TMI Blog2015 (9) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... him is also incurred out of necessity or the expenditure incurred by him for the purpose of business actually resulted in profit. TPO is not justified in determining the ALP on the payment made for management fees. There is no warrant for disallowance of sum paid to M/s Talbros Automotive Pvt. Ltd. as the Assessing Officer failed to discharge the onus that was lying upon him as per the mandate of the provisions of Section 40A(2) of the Act - Decided in favour of assessee. - IT(TP)A No. 475/Del/2015 - - - Dated:- 28-8-2015 - SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO, JJ.' For The Appellant : Sh. Ajay Vohra, Sr. Adv., Sh. Neeraj Jain, Adv. Sh. Puneet Chugh, CA For The Respondent : Sh. Vijay Choudhary, Sr. DR ORDER PER INTURI RAMA RAO, A.M.: This is an appeal filed by the assessee company against the order passed by ACIT, Rewari, dated 31.12.2014, passed under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (for short the Act ). The assessee company raised the following grounds of appeal: General: 1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of business of the appellant. 2.8 That the assessing officer/TPO erred on facts and in law in not aggregating the transaction of payment of management fee with other interlinked international transactions and erroneously seeking to benchmark it separately. 2.9 That the assessing officer/TPO erred in law in holding that the majority of benefit is flowing from Indian joint venture company, i.e., Talbros Automotive Components Limited while the Japanese Joint Venture Company i.e. Nippon Leakless Corporation is being remunerated more. 2.10 That the DRP erred on facts and in law in upholding the adjustment made by TPO without giving any cogent and germane reasons. Corporate Tax Issues: 3. That the assessing officer erred on facts and in law in disallowing a sum of ₹ 1,49,76,358 being payment made to Talbros Automotive Components Ltd. ('TACL') towards administrative services under section 40A(2) of the Act. 3.1 That the assessing officer erred on facts and in law in not appreciating that having regard to the effort involved and additional cost incurred by TACL in providing services to the assessee, the charge on account of payment for admini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the appellant had failed to point out any comparables. The Assessing Officer based on the order of TPO passed a draft assessment order under Section 143 r.w.s. 144C of the Act. Against this drafted assessment order, the objections were filed before the DRP. The DRP vide order dated 14.11.2014 upheld the order of TPO. Finally the Assessing Officer passed an order under Section 143 r.w.s. 144 of the Act dated 31.12.2004 in conformity with the direction of DRP making addition of ₹ 2,99,52,717/- on account of management fees paid to these AEs of Nippon Leakless Corporation, Japan and made further addition of ₹ 1,49,76,358/- on account of management fees paid to Talbros Automotive Components Ltd. India under the provisions of Section 40A(2)(b) of the Act. Being aggrieved the appellant had filed the present appeal before us. 3. Before us, ld. Senior Counsel for the appellant submitted that during the year under consideration, the applicant was primarily manufacturing and selling gaskets to Honda and Honda JVs in India. The applicant did not have the requisite resources, e.g., qualified and experienced personnel, and expertise to carry out product design and deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to Honda product development are taken by Honda R D in Japan in consultation with the supplier, the product development cost would increase manifold if the assessee was to undertake this activity itself, since it would involve travelling each time for a meeting or discussion. In any case, the assessee did not have the expertise and resources to develop new products. Further the prototypes are to be tested and validated in house by the supplier as well as by HONDA, this requires equipment for testing and in house capability, which were not available with the assessee. Accordingly, it was imperative for the assessee to avail the services from its associated enterprises. During the relevant previous year, the assessee commercialized 29 new products, therefore, considerable time was spent by the technical team of the associated enterprises in Japan for development of product. It would be appreciated that the cost of development of a single gasket to the associated enterprise is JPY 40,88,000 (Rs 16,35,200 per gasket) in case of metal gaskets and JPY 26,88,000 (Rs 10,75,200 per gasket) in cases of non- metallic gaskets. Further, the senior level employees of the associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of gaskets. Consequent to the support received from the AE the increasing turnover led to increase in the net profit margin to ₹ 10,48,34,509 from ₹ 8,58,91,331 in the preceding previous year resulting in year on year increase of 22.01 % in the net profit margin. 