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2013 (5) TMI 191 - AT - Income TaxDisallowance on account of MK 20 Development Expenses - relevant details were not available on record. Held that - A similar issue was restored by the Tribunal to the file of the AO in assessment year 2001-02 with a direction to verify the relevant details and allow the claim of the assessee as per law and the rule of consistency, in our opinion, was rightly applied by the learned CIT(Appeals) while sending back the similar issue to the file of the AO Legal expenses - whether capital in nature. - Held that - There is no evidence available with the assessee in the form of bill or receipt issued by the concerned Advocate to support and substantiate this claim and in the absence of the same, we find no justification in allowing the claim of the assessee for deduction on account. We, therefore, uphold the impugned order of the learned CIT(Appeals). Irrecoverable debit balance written off - Held that Appellant contended that the allowability of the said amount as business loss as claimed by the assessee alternatively having not been considered either by the AO or by the learned CIT(Appeals), this issue may be sent back to the AO for this purpose. - Matter remanded back. Contributions made by the assessee to various funds - worker s union - disallowance u/s 40A(9). - Held that According to appellant most of the contributions having been made by the assessee as per the settlement arrived at with the workers union, the same are covered by the Industrial Dispute Act, 1947 and provisions of section 40A(9) of the Act cannot be invoked. However, no evidence was provided for the same. - matter remanded back. TP adjustment transactions with its AE involving import of components. - Held that - The only contention raised by the learned DR on this issue is that the learned CIT(Appeals) has taken net margin of the assessee as well as that of the two comparables assuming that the method adopted by the assessee is TNMM whereas he should have taken only the gross margin as the method actually adopted by the assessee for the relevant transactions is resale price method. The basis of comparability analysis has to be done by taking into consideration the gross margin of the assessee company as well as the two comparables. - Matter remanded back. TP adjustment in respect of transactions involving payment of royalty by the assessee company to its associated enterprises. - Held that - The issue involved in the present case is relating to the determination of arm s length price in relation to the international transactions involving payment of royalty by the assessee company to its associated enterprises. it appears from the TP report submitted by the assessee as well as the orders of the authorities below that neither the assessee nor the TPO or even the learned CIT(Appeals) has followed this procedure prescribed in section 92C of the Act and Rule 10B of the Income-tax Rules, 1962 to determine the arm s length price in relation to the royalty payment made by the assessee to its associated enterprises - matter remanded back. Deduction on account of payments made by the assessee to various professionals for taking advise for restructuring - Held that - At the time of hearing before us, the learned representatives of both the sides have agreed that this issue is squarely covered by the order of the Tribunal passed in assessee s own case for assessment year 2001-02 relying on which the learned CIT(Appeals) has given relief to the assessee in the year under consideration. - Deduction allowed - in favor of assessee.
Issues Involved:
1. Disallowance of MK 20 Development Expenses. 2. Disallowance of Legal Expenses. 3. Disallowance of Irrecoverable Debit Balance Written Off. 4. Disallowance of Contributions to Various Funds. 5. Transfer Pricing Adjustment for Import of Components. 6. Transfer Pricing Adjustment for Royalty Payments. 7. Disallowance of Professional Fees for Business Restructuring. Issue-wise Detailed Analysis: 1. Disallowance of MK 20 Development Expenses: The assessee challenged the CIT(A)'s decision to set aside the disallowance of Rs.48,94,509/- on MK 20 Development Expenses to the AO, arguing that all relevant details were available on record. The CIT(A) followed a previous Tribunal decision from assessment year 2001-02, which restored a similar issue to the AO for verification and allowance as per law. The Tribunal upheld the CIT(A)'s decision, emphasizing the rule of consistency and dismissed the assessee's appeal on this ground. 2. Disallowance of Legal Expenses: The assessee contested the disallowance of Rs.7,40,215/- on legal expenses, treated as capital in nature. The AO and CIT(A) disallowed Rs.7,10,215/- paid to M/s Doijode Phatraphekar Associates and Rs.30,000/- paid to Advocate C.M. Khorde. The assessee's counsel did not press the former disallowance but argued for the latter, claiming it was for protecting business assets. However, due to lack of supporting evidence, the Tribunal upheld the CIT(A)'s disallowance and dismissed the appeal on this ground. 3. Disallowance of Irrecoverable Debit Balance Written Off: The AO and CIT(A) disallowed Rs.26,29,062/- of the total Rs.40,43,690/- written off as bad debts, as it represented advances to suppliers not previously shown as income. The assessee agreed it couldn't be allowed as bad debts but sought consideration as a business loss. The Tribunal restored the issue to the AO for examining its allowability as a business loss, treating the appeal as allowed for statistical purposes. 4. Disallowance of Contributions to Various Funds: The AO disallowed Rs.1,70,218/- contributed to various funds, invoking section 40A(9), as they were not covered under sections 36(1)(iv) or 36(1)(v). The CIT(A) upheld this, noting the contributions were to non-statutory funds. The Tribunal, finding no supporting evidence for the assessee's claim that contributions were per agreements with workers' unions, upheld the CIT(A)'s disallowance and dismissed the appeal on this ground. 5. Transfer Pricing Adjustment for Import of Components: The AO made a TP adjustment of Rs.39,75,000/- based on the gross margin comparison with Ingersoll Rand Ltd., rejecting L&T Ltd. as a comparable. The CIT(A) included L&T Ltd. as a comparable, noting its acceptance in subsequent years by the TPO, and deleted the adjustment. The Tribunal agreed but restored the issue to the AO/TPO to rework the arm's length price using the gross margin, treating the appeal as partly allowed for statistical purposes. 6. Transfer Pricing Adjustment for Royalty Payments: The AO determined the arm's length price for royalty payments at nil due to lack of comparable details. The CIT(A) deleted the adjustment, noting the effective royalty rate was 1.87%, lower than RBI-approved rates, and justified by the profit margins. The Tribunal found procedural lapses in determining the arm's length price and restored the issue to the AO/TPO to follow the prescribed method, treating the appeal as allowed for statistical purposes. 7. Disallowance of Professional Fees for Business Restructuring: The AO disallowed Rs.66,69,785/- paid to professionals for business restructuring, treating it as capital expenditure. The CIT(A) deleted the disallowance, following a previous Tribunal decision in the assessee's favor for assessment year 2001-02. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. Conclusion: The appeals by both the assessee and the Revenue were partly allowed for statistical purposes, with several issues restored to the AO/TPO for re-examination and verification.
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