issue about the reimbursement of bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

p & the Ld. DRP has erred in not giving direction to delete the addition proposed by the AO even though accepting that addition is made on estimated basis. 6. Brief facts are - during the year under consideration, the assessee has declared sale of scrap at ₹ 68,65,858/-. The A O observed that no record of Scrap generation in manufacturing process or during repair and maintenance of plant & machinery has been maintained. Month wise details of scrap generation and sale bills / vouche .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

estimate any quantum of suppressed sales, if any. It therefore rejected the assessee s objection. Accordingly, the A O made addition of ₹ 1,00,00,000/-. 6.2. Ld. Counsel contends that the scrap as generated is sold off at regular intervals, generally monthly. The scrap lying in the factory at the year end is of a very low amount; hence stock of scrap is not valued at the year end considering the materiality of amount involved. In support, the details of Scrap sale for the month of April 20 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e process of manufacturing. It also includes sale of waste generated during repair and maintenance of plant & machinery. ii. The process scrap is in the form of aluminium scrap, stainless steel scrap burnt / slug, plastic scrap, platinum scrap, generated in production process. iii. As and when scrap gets generated, it is sent to the scrap yard with intimation to warehouse. iv. At warehouse data is maintained for opening balance of scrap, scrap generated during production, month wise. As and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s found by the A O in the details furnished before him. 6.3. The AO in para 4.1 of the order has specifically stated that assessee has produced copies of various returns filed with Excise department and excise department carried out their audit with reference to stocks and have not observed anything adverse. Similarly VAT assessment has been completed by the sales tax department and they have also not observed anything adverse. Moreover AG audit is also carried and they too have not observed any .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntum of suppressed sale, if any. These observations are illogical in as much as once AO has accepted the records maintained by the assessee as mentioned in pars 3 above, never in the past nor in the subsequent year any such addition is made by the AO and the DRP being an high powered panel cannot shrink its responsibility by stating that it is not an appellate body to delete such arbitrary addition. Therefore addition made by AO is de-hors any material on record is unjustified and uncalled for. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

been indicated to form even a suspicion that assessee indulged in any type of suppression of sales. Thus the finding is nothing but an assumed allegation. Never in past or future the assess s scrape sales have been question. The addition being presumptive and based on conjectures is deleted. This ground is allowed. Ground 3: Not allowing the claim of inventories written off at ₹ 91,83,353/- and the Ld. DRP has erred in not giving direction to delete the addition proposed by the AO in this .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ten off inventories of ₹ 91,83,353/-. Assessee vide letter dated 23.12.2010 explained the company procedure for write off and further explained that periodical and regular physical verification of inventory is carried out as per laid down procedure by company officials. After due diligence and necessary approvals, the identified items of inventories are written off from the books of account. For ready reference inventory write off sheet, duly approved by VC, Operations Manager, Director, F .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

laimed in the trading account under cost of goods sold which is evident from the financial accounts of the assessee. Assessee at no point of time demonstrated that the said expenditure was not claimed in the cost. 8.2. The AR of the assessee has also not submitted that the inventories written off were included in the closing inventory. Since the closing inventory is the same which has been carried over to the next year as opening inventory, accepting the submission of the AR would mean that asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Hon ble ITAT. The DRP observed that keeping in view the quantum involved in all the years, the Department may not have accepted the decision of the Tribunal and has filed an appeal. As the matter has not reached finality, the DRP refrains from taking a position in the matter at present and therefore, up held the order of the AO, resulting in disallowance of ₹ 91,83,353/-. 8.4. Ld. Counsel contends that during the year under consideration the assessee company has written off inventory item .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lowed by CIT(A) vide their order dated 24.01.2007 but claim for obsolescence, stock shortage & sample was not allowed. Against the order of CIT (A) both assessee and the department preferred appeal before ITAT. Hon ble ITAT in ITA No. 188/JP/07 dt. 09.08.2010 dismissed the appeal of the department by allowing the claim of inventory written off. Again Hon ble ITAT in ITA No. 1234/JP/2010 dated 11.2.2011 for A Y 2005-06 in para 11 of the order allowed the claim of inventory written off. 8.5. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