3.1 Re: Payment of royalty The TPO further held that since the assessee is paying royalty for the receipt of technical guidance, it need not have paid management fee. In this regard, it is respectfully submitted that the development of gasket is a technologically intensive activity and requires high degree of technical knowledge and expertise. The assessee neither had the technology nor the technically qualified employees to be able to independently develop gaskets. It would be appreciated that in terms of the joint venture agreement dated 31.01.2005, the associated enterprise provided the assessee with the right to 'use the technical knowledge/information and proprietary know- how'. Such technology is in respect of manufacturing process as well as design engineering etc. On the other hand, against the payment of management fee, the associated enterprise is providing specific services o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s associated enterprises for the development of new products/gaskets. Further, in terms of the management fee agreement, the associated enterprise is also providing the services of testing and validating indigenous raw material. Such services were not covered by the joint venture agreement and, are specifically covered by the management fee agreement (i) Whether intra-group services have been rendered As regards the first question, the OECD states that whether or not a service has, been, rendered depends, on whether the service provides the recipient with some commercial or economic value to enhance its commercial position: Para 7,6 of the guidelines states as under: 7.6 Under the arm's length principle, the question whether an intragroup service has been rendered when an activity is performed for one or more group members by another group member should depend on' whether the activity provides a respective group member with economic or commercial value to enhance its commercial position, This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) - CIT v. Walchand Co. etc., (1967) 65 ITR 381 - J K Woollen Manufacturers v. CIT, 72 ITR 612(SC) - CIT v. Birla Cotton Spg. And Wvg. Mills, 82 ITR 166 (SC) - Madhav Prasad Jatia v. CIT U.P., 118 ITR 200 (SC) - S. A. Builders Ltd. vs. CIT , 288 ITR 1 (SC) - CIT v. Rockman Cycle Industries Ltd., 331 ITR 401 (P H) (FB) - CIT v. Bharti Televentures Ltd, 331 ITR 502 (Del) - CIT vs. EKL Appliances Ltd., ITA No. 1068/2011 1070/2011 (Del HC) The aforesaid settled position that the quantum of expenditure required to be incurred for the purpose of business is the businessman's decision, is of universal application and cannot be given a go by on the pretext of application of the arm's length test provided under the Transfer Pricing Regulations and only price of an expenditure arising being an international transaction can be determined by the TPO having regard to the arm's length test under section 92(1) of the Act. Further, it is submitted that once expenditure on payment for management fees incurred by the assessee are accepted as having been incurred wholly and exclusively for the purpose of business and, therefore, allowable under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of technical knowhow fee and royalty under the provisions of section 37(1) rather than under the provisions of T.P. His decision of not allowing any royalty payment or technical knowhow payment and determining the ALP at NIL cannot be sustained in view of the fact that this technical knowhow fee and royalty were agreed upon when the assessee has originally entered into agreement as on 01.04.2000 much before the TP. provisions came on statute. It may be another reason that assessee has revised the agreement and paid subsequently, partly in the impugned year, but that does not prevent assessee claiming expenditure which was necessary for its business operations in view of the agreement entered at the time of establishing the unit in India. Had there been no revision of the agreement, the payment of technical knowhow fee would have been over by the year 2002 itself. Assessee paid in a sense belatedly the same amount which was payable originally due to rescheduling in payment period. No extra amount was required to be paid. Moreover, on the entire turnover in the intervening years, assessee also would have paid royalty. However, due to business requirements, both the parties ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the AO. The Hon'ble High Court held as follows: 34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the A O. This distinction was made clear by the ITAT in Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax, 2012 (13) ITR (Trib) 422......... ....... 35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. 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 the AO, rather than determining whether such services exist or benefits have accrued. That exercise - of factual verification is retained by the AO under Section 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' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore in our view the payment of royalty is not hit by the provisions of s. 92 of the Act and there is no reason to hold that the expenses should not be allowed under s. 37(1) of the Act, since the expenditure has been incurred by the appellant during the course of business and is having the nexus with the business of the appellant. Therefore the payment of royalty is a business expenditure which has been incurred wholly and exclusively for the purpose of business of the appellant and same is to be allowed in toto as a matter of commercial expediency. Therefore, the case laws relied upon by the learned CIT- Departmental Representative are of no benefit to the Revenue. The