9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (2) TMI 894 - AT - Income TaxDetermination of Arm s Length Price Management fees paid Held that - Assessee has given a detailed write-up as well as the services provided and benefit obtained which were not contradicted - The Assessing Officer did not believe the same in the absence of concrete evidence. Unless the Assessing Officer steps into assessee's business premises and observes the role of these companies/ assessee's business transactions, it will be difficult to place on record the sort of advice given in day-to-day operations - What sort of evidence satisfies the AO is also not specified - Assessee has already placed lot of evidence in support of claims - The decision in CIT Versus EKL APPLIANCES LTD 2012 (4) TMI 346 - DELHI HIGH COURT followed - So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. Assessee has furnished copious material and valid reasons as to why it was suffering losses continuously and these have been referred to by us earlier - Full justification supported by facts and figures have been given to demonstrate that the increase in the employees cost, finance charges, administrative expenses, depreciation cost and capacity increase have contributed to the continuous losses thus, the TPO went beyond his jurisdiction in denying the payment out-rightly, whereas, his role is limited to determining the ALP - In the guise of determination of ALP, the TPO cannot question the business decision of payment and determine that no services were rendered thus, the direction of the TPO cannot be upheld at all - while allowing the ground on the question of claim of management fees as such, the quantification thereof is restored to the Assessing Officer to examine with reference to the agreement between the parties Decided in favour of Assessee. Deferred revenue expenditure Held that - It could not be arrives at whether it is a capital expenditure or revenue expenditure - assessee has purchased certain photosets from Hindustan Lever for its business - In view of the conflicting nature of findings, any finding whether the expenditure is capital or revenue cannot be given - the contention of assessee is accepted to direct the allowance of depreciation for the balance of the period until the life of the asset in accordance with the provisions of the Act thus, the Assessing Officer is directed to allow depreciation in later years if not, already given to the asset capitalized by the Assessing Officer himself in this assessment year Decided partly in favour of Assessee. Outstanding service tax liability Disallowance u/s 43B of the Act Held that - the claim of the assessee is accepted that so much of the service tax not paid/payable cannot be disallowed under section 43B - there is nothing on record to examine whether the claim of service tax has been charged to P & L account - If the same is claimed as an expenditure in the P & L account, the amount to that extent cannot be claimed as an expenditure and to that extent, whether the amount is disallowable under section 43B or under section 37(1), the disallowance is required - The reversal of entry even though happened in the books of accounts in the later year, does not affect the computation of income during the year and the same also does not come within the purview of disallowance under section 43B as the amount is not claimed otherwise thus, the matter is remitted back to the AO for examination Decided in favour of assessee. Disallowance of deduction u/s 80HHE of the Act Held that - In the absence of any contrary material brought on record by the Revenue against the finding of the learned CIT(A) and keeping in view the fact that there is no dispute that assessee company is simply carrying on market survey and that survey is complied as a data and such data is processed and sent to other countries - in view of the CBDT Notification No.S.O.890(E) dated 26.9.2000, assessee is engaged in the export of data processing and accordingly he is entitled to deduction u/s 80HHE of the Act - the order of the CIT(A) upheld - Decided against Revenue. Confirmation of Penalty u/s 271(1)(c) of the Act - Disallowance of management fees at NIL - Held that - Mere disallowance of an amount that too on transfer pricing provisions does not attract penalty under section 271(1)(c), as it cannot be considered as either the concealment of income or furnishing of inaccurate particulars - Relying upon DCIT vs. RBS Equities India Ltd. 2011 (8) TMI 459 - ITAT MUMBAI - payment of management fees is genuine and to be allowed and the matter is restored to the file of Assessing Officer to examine the quantification of the fee claimed as per the agreements thus, there cannot be any issue of levy of penalty thus, the penalty levied is unwarranted and cancelled Decided in favour of Assessee.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for management fees paid. 2. Disallowance of deferred revenue expenditure. 3. Disallowance under section 43B for service tax credit notes. 4. Deduction under section 80HHE. 5. Penalty under section 271(1)(c) for disallowance of management fees. Issue-wise Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for Management Fees Paid: The primary issue was the determination of ALP for management fees paid by the assessee to its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) determined the ALP at NIL, asserting that the assessee could not substantiate the services rendered by the AEs. The assessee provided detailed descriptions of services, agreements, financial statements, and the basis of cost allocation. The Tribunal found that the TPO exceeded his jurisdiction by denying the payment outrightly and emphasized that the TPO's role is limited to determining the ALP, not questioning the business decision. The Tribunal directed the Assessing Officer (AO) to verify the pricing methodology as per the agreement and allow the amounts accordingly. 2. Disallowance of Deferred Revenue Expenditure: The assessee claimed expenditure on photosets as revenue expenditure, while the AO treated it as capital expenditure, allowing depreciation instead. The Tribunal noted conflicting findings regarding the nature of the expenditure and directed the AO to allow depreciation for the balance period until the asset's life, without delving into the capital vs. revenue expenditure debate. 3. Disallowance Under Section 43B for Service Tax Credit Notes: The AO disallowed the outstanding service tax liability shown in the books, which the assessee claimed was discharged or reversed in the later year. The Tribunal accepted the assessee's contention that the service tax not paid/payable cannot be disallowed under section 43B, provided it was not claimed as an expenditure in the Profit & Loss account. The issue was restored to the AO to verify this aspect. 4. Deduction Under Section 80HHE: The Tribunal upheld the CIT(A)'s allowance of deduction under section 80HHE, following the ITAT's decision in the assessee's own case for the earlier year. The Tribunal found that the assessee was engaged in the export of data processing services, which qualifies for the deduction under section 80HHE as per the CBDT notification. 5. Penalty Under Section 271(1)(c) for Disallowance of Management Fees: The AO levied penalties for disallowance of management fees, which the CIT(A) confirmed. The Tribunal found no reason to uphold the penalties, stating that mere disallowance of an amount due to transfer pricing provisions does not attract penalty under section 271(1)(c). The Tribunal noted that the assessee maintained proper documentation and there was no concealment of income or furnishing of inaccurate particulars. The penalties were canceled. Conclusion: The Tribunal provided a detailed analysis of each issue, emphasizing the need for proper verification and adherence to legal provisions. The appeals were partly allowed for statistical purposes, with specific directions to the AO for further examination and verification. The penalties were canceled, and the deduction under section 80HHE was upheld.
|