written off / provided for in the accounts to arrive at the true financial position of the company at the end of the year. The inventories written off are identified items and are not resold and are completely destroyed. 8.6. With regard to procedure for write off, assessee has submitted vide its letter dated 23.12.2010 that physical verification of inventory items is carried out at regular periods as per the laid down procedure of the company and after due diligence and necessary approvals, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f inventory was described with evidence along with the complete policy of inventory valuation followed by the assessee company consistently over the years and related case laws and item wise details of all inventory items written off during the year were given. With the submission the assessee has also explained to AO the authorization levels, accounting policies, procedure carried out for physical verification etc. with the details of items wise damaged goods and obsolescence. 8.8. The A O has .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of double deduction and deleted the disallowance made in respect of the inventories written off. Copy of ITAT order is at. 1. Reliance is placed on following cases: J. C.I.T. Vs. ITC Ltd. 299 ITR (AT) 341(SB)(Cal.): CIT Vs. Alfa Leval (India) Ltd. 295 ITR 451 (SC): 8.9. In the present case, the assessee has actually written off the inventory of ₹ 91,83,353/- by identifying the damaged / obsolete items. This is also the regular practice of the assessee. In any case since stock are valued a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s below. 9. We have heard the rival contentions and perused material on the record. ITAT in assesssee s own case has allowed the similar claim of inventory write off in AYs 2003-4 to 06-07. Besides considering the facts and the judicial precedent cited above we see no justification in disallowing the claim of inventory write off. Consequently claim in this behalf is allowed, assessee succeeds on this ground. Ground 4: Treating the revenue expenditure of ₹ 8,74,73,893/- on account of restru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eeper and wider consumer reach, being part of the bigger global scale to improve efficiencies and effectiveness, using of the best practices / processes and relocating of its General officer to a world class facility in Mumbai. In view of this, the assessee moved its corporate office from Gurgaon to Mumbai and also moved to better and efficient distribution system during the year 2006. 10.1. The additional expenses incurred for achieving the business efficiencies, as detailed above, were grouped .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

7; 8,74,73,893/- includes expenditure under various heads which is claimed as business expenditure in the return of income as explained vide letter dated 23.12.2010. The broad nature of these expenses for the year is as under: Nature of Expenses Amount AY 2006-07 A Y 2007-08 Salary, Wages and Bonus 1,315,084 17,31,794 Contribution to PF and other funds 1,30,529 16,70,313 Employees Welfare 77,033 3,063 Rent 70,820 70,820 State Sales Tax 1,04,71,902 8,01,057 Insurance 82,641 Nil Repair & Maint .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

80 9,50,10,216 Less: Loss on sale of Asset 5,81,110 75,36,323 11,06,43,670 8,74,73,893 10.3. The AO proposed the disallowance of these expenditure by holding that these are one time expenditure for enduring benefit, hence, are capital in nature and cannot be regarded as revenue expenditure. 10.4. The DRP sustained the addition by giving following findings: It is seen that out of total amount of ₹ 57,45,57,652/-, (amount for the year is only ₹ 45,16,19,901/-) a portion has been disall .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o move its corporate office from Gurgaon to Mumbai would no doubt have a permanent and enduring benefit to the assessee as Mumbai is the commercial capital of the country. This being the case, the proposed action of the A O in holding ₹ 8,74,73,893/- as capital expenditure is sustained and the objection of the assessee on this account is rejected. 11. Ld. Counsel contends that these expenses pertaining to shifting of Corporate office from Gurgaon to Mumbai are revenue in nature incurred wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can existence or absence of entries in the books of account is decisive or conclusive in the matter as held by Supreme Court in Kedarnath Jute Mills (82 ITR 363) and Sutlej Cotton Mills (116 ITR 1). 11.2. Expenditure incurred on ground of commercial expediency to facilitate carrying on of the business is allowable as revenu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ia Jain & Co. Ltd. v. CIT [1971] 81 ITR 754 (SC) Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) Alembic Chemical Works v. CIT [1989] 177 ITR 377 It is, therefore, contended that the disallowance being unjustified may be deleted. 11.3. Ld. D/R relied on authorities below. 12. We have heard the rival contentions and perused the material available on record. Hon ble Supreme court in Empire Jute Mills has laid down the proposition that merely because expenditure results in some enduring benef .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urt gave the permission for charging of these expenses against amalgamation reserves. In assessment year 2006-07, similar expenditure of ₹ 11,12,24,780/- were allowed by the AO in assessment framed u/s 143(3) after considering the details of such expenditure reflected in the notes to the accounts. In view of the foregoing we are of the considered view that assessee s claim falls in the category of revenue expenses and deserve to be allowed. This ground succeeds. Ground 5: Disallowance of & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t perspective. 13. Brief fact are - assessee incurred expenditure of ₹ 57,43,78,947/-on account of advertisement. During the course of assessment proceedings it furnished party wise details of ₹ 43,33,61,849/- on which TDS of ₹ 44,19,297/- was deducted. For remaining amount ₹ 14,10,17,098/- were furnished. For lower / non deduction of tax at source the assessee itself disallowed a sum of ₹ 5,28,52,048/- u/s 40(a)(ia) while filing the return of income. In addition as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

