TMI Blog2015 (12) TMI 1800X X X X Extracts X X X X X X X X Extracts X X X X ..... ature. If the same increases the revenue generating apparatus then it will fall in the category of revenue expenditure despite giving enduring benefit - Merely because once for all payment is made it does not ipso facto amount to capital expenditure. Assessee incurred these expenses for shifting of Corporate office from Gurgaon to Mumbai wholly and exclusively for its business. Besides, Hon ble High Court gave the permission for charging of these expenses against amalgamation reserves. In assessment year 2006-07, similar expenditure were allowed by the AO in assessment framed u/s 143(3) after considering the details as such expenditure reflected in the notes to the accounts. Thus assessee s claim falls in the category of revenue expenses and deserves to be allowed. Disallowance of advertisement expenses - whether the assessee has done TDS on the said expenditure or not ? - HELD THAT:- authorities need to taken into consideration the fact that the assessee as in the instant case which have diversed operations and transactions running into thousands crores, it is practically impossible to get each and every expenditure, verified which has been incurred during the year. The auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 4,54,29,602/- u/s 92C(3) in respect of payment for business services to the AE s . In doing so, he has erred in agreeing with the TPO s action. (ii) The ld.CIT(A) has erred on the facts and in law in confirming the action of AO in making disallowance of restructuring expenses of ₹ 4,53,76,793/- related to the employees relocation/related cost and travelling/ training/ economic /administrative cost by treating the same as one time expenditure for enduring benefit, thereby capital in nature as against revenue claimed by the assessee. (iii) The ld. CIT(A) has erred on facts and in law in confirming disallowance of ₹ 35 lacs out of advertisement expenses. Ground taken by Revenue in ITA No. 192/JP/14 (i) The ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of ₹ 1,07,38,198/- made by AO on account of write off of inventories. (ii) The ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance of ₹ 41,61,559/- made by AO on account of Travelling and conveyance expenses. (iii) That the CIT(A) has erred in law as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The Assessing Officer shall enhance the income of the assessee by ₹ 4,54,29,602/- 2.3 Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has sustained the addition following the DRP order dated 10.08.2011 for assessment year 2007-08 where the DRP had upheld the adjustment made by the TPO in the identical facts. 2.4 During the course of hearing the ld. AR reiterated its submission made before the Ld. CIT(A) which are contained at page 19 to 39 of the assessee s paper book. It was further brought to the notice of the Bench that the Coordinate Bench of ITAT in assessee s own case for AY. 2007-08 has decided the matter in favour of the assessee. 2.5 The Coordinate Bench in its order dated 11.08.2015 in ITA No. 1087/JP/2011 for A.Y. 2007-08 has given the following findings at para 5 to 5.2 of its order which reads as under: We have heard the rival contentions and perused the material available on record on this issue. It emerges from the record that assessee submitted following documents: (1) Business services agreement vide its submission dated 27January, 2010 (2) Details break up of services rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 yield cannot be questioned as in cases it may so happen that the services though availed does not yield into any ostensible benefit. Whereas in this case assessee has been able to demonstrate that there are ostensible benefits. Thus this proposition also fails under the domain business acumen of the assessee. Considering all the facts as narrated above, and the case laws, we may further add 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held that merely because once for all payment is made it does not ipso facto amount to capital expenditure. Assessee incurred these expenses for shifting of Corporate office from Gurgaon to Mumbai wholly and exclusively for its business. Besides, Hon ble High Court 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 as 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 deserves to be allowed. This ground succeeds. 3.4 Hence respectfully following Coordinate Bench decision for A.Y. 2007-08, disallowance of ₹ 4,53,76,793/- is deleted. Ground No.2 of the assessee is allowed. 4. Ground No.3 of the assessee as well as ground No.3 of the Departmental appeal relates to disallowance of ₹ 50 lacs made by the AO on account of advertisement expenses. The assessee is contesting disallowance of ₹ 35 lacs which has been sustained by the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 lacs with the following observations which are contained at para 6.3 of his order: I have considered the facts of the case, assessment order and appellant s written submission. Assessing Officer disallowed ₹ 50 lacs on adhoc basis on the ground that appellant did not submit bills and vouchers for verification. Appellant submitted that out of total expenses of ₹ 68.45 crores, TDS was deducted on advertisement expenses to the extent of ₹ 64.83 crores and as such thee expenses are verifiable Fro the details submitted by the appellant, it is clear that still expenses to the extent of ₹ 3.5 crores on