reasonableness of expenditure in the present circumstances and facts of case cannot be doubted and accordingly the AOis directed to allow the claim of the appellant and the order of learned CIT(A) is reversed. Thus, ground no. 3 of the appellant is allowed. The Hon'ble Delhi Bench of the Tribunal in the case of Maruti Suzuki India Ltd. (ITA No. 5237/Del/2011) also held in this regard as under: 15. Another realm of the assessee's submission is that as long as an item of expenditure has been incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he records. We have gone through the additional evidences as above, in our considered opinion the consideration of these additional evidences is necessary for proper adjudication of the matter. However, we also note that these documents were not before the authorities below. In our considered opinion, interest of justice will be served, if additional evidences as sought to be placed by the assessee are remitted to the file of the assessing officer for consideration. Accordingly we admit the additional evidence and remit the same to the file of the assessing officer. The AO shall consider these grounds afresh. The TPO while giving the appeal effect to the order of Hon'ble ITAT examined the additional evidences submitted by the assessee and deleted the addition on account of management fees vide its order dated 12.01.2015. Further in the AY 2009-10 and AY 2011-12 also the TPO has accepted the transaction of payment of management fees as being at arm s length and did not draw any adverse inference in this regard. Hence, the payment of management fees, therefore, is made entirely for business consideration and is an expenditure incurred wholly and exclusively for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as thus taken case by TACL. The services provided by TACL broadly included: - Regular interaction and co-ordination with the customer. - Costing of the product in co-ordination with the technical and costing department and submission of quotations in the format prescribed the OE customers. - Price negotiation with the customer and tracking their supply schedules on day-to day basis. - Attending to customer complaints, if any and taking suitable corrective. actions acting as a conduit between the customer and the production line. - Networking with customers and continuously pitching for new businesses while protecting existing businesses. - Put up proposals for necessary price revisions depending up production cost variations due to inflationary increase in prices, exchange fluctuations or other external factors. - Understanding customer requirements and keeping the customer satisfied all the time. - Exploring possibilities of developing new business opportunities - TACL team regularly participated in domestic as well as overseas trade fairs and represented the assessee without debiting any costs to the assessee (d) Financial and Accounting Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould like to submit that the company has about 6/7 employees for managing all the functions of the company, other than manufacturing, e.g. sourcing, vendor developments, sales promotion, dealing/ follow up with the customers, financial matters, accounting, statutory compliances, secretarial and various other administrative and commercial issues. These people are at middle management and require regular support by team of professionals of TACL. At the time of setting up of assessee company, it was conscious decision taken by the joint venture partners to adopt a lean and thin management structure so as to avoid duplication of resources which might remain under-utilized at the joint venture company. In order to achieve this it was decided that majority of technical services on day today basis will be provided by Nippon Leakless Corp., Japan, through its technical staff whereas majority of the managerial and administrative services as mentioned above will be provided by TACL. The disallowance of the payment of administrative charges (management fee) paid to TACL is, in our respectful submission, has been made without appreciation of facts and legal position in this regard and not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. We need not go into any hypothetical issue in this case in view of the accepted position that the factum of services rendered by CDL has not been refuted by the revenue. It needs no reiteration that the settled position in law is that no businessman can be compelled to maximize his profits. The obvious answer to the first question is in the affirmative, in favour of the assessee and against the revenue. The Delhi High Court in the case of CIT vs. Padmani Packaging (P) Ltd.: 155 Taxmann 268 following the decision in the case of CIT vs. Dalmia Cement (Bharat) Ltd. (supra) held as under: Based on the above findings and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del HC) CIT v. Rockman Cycle Industries Ltd., 331 ITR 401 (P H HC) (FB) The Hon'ble Delhi High Court in the case of CIT vs EKL Appliances Ltd (ITA No. 1070/2011) while adjudicating upon the transfer pricing adjustment made by the TPO, held that as long as an expense is incurred wholly and exclusively for the purpose of business, it is irrelevant as to whether such expenditure actually results in profit or not. The Hon'ble High Court held as under: 21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted bov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price of this service is what an independent enterprise would have paid for the same. Thus, whether or not a particular expenditure has to be incurred, depends on the perception of the businessman/assessee, and this business perception cannot be substituted by the revenue's perception of whether or not such expenditure should have been incurred. 