red to deduct ₹ 43,55,175/- u/s 194C in respect of amount paid to M/s. Madison Communications Pvt. Ltd. (1.133% of ₹ 38,43,93,204/-). As against this tax deducted is only ₹ 37,45,205/-. Thus tax was short deducted by ₹ 6,09,970/-. This was converted into the amount of payment at ₹ 5,38,36,717/-(Rs. 6,09,970 * 100 / 1.133). Since assessee has already disallowed ₹ 5,13,22,323/- in respect of this party, disallowance of ₹ 25,14,394/- was further made u/s 40 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

₹ 27,07,86,281/- being incentive to distributor under the contractual obligation as per sales promotion scheme. By referring to various circulars of the Board, it was presumed that assessee was liable to deduct tax at source u/s 194C on the entire payment of ₹ 27,07,86,281/-. Assessee has deducted tax at source on the amount of ₹ 3,10,53,762/-. Hence ₹ 23,97,32,519/- was disallowed u/s 40(a)(ia). 13.2. Before DRP relevant material and explanation was submitted, however in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(ia), if any. Therefore, the assessee s objection in this regard is partly accepted. 13.3. Ld. AO in the final assessment order accepted that disallowance u/s 40(a)(ia) for ₹ 25,14,394/- in respect of payment made to M/s Madison Communication Pvt. Ltd. is not required. However in respect of the remaining amount, by reiterating draft assessment findings amount of ₹ 37,14,84,213/- was disallowed u/s 40(a)(ia). 14. Ld. Counsel contends that assessee has incurred expenditure of ₹ 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

etc., on which VAT was paid. Being article purchase there is liability of TDS thereon. Assessee made available complete record and random sample bills demonstrating that amount of ₹ 13,17,51,694/- represented purchase of material. Hence the disallowance made u/s 40(a)(ia) is unjustified and uncalled for. 14.1 Apropos trade incentive expenditure to distributors amounting to ₹ 27,07,86,281/-, these payments are categorized into the following heads: Incentive / Scheme Reimbursement exp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce. • Temporary price reduction - represents amount reimbursed on account of price adjustment due to temporary reduction in price on scheme. • Damage concession - represents the fixed amount of discount on sales invoice. • Inventive gift to dealers - purchase of goods given to dealers as part of sales incentive. • Ld. AO without appreciating the facts and explanation without applying mind, summarily held that assessee was liable to deduct tax at source u/s 194C and accordingl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntives etc. Most of the incentive is given to Government owned Canteen Stores Department amounting to ₹ 2,86,98,672/- on which tax is otherwise not required to be deducted. Thus from the above it can be noted that the disallowance made by AO u/s 40(a)(ia) out of the trade incentive expenses is uncalled for. 14.2. In A. Y 2008-09, ld. AO raised similar issues in respect of trade Inventive of ₹ 37,44,41,176/- and Distributor Coverage Expenses of ₹ 1,62,03,546/-. The assessee offe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

