TMI Blog2017 (4) TMI 1340X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical knowhow which are used in the manufacturing activity of the appellant. The appellant had not filed any additional evidences to prove the administrative services/technical knowhow are actually received by the appellant and thus the assessee company had failed to discharge this onus of proving this aspect. Therefore, even as per the provisions of Indian Evidence Act, the presumption can be drawn that the assessee has no evidence to prove this aspect. Therefore, the AO/TPO was justified in adopting the ALP in respect of payment of administrative services and royalty at Nil. Thus, the grounds of appeal in ground Nos. 2 to 7 are dismissed. In respect of the other grounds of appeal, since we held that there was no proof of receipt of administrative services as well as technical knowhow which is used in the process of manufacturing activity, the question of bundling of transaction or aggregating all other transactions does not arise. Disallowance on account of doubtful advance written off - Held that:- The conditions necessary for allowance as a bad debt are not applicable in the present case. It is not a debt arising on account of any sale transaction and a bad debt pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of bench marking the above international transactions. The assessee company also adopted profit before income tax to sales as a profit level indicator. The assessee company s profit margin was computed at 5%. The assessee company claimed that the same was comparable with other companies and claimed that the payment of management fees and royalty are at arm s length. For the purpose of transfer pricing study, the assessee company has chosen comparables whose profit margin was computed at 5%. Thus it was claimed that the payments of management fees and royalty is at arm s length. 4. The AO referred the matter to the TPO for the purpose of bench marking the international transactions the assessee company had entered with AE. The TPO by order dated 16.10.2009 passed under section 92CA(3) of the Act computing the transfer pricing adjustment of ₹ 7,85,84,738/- by determining the arm s length price for administrative services paid to its AE Herbalife International Inc., of ₹ 5,47,91,533/- and the royalty payment of ₹ 2,37,93,205/-. The learned TPO had treated the payment of administrative service fee at Nil on the ground that the assessee company had fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to demonstrate the benefits derived out of such expenditure and also the necessity of incurring such expenditure and finally on the ground that the assessee has failed to prove that the assessee has actually received the services. The Hon ble DRP also confirmed the addition holding that the assessee only made the submission regarding the nature of services received but had not been able to prove that the services are actually received by the assessee company. 9. We heard the rival submission and perused the material on record. Now the law is quite settled that it is beyond the scope and powers of TPO/AO to question the necessity of incurring the expenditure or the benefits of the expenditure incurred. The Hon ble Delhi High Court in the case of CIT Vs. EKL Appliances 345 ITR 241 held that the TPO cannot determine the ALP at Nil by holding that there was no need of incurring such expenditure. In the said case, the Hon ble Delhi High Court after referring to the decision of Hon ble Apex Court in the case of CIT Vs. Walchand and Co. P. Ltd., 65 ITR 381 and Sassoon J David Co (P) Ltd., 118 ITR 261 and CIT Vs. Rajendra Prasad Moody 115 ITR 519 held as follows: 19. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. It is noteworthy that the above observations were made in the context of section 57(iii) of the Act where the language is somewhat narrower than e 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 and Co. Pvt. Ltd. v. CIT [1979] 118 ITR 261 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, particularly on the grounds which have been given by the Transfer Pricing Officer is not contemplated or authorized. 10. Thus, the ratio of the above judgment is that the ALP in respect of any transaction cannot be determined at Nil by holding that there was no benefit accrued on account of incurring such expenditure nor there was any necessity of incurring such expenditure. But the matter does not end there. The onus lies on the assessee to prove that the actual services for which the administrative services fees were paid are actually rendered or the use of technical knowhow @ 5% of the domestic sales. It may be mentioned that the question of the bench marking of transaction would arise only if the assessee proves that there was actual transfer of technical knowhow to the appellant and the technical knowhow was actually used by the assessee in the manufacturing activity of the appellant. It is a matter of fact that before the lower authorities as well as before us, the assessee company had only described the nature of technical knowhow and nature of administrative services received. It does not conclusively prove that the assessee company actually received the administrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant written off this amount as a bad debt and claimed as deduction. This was rejected by the AO by holding that it is not a debt but a statutory duty recoverable from the concerned authorities unless and otherwise the issue of irrecoverability attains the finality by the decision of the appellate courts, the same cannot be allowed as deduction and the same came to be confirmed by the CIT(A) holding that the it cannot be allowed as a business loss. 13. Being aggrieved, the appellant is in appeal before us in present appeal. 14. We heard the rival submission and perused the material on record. The conditions necessary for allowance as a bad debt are not applicable in the present case. It is not a debt arising on account of any sale transaction and a bad debt presupposes existence of a debt and these were not a forming part of the total income in the earlier years of the appellant. Therefore, the claim cannot be allowed as a bad debt. Further, this cannot even be allowed as a business loss for the reason that the issue of irrecoverability from the department has not attained the finality as the issue is pending before the appellant authorities. This can be claimed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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