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TMI Blog2017 (4) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... sion paid as well as confirmation of services rendered or other evidence like agreement, identity of persons receiving the sales commission the AO treated the said amount of Rs. 33,60,000/- as not a genuine expenditure and added to the income of the assessee. On appeal the assessee contented that a bill was raised by Shri Rakesh Gupta towards business promotion and development expenses at the rate of 11% on 6,40,00,000/-, the total order value of M/s. Khodayss System Limited. It was also claimed that this payment is also linked to the realization of debts. The assessee has pointed out that out of the said amount of Rs. 33,60,000/- the accrued selling expenses was Rs. 24 Lakhs and these were incurred during the ordinary course of business. The balance amount of Rs. 9,60,000/- was claimed to have been paid to Ms. Latha Gehani towards marketing services which is also incurred wholly and exclusively for the purpose of business. Thus the assessee claimed that this entire amount of Rs. 33,60,000/- is an allowable expenditure. The CIT(A) noted that Shri Rakesh Gupta has submitted the bill on 28.01.2003 much before the close of the accounting year quantifying the sales at Rs. 6,40,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as executed in the next year and therefore the assessee provided only Rs. 24 Lakhs on proportionate basis on the sales effected during the year. 6. We have considered the rival submissions as well as relevant material on record. This issue is common in both the appeals filed by the revenue as well as by the assessee. Since the CIT(A) has disallowed the substantial claim of the assessee to the extent of Rs. 24 Lakhs paid to Shri Rakesh Gupta and allow the remaining amount of Rs. 9,60,000/- paid to Ms. Latha Gehani therefore both assessee as well as revenue have challenged the impugned order of the CIT(A) on this issue. The assessee has raised this issue in ground no. 3 of the assessee's appeal. We find that the AO has disallowed the entire claim of the assessee of Rs. 33,60,000/- for want of any evidence, confirmation of service rendered, any agreement, identity of persons receiving the sales commission. The CIT(A) has dealt with this issue in para 6.3 as under. 7. It is apparent from the finding of the CIT(A) that the proper record and facts have not been discussed and analyzed by the CIT(A). So far as the claim of Rs. 24 Lakhs paid to Shri Rakesh Gupta it is based on the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while the salary of shared services unit it was shown at Rs. 6,52,056/- total amounting to Rs. 1,69,15,086/- out of the total employees cost of the assessee of Rs. 3,14,46,386/-. The TPO noted that the payment of 1.62 crores to 18 employees means that the average payment to each employee is about Rs. 9 Lakhs per annum and monthly salary comes to Rs. 75,000/- per employee. Considering the nature of work the employee would be rendering for AMC the payment of monthly salary of Rs. 75,000/- was found to be highly excessive. Similarly under the head administrative, selling and general expenses Rs. 1,35,05,176/- were shown as pertaining to AMC segment out of the total expenditure under this head of Rs. 2,55,45,092/-. Thus the TPO found that out of the total cost of Rs. 5.69 cores Rs. 3.04 crores of operating cost was apportioned to AMC activity. The TPO has recomputed the allocation of the operating cost among three segments in proportionate to the revenue and then recomputed the arms length price of the international transactions. The TPO has allocated cost to the marketing, trading and AMC in the ratio of 32.80 : 57.77 : 9.43 respectfully being the ratio of sales revenue on these three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the TPO has noted that the other indirect cost were also not properly allocated by the assessee while computing the operating margins for the purpose of bench marking its international transaction. The TPO then undertaken the exercise of reallocation of the total operating cost in the ratio of turnover of three segments. It is pertaining to note that the allocation of cost can be made only in respect of indirect common cost incurred in respect of all the segments. Therefore the allocation of the cost can be made only in respect of the indirect cost. The cost which is directly related to a particular segment cannot be reallocated. The same can be examined for the purpose of allowability and genuineness but not for the purpose of reallocation. Accordingly, we find that the action of the TPO in allocating the direct as well as indirect cost in the ratio of turnover of each segment is not proper and justified. Hence we do not find any error or illegality in the impugned order of the CIT(A) which has taken note of the fact that if the direct cost is taken out from the allocation then the adjustment made by the TPO will not survive. Hence we uphold the impugned order of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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