TR 861 (Del) [SLP dismissed by Supreme Court (1995) 212 ITR 375 (SC) (Stat.)] see also All Gujarat Federation of Tax Consultants vs. CBDT (1995) 214 ITR 276 (Guj) The expression any work occurring in section 194C cannot include a contract for rendering of services. ii. Wadilal Dairy International Ltd. vs. Asstt. CIT (2001) 70 TTJ (Pune) 77 [see also Dy. CIT vs. Reebok India Co. (2006) 100 TTJ (Delhi) 976; Bangalore District Co-op. Milk Producers Societies Union Ltd. vs. ITO (2007) 11 SOT 539 (Ba .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee to disadvantageous condition which is explicit from the fact that AO repeated the additions. Legally sec. 144C(8) specifically provides that DRP may confirm, reduce, or enhance the variation proposed in the draft order, which clearly implies that it shall not set aside any proposed variation or issue any direction under sub. sec.5 for further enquiry while passing the final assessment order. It denies the assessee a lawful opportunity of agitating his grievance again before DRP, which is in v .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

It shall be pertinent to observe that ld AO in A. Y 2008-09, raised similar issues in respect of Trade Inventive of ₹ 37,44,41,176/-and Distributor Coverage Expenses of ₹ 1,62,03,546/-. The AO himself accepted the same contentions of the assessee and made no disallowance qua these payments u/s 40(a)(ia). Since revenue itself has accepted no TDS liability on such trade incentive in AY 2008-09, the disallowance made u/s 40(a) (ia) for the year is unjustified. 15.1. Adverting to adverti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Making disallowance of advertisement payment made to Group M Media Pvt. Ltd. for ₹ 23,44,747/- by holding that the liability of deduction of tax at source arises u/s 195 and therefore it attracts provisions of sec.40(a)(i) & the Ld. DRP has erred in not giving direction to delete the disallowance proposed by the AO in this regard. 16. Brief facts are assessee made payment of ₹ 23,44,747/- to Group M Media Pvt. Ltd. for advertisement in various TV channels, TDS thereon was deduct .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

services other than included services in term of DTA between India and USA. Gillette, USA has a PE in India as the administrative office of the assessee is shifted to Mumbai in the premises of Proctor and Gamble and the overhead expenses are shared by the assessee. Therefore income of the Gillette, USA to the extent it is attributable to the operations carried out in India is taxable in India. 16.1 The assessee has not obtained certificate u/s 195 for no deduction of tax at source before making .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ered u/s 195. Disallowance was proposed u/s 40(a)(ia). 16.2 The DRP has given the following findings: It is seen that in the last year also such disallowance was proposed and the DRP upheld the action of the AO. As the matter has not reached conclusion, DRP cannot take the final decision in the matter and therefore, confirms the action of the A O and the objection of the assessee this point is not accepted. Accordingly the A O made the disallowance of ₹ 23,44,747/- in final order. 16.3. Ld .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or limited period between 1.1.2006 to 30.6.2006. This agreement has no effect on the assessee. The assessee has independent arrangement with Group M Media India (P) Ltd. even prior to 1.1.2006. In course of assessment proceedings for AY 2006-07, the assessee vide letter dated 21.12.2009 has also requested the A O to obtain the information directly from Group M Media India Pvt. Ltd. but this was not done to ascertain the nature of payment. 16.5. Group M-Media Ltd. is a Company incorporated under .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y and therefore section 195 is not applicable. 16.6. The observation of the A O that payment to Group M Media (India) Pvt. Ltd. is on behalf of Mindshare, Singapore in view of the AOR Service Contract between Mindshare Singapore and Gillette Company, Singapore is without any basis. This is evident from the fact that payment to Group M Media India Pvt. Ltd. has been made even prior to first day of January 2006 and it is for the advertisement services on the various Indian TV Channels for advertis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

edia (India) Pvt. Ltd. is a resident company and not non-resident or foreign company. 16.8. Ld. DR relied on the authorities below. 17. We have heard the rival contentions and perused the material available on record. After DRP order and during the pendency of this appeal ITAT passed order for AY 2006-07 vide order dated 28-02-2014 holding advertisement payment to Group M Media as covered by sec. 194C and not u/s 195 by following observations :- 6.3. After considering the rival submission, we fi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version