2015 (9) TMI 19 - AT - Income Tax

Transfer pricing adjustment - Whether the AE has received intra group services ? - What are the economic and commercial benefits derived by the recipient of intra group services ? - Whether a comparable independent enterprise would have paid for the services in comparable circumstances? - Held 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 facts and circumstances we hold that the TP adjustment to the ALP as furnished by the assessee is without any justification. The same is deleted. Apropos the issue about the reimbursement of business services, an amount of ₹ 31,01,476/- has been disallowed as the assessee could not produce any evidence except ledger account. We find no infirmity in the orders of the lower authorities. Since assessee has failed to provide any corroborative evidence in this behalf, the adjustment of ₹ 31,01,476/-made by the lower authorities cannot be found fault with. The same is upheld. Addition on account of alleged suppressed sales of scrap - Held that - In our considered view the approach adopted by DRP is unsustainable in as much as it has the power to issue necessary direction on the basis of material available on record. There is no gainsaying by shrugging off the decision on the pretext of not being an appellate authority. Adverting to AO s observation, assesses books are upheld, no evidence at all has been indicated to form even a suspicion that assessee indulged in any type of suppression of sales. Thus the finding is nothing but an assumed allegation. Never in past or future the assess s scrape sales have been question. The addition being presumptive and based on conjectures is deleted. This ground is allowed. Not allowing the claim of inventories written off - Held that - We have heard the rival contentions and perused material on the record. ITAT in assesssee s own case has allowed the similar claim of inventory write off in AYs 2003-4 to 06-07. Treating the revenue expenditure on account of restructuring as one time expenditure for enduring benefit, hence capital in nature - Held that - 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 of 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 deserve to be allowed Disallowance u/s 40(a)(ia) - non deduction of TDS - Held that - AO in A. Y 2008-09, raised similar issues in respect of Trade Inventive and Distributor Coverage Expenses. The AO himself accepted the same contentions of the assessee and made no disallowance qua these payments u/s 40(a)(ia). Since revenue itself has accepted no TDS liability on such trade incentive in AY 2008-09, the disallowance made u/s 40(a) (ia) for the year is unjustified. Adverting to advertisement issue represents purchases of articles like display units, wall units, floor stands, posters, banners etc., on which VAT was paid. The transactions being of purchase simpliciter and VAT being charged thereon, there is no justification in holding it as advertisement contract. Consequently the question of TDS liability thereon does not arise. Hence the impugned disallowance made u/s 40(a)(ia) is deleted Disallowance of advertisement payment made to Group M Media Pvt. Ltd. - Liability of deduction of tax at source arises u/s 195 - Held that - Since the assessee has deducted TDS u/s 194C, it cannot be disallowed u/s 40(a)(ia). Consequently this ground of the assessee is also allowed.

Issues Involved:

1. Transfer Pricing Adjustments
2. Reimbursement of Advertisement Expenses
3. Addition on Account of Suppressed Sales of Scrap
4. Disallowance of Inventories Written Off
5. Disallowance of Restructuring Expenses
6. Disallowance under Section 40(a)(ia) for Advertisement and Trade Incentive Expenses
7. Disallowance of Advertisement Payment to Group M Media Pvt. Ltd. under Section 40(a)(i)

Detailed Analysis:

1. Transfer Pricing Adjustments:
The assessee challenged the adjustment of Rs. 2,55,82,075/- under Section 92C(3) for business services and reimbursement of advertisement expenses. The TPO's adjustments were based on the assertion that the assessee did not prove the necessity or receipt of outsourced services, resulting in an ALP of NIL for service fees and a markup adjustment on advertisement expenses. The DRP upheld the TPO's findings without independent verification. The Tribunal found that the services were indeed received and substantiated by documentary evidence, and the TPO's determination of ALP at NIL was unjustified. Consequently, the Tribunal deleted the TP adjustment.

2. Reimbursement of Advertisement Expenses:
The assessee received Rs. 95,28,427/- as reimbursement, of which Rs. 31,04,176/- was disputed by the TPO due to lack of supporting evidence. The DRP directed verification of the nature of payment. The Tribunal upheld the adjustment for Rs. 31,01,476/- as the assessee failed to provide corroborative evidence.

3. Addition on Account of Suppressed Sales of Scrap:
The AO added Rs. 1,00,00,000/- for alleged suppressed scrap sales due to lack of detailed records. The DRP acknowledged the estimation but did not delete the addition. The Tribunal found the addition presumptive and unsupported by evidence, thus deleting the addition.

4. Disallowance of Inventories Written Off:
The AO disallowed Rs. 91,83,353/- for inventory write-offs, claiming double deduction. The DRP upheld this, noting ongoing appeals in similar cases. The Tribunal allowed the write-off, citing consistent practice and ITAT decisions in earlier years favoring the assessee.

5. Disallowance of Restructuring Expenses:
The AO treated Rs. 8,74,73,893/- as capital expenditure for enduring benefit. The DRP sustained this view. The Tribunal, referencing Supreme Court judgments, held that the expenses were revenue in nature as they facilitated efficient business operations without creating an asset, allowing the claim.

6. Disallowance under Section 40(a)(ia) for Advertisement and Trade Incentive Expenses:
The AO disallowed Rs. 37,14,84,213/- for non-deduction of TDS on advertisement and trade incentive expenses. The DRP directed verification of TDS applicability. The Tribunal found the expenses were for purchases and trade incentives, not requiring TDS, and deleted the disallowance.

7. Disallowance of Advertisement Payment to Group M Media Pvt. Ltd. under Section 40(a)(i):
The AO disallowed Rs. 23,44,747/- for non-deduction of TDS under Section 195. The DRP upheld this. The Tribunal, referencing its decision for AY 2006-07, held that the payment to Group M Media Pvt. Ltd., an Indian company, was covered under Section 194C, not 195, and deleted the disallowance.

Conclusion:
The Tribunal allowed the appeal in part, deleting the TP adjustment, scrap sales addition, restructuring expenses disallowance, and disallowance under Section 40(a)(ia) for advertisement and trade incentives, while upholding the adjustment for Rs. 31,01,476/- in reimbursement of advertisement expenses.

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