2010 (8) TMI 751 - AT - Income Tax

Summary

Issues Involved:
1. Determination of excess credit period allowed to Associate Enterprises (AEs) and disallowance under section 92AC.
2. Disallowance of advertisement expenditure.
3. Disallowance of software expenses.
4. Disallowance under section 14A.
5. Disallowance of interest on advances to associate company.
6. Disallowance of bad debts.

Issue-wise Detailed Analysis:

1. Determination of Excess Credit Period Allowed to AEs and Disallowance under Section 92AC:
The primary issue was whether the Assessing Officer/TPO correctly determined the average 100 days excess credit period allowed to AEs compared to unrelated parties and rightly worked out the quantum of disallowance under section 92AC. The assessee, engaged in travel and tours, had transactions with AEs and unrelated parties, adopting the Transactional Net Margin Method (TNMM) for determining the Arm's Length Price (ALP). The TPO found that the credit period allowed to AEs was more favorable, leading to an interest disallowance of Rs. 81,50,001. The CIT(A) reduced this disallowance to Rs. 11,08,045 after correcting calculation errors. The Tribunal noted that the TPO had wrongly calculated the weighted average credit period and remanded the issue back to the Assessing Officer for re-evaluation.

2. Disallowance of Advertisement Expenditure:
The assessee claimed Rs. 8,01,92,534 as advertisement expenditure, with Rs. 2,38,91,862 pertaining to earlier years. The Assessing Officer disallowed this amount, stating it should have been claimed earlier. For the remaining Rs. 5,63,00,672, the Assessing Officer treated it as deferred revenue expenditure, allowing only 1/5th. The CIT(A) allowed Rs. 5,39,42,311 as revenue expenditure but disallowed Rs. 23,58,361, considering it not pertaining to the current year. The Tribunal upheld the CIT(A)'s decision to allow Rs. 5,39,42,311 and further allowed Rs. 22,00,219, treating it as revenue expenditure.

3. Disallowance of Software Expenses:
The assessee did not press this issue, and the Tribunal dismissed it as not pressed.

4. Disallowance under Section 14A:
The assessee did not press this issue, and the Tribunal dismissed it as not pressed.

5. Disallowance of Interest on Advances to Associate Company:
The assessee provided interest-free loans to M/s. Ezeego, while incurring interest on borrowed funds. The Assessing Officer disallowed Rs. 21,31,174 as interest on these advances. The CIT(A) confirmed this disallowance. The Tribunal found the issue needed reconsideration, as the assessee claimed commercial expediency and interest-free funds usage. The Tribunal remanded the issue to the Assessing Officer for fresh adjudication.

6. Disallowance of Bad Debts:
The assessee claimed Rs. 51,43,835 as bad debts, which the Assessing Officer disallowed due to lack of details. The CIT(A) allowed the claim, noting the bad debts were from amounts receivable for which income was already offered for taxation. The Tribunal upheld the CIT(A)'s decision, citing relevant case law.

Conclusion:
The Tribunal partly allowed both appeals for statistical purposes, remanding specific issues for further examination and upholding the CIT(A)'s decisions on others.