2019 (7) TMI 121 - AT - Income Tax

Ad hoc disallowance of travelling expenses @20% - HELD THAT - Since these expenses have already been allowed by the Assessing Officer in the previous years and there is no change in facts and circumstances of the assessee s business therefore based on the principle of consistency these expenses should be allowed in the year under consideration. See RADHASOAMI SATSANG VERSUS CIT 1991 (11) TMI 2 - SUPREME COURT Disallowance of foreign exchange fluctuation loss - HELD THAT - This issue involved in the present appeal is no longer res integra. We note that the loss pertaining to foreign exchange fluctuation is an allowable expenditure for that we rely on the judgment of Hon ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT . Thus allow the claim of the assessee. Disallowance u/s 56(2)(viib) - issuance of shares with premium - share application money was received by the company from its parent company Chryso SAS a non-resident company - FMV as per Rule 11(UA)(2) - HELD THAT - We note that the provisions of section 56(2)(viib) does not apply to consideration received from a non-resident. Hence the disallowance made by the AO under section 56(2)(viib) of the Act should be deleted. Determination of arm s length price by TPO / A.O. for management and other administrative services received by the assessee by considering the ALP as NIL - HELD THAT - Assessee has established the nature of services including quantum of services received by the related party that services were provided in order to meet specific need of the Assessee for such services the economic and commercial benefits derived by the Assessee of intra-group services. Issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings. Therefore we are of the view that arm s length price adjustment made by the DRP/Assessing Officer in respect of management services - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of advertisement and sales promotion expenses.
2. Disallowance of miscellaneous expenses.
3. Ad hoc disallowance of traveling expenses.
4. Disallowance of foreign exchange fluctuation loss.
5. Disallowance under Section 56(2)(viib) of the Income Tax Act.
6. Determination of arm’s length price for management and administrative services.

Detailed Analysis:

1. Disallowance of Advertisement and Sales Promotion Expenses:
The assessee challenged the disallowance of ?36,48,606/- related to advertisement and sales promotion expenses. The Tribunal referenced its previous order dated 05.04.2017 for AY 2011-12, which adjudicated similar issues in favor of the assessee. The Tribunal reiterated that the Assessing Officer (AO) had disallowed these expenses without valid reasons, emphasizing that commercial expediency must be viewed from the businessman's perspective. Consequently, the Tribunal upheld the deletion of such disallowances, allowing the assessee's appeal on this ground.

2. Disallowance of Miscellaneous Expenses:
The assessee contested the ad hoc disallowance of ?45,41,101/- for miscellaneous expenses. The Tribunal again referred to its prior decision for AY 2011-12, where similar disallowances were deleted. It reiterated that the AO had no basis for disallowing these expenses, as the details were available, and the AO had not justified how these were not business-related. The Tribunal upheld the deletion of the disallowance, allowing the assessee's appeal.

3. Ad Hoc Disallowance of Traveling Expenses:
The assessee disputed the 20% ad hoc disallowance amounting to ?59,37,080/- for traveling expenses. The Tribunal noted that the AO had allowed these expenses in the previous assessment years without any disallowance and that the AO/Dispute Resolution Panel (DRP) had not rejected the assessee's books of accounts. The Tribunal emphasized the principle of consistency and deleted the ad hoc disallowance, allowing the appeal on this ground.

4. Disallowance of Foreign Exchange Fluctuation Loss:
The assessee challenged the disallowance of ?1,55,65,867/- related to foreign exchange fluctuation loss. The Tribunal observed that the AO had allowed such losses in previous years and that the losses were incurred in the normal course of business. Citing the Supreme Court's decision in CIT vs. Woodward Governor India Pvt. Ltd., the Tribunal held that these losses were allowable and deleted the disallowance, allowing the appeal.

5. Disallowance under Section 56(2)(viib) of the Income Tax Act:
The assessee contested the disallowance of ?92,63,192/- under Section 56(2)(viib), related to the issuance of shares at a premium to its non-resident parent company. The Tribunal clarified that this section does not apply to non-residents. It found that the AO and DRP had erred in applying this section and deleted the disallowance, allowing the appeal.

6. Determination of Arm’s Length Price for Management and Administrative Services:
The assessee disputed the adjustment of ?68,81,619/- made by the Transfer Pricing Officer (TPO) by considering the arm’s length price (ALP) for management and administrative services as NIL. Referring to its earlier decision for AY 2011-12, the Tribunal noted that the services rendered by the AE were necessary and beneficial for the assessee's business. It held that the TPO should not question the commercial expediency of the transactions and deleted the ALP adjustment, allowing the appeal.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee on all grounds, emphasizing the principles of consistency, commercial expediency, and proper application of legal provisions. The Tribunal's decision was pronounced on 19.06.2019.