4.2 Re: Section 40A(2) : The ld. Senior Counsel for the appellant submitted before us that section 40A(2) is the only provision in the Act which empowers the Revenue to sit in judgment about the reasonableness of a claim of expenditure incurred by the assessee if the revenue were to consider the same as excessive or unreasonable having regard to the fair market value of the services or facilities, taking into account the legitimate needs of business or the benefit derived by or accruing to the assessee. Section 40A(2) names the relationships in which the Revenue may intervene to determine whether the payment by one party to another is excessive or unreasonable. The provisions of section 40A (2) of the Act have been brought on the Statute to prevent evasion of tax through diversion of income by one entity to anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this special leave petition is concerned, no interference is called for as the entire exercise is a revenue neutral exercise. Hence, this special leave petition filed by the Department stands dismissed. . It has been held by the Courts that the disallowance under section 40A(2) of the Act could be considered only after a finding is recorded by the assessing officer that the expenditure was excessive or unreasonable having regard to (i) the market value of goods or services; (ii) the legitimate business needs; (iii) benefit derived by or accruing to the appellant therefrom. The onus is on the assessing officer to find out the fair market value of goods and services and bring on record comparable instances. Reliance is further placed in this regard on the following decisions: - Voltamp Transformers (P) Ltd. vs. CIT: 129 ITR 105(Guj.) - Beta Naphthol P, Ltd. vs. OCIT: 50 TT J 375 (Ind) - Hathiwala Silk Mills vs. ITO: 19 TT J 284 (Ahd) - M Co. vs. ITO: 23 Taxman (Mag), 27 (Ahd) - Binit Corporation vs. ITO: 25 Taxman 238 (Ahd.) (Mag). - Upvan International vs. ITO: 15 ITD 215 (Del) - Rangoon Chemical Works P. Ltd. vs. ACIT: 100 Taxman (Mag) 163 (Ahd). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is vested with any power nor may it assume to itself the power to decide the question whether permission mayor may not be granted or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally. The Delhi High Court in the case of CIT v. Shriram Pistons Rings Ltd., 181 ITR 230 held that where remuneration paid to son of a director of the assessee, was approved by the Company Law Board, no disallowance under section 40A(2) of the Act could be made by the Income-tax department on the ground that the same was excessive considering the professional qualification of the employee or the lack of it. It was observed by the Court that since the Company Law Board had decided that the remuneration paid to the employee was reasonable, it was not ordinarily open to the Income-tax authorities to regard such fixation as unreasonable. Attention is also invited to the decision of Pune bench of the Tribunal in the case of Kinetic Honda Motors limited: 77 ITD 393, wherein the Hon'ble Tribunal deleted the disallowance on the ground that the royalty payment was as per the norms laid down by the guidelines issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel and perused the records. In our considered opinion the consideration of these additional evidences is necessary for proper adjudication of the issue. However, we note that these additional evidences are admitted and remitted to the files of assessing officer. In our considered opinion, interest of justice will be served, if additional evidences as sought to be placed by the assessee are remitted to the file of the assessing officer for consideration. Accordingly we admit the additional evidence and remit the same to the file of the assessing officer. The AO shall consider these grounds afresh. The aforesaid disallowance, it is respectfully submitted, is based on mere suspicion and surmises and is devoid of any cogent reason. No evidence has been brought on record by the assessing officer to substantiate the allegation that the expenditure was excessive and unreasonable. For the aforesaid reasons, it is respectfully submitted that the addition made by the assessing officer under section 40A(2)(b) of the Act is not sustainable and is liable to be deleted. 