2015 (6) TMI 1260 - AT - Income Tax

TP Adjustment - International Transactions which its associate concern and the assessee has failed to furnish the report from accountant in the prescribed form containing the TP Study as per provisions of section 92E - HELD THAT - Admittedly, the assessee has entered into International Transactions which its associate concern and the assessee has failed to furnish the report from accountant in the prescribed form containing the TP Study as per provisions of section 92E of the Act. Hence, the assessing officer has proceeded to determine the ALP of the International Transactions by disallowing 10% of the purchase value. Before us, both the parties have submitted that the ALP has to be determined only in the manner prescribed under the Act. When the Act prescribes a particular procedure, it is the duty of both the parties to adhere to those procedures. We are of the view that this issue of case for a fresh examination. We direct the assessee to furnish the report of the accountant before the AO in the set aside proceedings and there after the AO shall proceed to examine this matter in accordance with the law. Disallowance of advertisement and public relation expenses - AO disallowed the claim of the assessee, apparently by invoking the Explanation given u/s 37(1) - HELD THAT - We notice that the tax authorities have taken a generalized view that the advertisements have been banned by Government regulations and hence these expenses are not allowable. In fact, the tax authorities seem to have not examined the break-up details of the advertisement expenses. It is the submission of the assessee that these expenses were not incurred on public advertisements. The assessee has furnished relevant regulations - A perusal of the same would show that the restriction is placed on the News papers and Cable TV operators in carrying advertisement of liquors. It is not the case of the department that the assessee has carried out advertisement in news papers and cable TV channels, which is in fact prohibited. It is also submitted that the advertisement expenses incurred by the assessee was allowed in the earlier years. Under these set of facts, we are of the view that the advertisement expenses incurred by the assessee are not hit by the Explanation given u/s 37(1) of the Act. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to allow this expenses claimed by the assessee. Disallowance of Excise Vend Fee and Octroi Duty - HELD THAT - According to the assessee, the above said payments have been made by M/s Wine Enterprises on behalf of the assessee and hence it has accounted for the same and reimbursed the amounts in the subsequent year. This claim of the assessee has not been examined by the tax authorities. At the same time, we notice that the assessee has also failed to substantiate its claim by furnishing the relevant documents and it has also failed to show that M/s Wine Enterprises has not claimed the impugned payments as its expenditure. Hence, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO for fresh examination. Assessee is also directed to furnish necessary documents to substantiate its claim.

Summary

Issues:
1. Determination of Arms Length Price of International Transactions.
2. Treatment of Product Launch Expenses.
3. Disallowance of Advertisement and Public Relation Expenses.
4. Disallowance of Excise Vend Fee and Octroi Duty.

Analysis:

1. Determination of Arms Length Price of International Transactions:
The case involved the failure of the assessee to file the prescribed report for International Transactions as required by section 92E of the Income Tax Act. The assessing officer added 10% of the total purchases to the income due to the absence of the report. The CIT(A) deleted this addition, stating that the Customs Authorities' approval of purchase value should be considered. The Tribunal directed the assessee to furnish the accountant's report for a fresh examination, emphasizing adherence to procedures prescribed by the Act.

2. Treatment of Product Launch Expenses:
The dispute centered on the partial relief granted by the CIT(A) regarding product launch expenses. The AO and CIT(A) had differing views on the allowable deduction for these expenses. The Tribunal held that the concept of deferred revenue expenditure is not generally followed in income tax proceedings. Referring to relevant case law, the Tribunal directed the AO to allow the product launch expenses in full for the year under consideration.

3. Disallowance of Advertisement and Public Relation Expenses:
The AO disallowed the claim for advertisement and public relation expenses, citing the prohibition on alcoholic product advertisements by the Government. The Tribunal found merit in the assessee's submissions, noting that the expenses were not incurred on public advertisements but for promoting sales through private events and professional services. The Tribunal directed the AO to allow these expenses claimed by the assessee.

4. Disallowance of Excise Vend Fee and Octroi Duty:
The AO disallowed the Excise Vend fee and Octroi Duty paid by the distributor on behalf of the assessee, stating the assessee should have paid these expenses directly. The Tribunal observed that the claim of reimbursement by the assessee was not adequately examined. It directed a fresh examination by the AO, requiring the assessee to provide necessary documents to substantiate the claim.

In conclusion, the appeals filed by the assessee were treated as allowed, while the revenue's appeal was partly allowed for statistical purposes. The Tribunal's detailed analysis and direction in each issue provided clarity on the application of relevant provisions and case law in determining the tax treatment of various expenses and transactions.