TMI Blog2017 (6) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal in assessee’s own case for AY 2007-08, we hereby restore the issue regarding determination of arms length price with regard to receipt of second line support services to the file of TPO/AO to redetermine the issue. Ad hoc disallowance being 10% of the advertisement and business promotion expenses by treating the same to be capital in nature - Held that:- Despite the fact that in case of Sony India Private Limited vs. ACIT (2008 (9) TMI 420 - ITAT DELHI-H ), coordinate Bench of the Tribunal has deleted similar disallowances on the ground that expenditure incurred by the assessee company on advertisement and sales promotion has not resulted in accrual of any advantage of enduring nature and the same are in the nature of Revenue field and not in the capital field so as to treat the same as capital in nature. Ld. DRP has merely directed the AO to make disallowance of 10% of advertisement expenses only after ascertaining the fact that if the department has accepted the judgment of Tribunal rendered in case of Sony India Private Limited (supra). But till date the department has not come up if findings returned by the Tribunal in Sony India Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 16,60,70,145 in part made by the Ld. Transfer Pricing Officer ( TPO ) to the Appellant's income, is without appropriate application of mind and in undue haste. 2. The reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Learned Transfer Pricing Officer ( Ld. TPO ) for computation of the Arm's Length Price ( ALP ), as is required under section 92CA(1) of the Act. 3. The Ld. AO pursuant to the directions of the Ld. DRP erred on facts and in law in enhancing the income of the Appellant by ₹ 16,60,70,145 holding that the international transactions pertaining to the receipt of second line support services do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 3.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 3.2. disregarding the ALP, as determined by the Appellant in the Transfer Pricing (TP) documentation maintained by it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, a wholly owned subsidiary of Telefonaktiebolaget LM Ericsson, Sweden, which is incorporated under the Indian Companies Act, 1956, which is the ultimate holding company of all Ericsson Group Companies situated across the globe. Assessee company, during the year under assessment, was into the business of trading, manufacturing/ assembly of telecommunication carrier equipment for sale to the independent customers, providing implementation, commissioning and support services relating to telecommunication systems and marketing of telecommunication equipment manufactured by Group Companies and contract telecommunication software development services. 3. During the year under assessment, the assessee company entered into following international transactions :- S.No. Description of transaction Method Selected Total value of Transaction (Rs.) 1. Purchase of raw material, spares etc. Transactional Net Margin Method ( TNMM ) 18,766,728,990 2. Sale of material 113,386,404 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by applying the CUP method, the arm s length price of the transaction of payment for services availed for the second line support including software related errors is determined as nil as against ₹ 34,29,13,561/- determined by the assessee and thereby enhanced the income of the assessee by ₹ 34,29,13,561/-. 6. The assessee carried the matter before the ld. DRP by raising objections who disposed off the objections. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal. 7. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and 7 orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.3, 3.1, 3.2, 3.3, 3.4, 3.5 3.6 8. Ld. AR for the assessee challenging the impugned order relied upon the order passed by the Tribunal in assessee s own case for AY 2007-08 vide order dated 11.05.2012 in ITA No.5141/Del/2011 and this factual position has not been controverted by the ld. DR for the Revenue. It is also not in dispute that the facts of the present case are similar to that of AY 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration on account of AMC after the expiry of the warranty period and the figures relating to that have already been mentioned. The gross revenue has been earned at ₹ 118,94,04,863/-. To ensure the faultless working of the equipment the assessee, as a matter of business expediency, has to resolve all the problems relating to that instrument. The assessee has its own set up for resolving the minor problems which it has resolved at its own. The assessee is aware of the fact that it has to incur expenditure with respect to each of the SLS invoked by him, therefore, from the data it is clear that minimum number of problems have been referred to the AE. Therefore, for availing the services of the AE for resolving the complicated problems the prerogative is of the assessee and the Department cannot say that the assessee does not require to make any payment for resolving the complicated problems of the instruments. Anybody obtaining AMC must have intention that the instrument which he is operating for his use should run continuously and effectively and it is for that purpose only one would avail AMC. Anticipating that some problems may not be resolved at the level of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorized. 30. Keeping in view the aforementioned decision of Hon'ble Delhi High Court, we are of the opinion that it will be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partly allowed for statistical purposes. 10. Following the decision rendered by the coordinate Bench of the Tribunal, we are of the considered view that the TPO has erred in holding that a subsidiary does not have to pay for audit accounting and such other functions performed by the parent company as owner of the subsidiary company and in further holding that if the subsidiary was independent company, it would neither require such services nor it would pay for the same. Hon ble jurisdictional High Court in CIT vs. EKL Appliances Ltd. (ITA No.1068 / 2011) followed by the coordinate Bench in assessee s own case for AY 2007-08, held that, it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee or those expenses have not benefited the assessee. So, in 13 the instant case also, the duty of the TPO is to examine the quantum of expenditure as per law but the allowability of the expenses as business expenditure is required to be examined by the AO. So, following the decision rendered by the coordinate Bench of the Tribunal in assessee s own case for AY 2007-08, we hereby restore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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