which no TDS was deducted are not fully verifiable. Since appellant did not meet the specific requirement of the AO and just submitted Sample invoices, the AO could not have verified the vouchers in respect of these expenses on which no TDS was deducted. The Addition made in earlier years out of these expenses was set-aside by ITAT in earlier years to the AO for detailed verification. Therefore the addition made by the AO is not frivolous or arbitrary. Considering the fact that advertisement expenses to the extent of only ₹ 3.5 crores is without deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the verification of expenditure with the fact as to whether the assessee has done TDS on the said expenditure or not. In our view the authorities need to taken into consideration the fact that the assessee as in the instant case which have diversed operations and transactions running into thousands crores, it is practically impossible to get each and every expenditure, verified which has been incurred during the year. The authorities should taken into consideration the fact that the books have been statutorily audited under the requirements of the Company Law followed by the tax audit as per I.T. Act which should be taken into consideration and due weightage should be given. Further it is noted that the assessee has submitted complete party-wise detail chart on which TDS is deducted. Further detailed explanation on advertisement expenses and sample invoices were also filed vide letter dated 19.12.2011 which has apparently missed the attention of the AO. In light of that, we are of the considered view that there is no basis for disallowance of advertisement expenses on purely adhoc basis, hence the said addition of ₹ 50 lacs is deleted. Hence the ground No.3 of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cost of market price whichever is lower. c) There is no change in the nature of expenses debited under this head as compared with previous years. The inventories appearing as current assets in the audited statement of accounts represent assets: Held for sale in the ordinary occurs of business; In the process of production for such sale; or In the form of material or suppliers to be consumed in the production process or in the rendering of services. The Company as per Accounting Standards-2, issued by the Institution of Chartered Accountants of India, values the above stated inventories at lower of cost or net realizable value and there is no change in the method of valuation during the year as compared with the earlier years. The detailed accounting policy is given above. During the year under consideration, certain obsolete, damaged and unusable inventory items have been written off in the books of accounts. The company has carried out his adjustment to reflect the current ad true value of inventory in the audited statement of accounts and this is in accordance with the system of accounting and method of valuation of inventory regularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. The disallowance of ₹ 3,64,71,703/- confirmed by the CIT(A) only for the reason that these items are not actually destroyed and is only a provision can t be upheld for the reason that item-wise details of the same filed, these are identical items and have been subsequently destroyed as per the regular procedure followed. The write off for obsolesce of such identified items is allowable deduction as per the case laws relied by the Ld. AR . In fact no provision is created in books of accounts but only the nomenclature of provision for obsolesce is used. In the balance sheet also no such provision is appearing either in the liabilities side or as reduction from asset side nor the Ld. AR could point out any provision in the balance sheet. Therefore, the disallowance of ₹ 3,64,71,703/- confirmed by the ld. CIT(A) is deleted. 5.4 We have heard the rival contentions and perused the material available on record. It is noted that the assesee has given details about the inventory write off alongwith the ledger codes whereby the identified items of inventory are written off in the books of accounts. Further it is noted that there is no change in the accounting polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there is no question of disallowing these expenses which were incurred wholly and exclusively for the purpose of business. Assessing Officer did not point out the defect or what was missing. Accounts of the appellant were audited and therefore without point out any defect, such adhoc disallowance of business expenses is not justified In the immediate preceding year i.e assessment year 2007-08, DRP accepted the appellant s objection against this addition proposed by the AO and deleted the addition. Facts in this year are identical and therefore respectfully following the decision of DRP in the immediate preceding year, disallowance made by the Assessing Officer is deleted. 7.2 We have heard the rival contentions and perused the material available on record. The disallowance of Misc. expenses to the extent of 10% of the total expenditure is clearly on adhoc basis as confirmed by the ld. CIT(A). We see no infirmity in the order of the ld. CIT(A) who has deleted the said disallowances. Hence this ground No. 4 of the Revenue is dismissed. 7.3 In the result, the ground No.1,2, 3 taken by the assessee are allowed and ground No. 1,2,3 4 taken by the Revenue are dismissed. ..... 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