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2018 (2) TMI 1851 - HC - Income TaxTP Adjustment - (AMP) expenditure as an international transaction u/s.92B - compensation to be received by the assessee from its Associated Enterprise (AE) for creating marketing intangibles and promoting the brand name of its AE, specifically when the assessee company was promoting marketing intangibles of its AE though the brand belongs to the AE and not to the assessee - HELD THAT - As decided in assessee s own case 2017 (7) TMI 1188 - RAJASTHAN HIGH COURT and Maruti Suzuki case 2015 (12) TMI 634 - DELHI HIGH COURT AMP expenditure incurred by the assessee could not be treated and categorized as an international transaction u/s 92B of the Act and thereby, the adjustment on account of AMP expenditure is hereby deleted and ground of the assessee s appeal is allowed. Disallowance of traveling and conveyance expenses - non deduction of tds - company neither specified the nature and purpose of expenses nor any supporting evidence was filed to justify the claim - HELD THAT - As decided in assessee s own case 2017 (5) TMI 1597 - RAJASTHAN HIGH COURT has admitted that bills and vouchers of expenses, as desired, were produced for verification which was test checked. The observation of AO that services has been received by the assessee against these payment and therefore he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable disallowance made by the AO on this account is deleted. Disallowance of miscellaneous expenses - claim neither verifiable as no supporting evidence was available and also the same could not be established to have been incurred wholly and exclusively for the purpose of business - HELD THAT - As decided in assessee s own case 2017 (5) TMI 1593 - RAJASTHAN HIGH COURT AO has made the disallowance without specifying any particular expenses which is not verifiable or not incurred wholly and exclusively for the purpose of business when he has given a finding at Page 2 of the order that bills and vouchers of expenses as desired were produced for verification and examined on test check basis. We also noted that such adhoc disallowance is not approved by the DRP in A.Y. 07-08. Considering the same, the adhoc disallowance made by AO is deleted - Revenue appeal dismissed.
Issues Involved:
1. Deletion of addition on account of compensation for creating marketing intangibles. 2. AMP expenditure as an international transaction. 3. Exclusion of selling expenses from AMP expenditure. 4. Deletion of addition on account of Arm's Length service fee payment. 5. Deletion of disallowance on account of inventories written off. 6. Deletion of addition on account of traveling and conveyance expenses. 7. Deletion of addition on account of miscellaneous expenses. Detailed Analysis: Issue 1: Deletion of addition on account of compensation for creating marketing intangibles The Tribunal was legally justified in deleting the addition of ?1,90,02,98,677/- made on account of compensation to be received by the assessee from its Associated Enterprise (AE) for creating marketing intangibles and promoting the brand name of its AE. The Tribunal held that the expenses incurred for creating marketing intangibles and promoting the brand name of its AE were genuine business expenses. The Tribunal emphasized that the company has the discretion to decide the ratio of expenses to be incurred for promoting its products at different levels, whether national or international. The Tribunal found no substantial evidence to disallow the expenses merely because they were deemed excessive. Issue 2: AMP expenditure as an international transaction The Tribunal was legally justified in holding that Advertisement, Marketing, and Promotion (AMP) expenditure was not an international transaction under Section 92B. The Tribunal reasoned that the AMP expenditure incurred by the assessee could not be treated as an international transaction because it was part of the regular business operations and not an independent transaction. The Tribunal referenced the decision of the Delhi High Court in the case of Maruti Suzuki, which supported the view that AMP expenditure should not be categorized as an international transaction. Issue 3: Exclusion of selling expenses from AMP expenditure The Tribunal was legally justified in holding the ground of the revenue as infructuous regarding the exclusion of selling expenses from the AMP expenditure. The Tribunal observed that there was no change in the facts and circumstances of the case and no contrary authority was brought to its notice. The Tribunal followed the earlier decision of the Coordinate Bench, which had allowed the exclusion of selling expenses from the AMP expenditure. Issue 4: Deletion of addition on account of Arm's Length service fee payment The Tribunal was legally justified in deleting the addition of ?8,92,06,347/- made on account of Arm's Length service fee payment to its AEs. The Tribunal found that the assessee had not charged interest from both AEs and non-AEs and that the adjustment for notional interest on outstanding receivables could not be made. The Tribunal referenced the decision of the Bombay High Court in the case of Indo American Jewellery Ltd., which supported the view that no adjustment could be made if the assessee did not charge interest from non-AEs as well. Issue 5: Deletion of disallowance on account of inventories written off The Tribunal was legally justified in deleting the disallowance of ?5,79,30,029/- made on account of inventories written off. The Tribunal noted that the expenses were genuine and incurred wholly and exclusively for the purpose of business. The Tribunal found that the Assessing Officer had made the disallowance without specifying any particular expenses that were not verifiable or not incurred for business purposes. Issue 6: Deletion of addition on account of traveling and conveyance expenses The Tribunal was legally justified in deleting the addition of ?37,08,461/- made on account of traveling and conveyance expenses. The Tribunal found that the expenses were genuine and incurred for business purposes. The Tribunal noted that the Assessing Officer had made the disallowance without specifying any particular expenses that were not verifiable or not incurred for business purposes. Issue 7: Deletion of addition on account of miscellaneous expenses The Tribunal was legally justified in deleting the addition of ?84,92,509/- made on account of miscellaneous expenses. The Tribunal found that the expenses were genuine and incurred wholly and exclusively for the purpose of business. The Tribunal noted that the Assessing Officer had made the disallowance without specifying any particular expenses that were not verifiable or not incurred for business purposes. The Tribunal referenced the decision in the case of Alfa Laval (India) Ltd., which supported the view that the expenses were allowable under Section 37 of the Act. In conclusion, the Tribunal's findings on all issues were upheld, and the appeal was dismissed with no substantial questions of law arising.
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