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2017 (4) TMI 1597 - AT - Income TaxTP Adjustment - Arm s Length Price (ALP) in respect of advertisement expenditure incurred by the assessee to the Associate Enterprises (AEs) - HELD THAT - This issue is squarely covered by the decision of co-ordinate bench of this Tribunal in assessee's own case 2016 (5) TMI 1589 - ITAT CHENNAI All the risks associated with the sales of AEs, is to be borne by AE only. In such circumstances, assessee is not required to incur any expenditure towards sales. More so, when there is no stipulation by way of any agreement between the assessee and the AE, it is to be borne in mind that if the assessee had sold similar goods to other non-AE, assessee would not have incurred such expenditure. The benefit derived from the impugned expenditure is not at all for the assessee and it goes directly to the AE only. In our opinion, services in connection with such advertisement cost which was incurred in abroad, benefit accrued to AE and the assessee cannot claim any of such expenditure as the AE is in different tax jurisdiction constituted distinct and independent entity subject to the law of the respective countries and the parent company cannot claim the benefits of their AE s business or may claim a beneficial ownership treating the AE as virtually non entities - investment of expenditure to AE is very much a transaction as per section 92F(v) and consequently it is a international transaction as per sec.92B of the Act requiring consideration u/s.92 - we are inclined to dismiss the ground taken by the assessee. Transfer Pricing addition on account of interest in respect of interest free advertisement advances made by the assessee to it s A.Es . - HELD THAT - Relying on assessee's own case 2016 (5) TMI 1589 - ITAT CHENNAI , we are inclined to dismiss the ground taken by the assessee. Disallowance u/s.14A - HELD THAT - For assessment year 2006-07, Rule-8D is not applicable as it was inserted with effect from 24.03.2008. Accordingly, in our opinion for these assessment years we direct the A.O to disallow 2% of the exempted income on -This ground raised by the assessee is partly allowed. Apportionment of the common expenses on the basis of turnover for the purpose of deduction u/s.80-IC - HELD THAT - As decided in own case 2016 (5) TMI 1589 - ITAT CHENNAI profit from Euro Watch Division to be worked out on standalone basis by apportioning of necessary expenditure in proportionate to the turnover to this division and ascertained the true profit of the Euro Watch Division. The market value of product of the Euro Watch Division is to be determined on the average price to be paid, or paid by the assessee to the other parties in the open market, had it been purchased from the outsiders which would be in terms of Sec.80-IA(8) r.w.sec.80-IB(13) of the Income Tax Act. Accordingly, the issue in dispute is remitted to the file of the AO for re-computation of the profit of Euro Watch Division and considered the claim of assessee for deduction u/s.80-IB in the case of West Coast Paper Mills Ltd. 2006 (4) TMI 184 - ITAT BOMBAY-I . Provision for doubtful advances - A.R pleaded that the assessee has already disallowed while computing the income of assessee in the assessment year under consideration while determining the tax liability and the same cannot be offered to tax twice in the hands of the assessee - HELD THAT - After hearing both the sides, we are of the opinion that the assessee has not produced any evidence before us to substantiate this argument. Accordingly, we remit the issue in dispute to the file of AO with a direction to assessee to place necessary evidence to support of its claim before the AO. Therefore, this issue is remitted to the file of AO for fresh consideration.
Issues:
1. Arm's Length Price (ALP) for advertisement expenditure to Associate Enterprises (AEs) 2. Transfer Pricing addition on interest for interest-free advertisement advances to AEs 3. Disallowance under section 14A of the Act 4. Apportionment of common expenses for deduction under section 80-IC of the Act 5. Provision for doubtful advances Arm's Length Price (ALP) for Advertisement Expenditure to AEs: The appeal concerned the assessment order directed against the Assessee for the assessment year 2006-07. The primary issue was the Arm's Length Price (ALP) in relation to advertisement expenditure incurred by the Assessee for its Associate Enterprises (AEs). The Tribunal referred to a previous decision in the Assessee's own case, where it was observed that the expenditure incurred on advertisement, which benefited the AEs, did not directly benefit the Assessee. The Tribunal highlighted the lack of an agreement or documents showing the Assessee's liability to incur such expenditure. The Tribunal also emphasized that the risks associated with sales were borne by the AEs, not the Assessee. Consequently, the Tribunal rejected the Assessee's claim for the advertisement expenditure. Transfer Pricing Addition on Interest for Interest-Free Advertisement Advances to AEs: Another issue was the Transfer Pricing addition on account of interest for interest-free advertisement advances made by the Assessee to its AEs. The Tribunal, relying on a previous decision in the Assessee's case, held that the transaction between the Assessee and the AEs constituted an international transaction under the relevant provisions. The Tribunal determined that the Assessee, by providing interest-free advances to the AEs, had taken a risk and incurred expenditure on behalf of the AEs. The Tribunal upheld the application of LIBOR plus 2% rate for charging interest on such outstanding amounts, as established in previous case law. Consequently, the Tribunal dismissed the Assessee's ground on this issue. Disallowance under Section 14A of the Act: Regarding the disallowance under section 14A of the Act, the Tribunal noted that Rule-8D was not applicable for the assessment year in question. Therefore, the Tribunal directed the Assessing Officer (AO) to disallow 2% of the exempted income based on a High Court judgment. The Tribunal partially allowed the Assessee's ground on this issue. Apportionment of Common Expenses for Deduction under Section 80-IC of the Act: The issue of apportionment of common expenses for the purpose of deduction under section 80-IC of the Act was also raised. The Tribunal, following a previous decision in the Assessee's case, remitted the issue to the AO for fresh consideration. The Tribunal directed the AO to recompute the profit of the Euro Watch Division and assess the claim for deduction under section 80-IB in accordance with the Tribunal's directions in the earlier case. Provision for Doubtful Advances: Lastly, the appeal addressed the provision for doubtful advances of a significant amount. The Assessee argued that the amount had already been disallowed while computing the income for the relevant assessment year. However, the Tribunal found a lack of evidence to support this argument and remitted the issue to the AO for further examination. In conclusion, the Tribunal partly allowed the Assessee's appeal for statistical purposes, addressing various complex issues related to transfer pricing, advertisement expenditure, disallowances, and deductions under different sections of the Act. The Tribunal's decisions were based on previous case law and specific considerations relevant to each issue raised in the appeal.
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