5. The appellant filed an application for admission of additional evidence in terms of Rule 29 of the ITAT Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such an expression, it is the 'custodian-general' of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission mayor may not be granted under Section 29(1) of the ACT. The Act makes it its exclusive privilege and function. No other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted-or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally. The Delhi High Court in the case of CIT v. Shriram Pistons Rings Ltd., 181 ITR 230 held that where remuneration paid to son of a director of the assessee, was approved by the Company Law Board, no disallowance under section 40A(2) of the Act could be made by the Income-tax department on the ground that the same was excessive considering the professional qualification of the employee or the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal evidence in the interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect. Reliance is also placed in that regard on the following decisions: CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orn of other details, so far as it is relevant for the present purpose, one such situation which is prescribed is admission of additional evidence which enables the Tribunal to pass orders or for any other substantial cause . The presence of the aforesaid expression in rule 29 of the Appellate Tribunal Rules shows that the Tribunal is competent to admit additional evidence in situation which enable to Tribunal to pass orders or for any other substantial cause. XXX 11. In our considered opinion, all the evidences sought to be canvassed for admission are relevant and germane to appropriately determine the arm's length price of the international transactions entered by the assessee with its associated enterprises. Considering the circumstances explained by the assessee, and the bonafides of the reasons not having been assailed by the Revenue, the same deserve to be admitted. Therefore, we deem it fit and proper to admit the additional evidences having regard to the facts and circumstances of the present case: Further, recently in the case of Bentley Systems India Pvt Ltd vs ACIT (ITA No 6160/Del/2013) the Hon'ble Tribunal while adjudicating upon an issue involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more group members by another group member should depend on' whether the activity provides a respective group member with economic or commercial value to enhance its commercial position, This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity inhouse for itself. 9. The Hon ble Jurisdictional High Court in the case of CIT Vs. EKL Appliances Ltd., 345 ITR 241 after referring to the abovementioned OECD guidelines held as follows vide paras 19 to 22: 19. There is no reason why the OECD guidelines should not be taken as a valid input in the present case in judging the action of the TPO. In fact, the CIT (Appeals) has referred to and applied them and his decision has been affirmed by the Tribunal. These guidelines, in a different form, have been recognized in the tax jurisprudence of our country earlier. It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrower than the language employed in Section 37(1) of the Act. This fact is recognised in the judgment itself. The fact that the language employed in Section 37(1) of the Act is broader than Section 57(iii) of the Act makes the position stronger. 20. In the case of Sassoon J. David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 / 1 Taxman 485 (SC), the Supreme Court referred to the legislative history and noted that when the Income Tax Bill of 1961 was introduced, Section 37(1) required that the expenditure should have been incurred wholly, necessarily and exclusively for the purposes of business in order to merit deduction. Pursuant to public protest, the word necessarily was omitted from the section. 21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osroc Chemicals India Pvt. Ltd. Vs. DCIT, ITA(TP) No. 1256(Bang./2011 iv. AWB India Pvt. Ltd. Vs. ACIT, - TS-67-ITAT-2013 (Del)-TP v. Thysssen Krup Industries India Pvt. Ltd. Vs. ACIT (2012) 27 taxmann.com 34 (Mum-Trib.) vi. Yokogawa India Ltd. Vs. ACIT, ITA No. 1329/Bang/2011 Therefore, respectfully following the above ratio we hold that the TPO is not justified in determining the ALP on the payment made for management fees of ₹ 2,99,52,717/- at nil. Accordingly, the grounds of appeal from 2 to 2.10 are allowed. 11. That brings to the issue relating to the disallowance of ₹ 1,49,76,358/- being the amount paid to M/s Talbros Automotive Components Ltd. towards administrative services under Section 40A(2) of the Act. 12. We heard the rival submissions and perused the material on record. It appears from the assessment order that the Assessing Officer had disallowed the impugned payment to its sister concern on the ground that the appellant had not produced any evidence in support of having rendered the services by M/s Talbros Automotive Components Ltd. During the course of hearing, the appellant filed the additional evidence in support of the services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imitations in the matter of exercise of the power. The section enjoins the Assessing Officer in forming any opinion as to the reasonableness or otherwise of the expenditure incurred must take into consideration (i) the legitimate business needs of the company and (ii) the benefit derived by or accruing to the company. The legitimate business needs of the company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman. It is not for the Assessing Officer to dictate what the business needs of the company should be and he is only to judge the legitimacy of the business needs of the company from the point of view of a prudent businessman. The benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The term benefit to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pound, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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