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2013 (9) TMI 481 - AT - Income TaxDisallowance of expenditure - Provision for Expenditure in regard to trade fair and exhibition in Singapore - CIT upheld disallowance - Held that - The assessee has made provision for the expenditure with regard to the sponsorship of its major distributors and customers for participating in trade fair and exhibition in Singapore. This provision was made on the basis of estimated expenditure to be incurred on such trade fair and expenditure. This trade fair and exhibition in Singapore was actually held during the period relevant for assessment year 2005-06 for which the bills and vouchers have been produced - such a provision cannot be allowed in this year and if at all it is to be allowed, the same can be allowed only in the assessment year 2005-06, wherein such expenditure has been incurred - Decided against assessee. Disallowance of office expenditure - Invoices not filed - Held that - Bill for partial amount is is dated 2nd April 2003 and was received in this year for the services of security guards though pertaining to the month of March 2003. In such cases, expenditure relating to rendering of services can be allowed in the year when bill is received - But the expenditure incurred on tea table cannot be allowed because no details or invoice could be filed before any of the authorities and, therefore, the same cannot be allowed - Decided partly in favour of assessee. Disallowance of depreciation - Held that - assets on which the depreciation has been claimed in this year are forming part of block of assets and the written down value on such assets is coming from the earlier years. On such assets, depreciation has been allowed by the Department in the assessment year 2000-01 and 2002- 03 and also in the subsequent assessment years. Once the depreciation has been allowed on Block of Assets , the same cannot be disallowed in this year on the written down value - Decided in favour of assessee. Disallowance u/s 40(a)(ia) - Fees for technical service - Held that - assessee s case has been that the nature of said payment falls within Article-7 of Indo-Malaysian DTAA as Insight Asian Pacific to whom payment was made was doing business and it was its business income and, therefore, in view of the Article 7(1), the same cannot be held to be taxable in India, as it had no P.E. Further, under the Indo Malaysian DTAA, there is no clause of fee for technical service , thus, there was no reason to deduct TDS on such payment. With regard to the reimbursement of expenses, it is also not clear as to what was the nature of payment and what was the services rendered to the assessee company for which the payment was made by the A.E. and reimbursement of such expenses was made by the assessee. Even if the debit note has been issued against the credit, then also the nature of expenditure has to be ascertained. Accordingly, this issue is also restored to the file of the Assessing Officer for denovo adjudication. However, if it is found that the payment made to the A.E. is only in the nature of reimbursement of expenditure, then surely there cannot be any liability the assessee to deduct the TDS on such payments - Decided in favour of assessee. Disallowance of sample demonstration expenses - Held that - assessee was unable to produce any documentary evidence or proper explanation about the sample distribution expenses. There has to be some iota of evidence or material to show that such an expenditure was for the purpose of business and these are the requirement of carrying out the business activity. If it is distribution of samples, the same should have been taken into account in stock account. If it is a direct expenditure, then nature of expenditure can be verified from relevant vouchers or placed any details on record - Decided against assessee. Adjustment of Arm s Length Price - Purchase price of international transaction - Held that - Before the TPO, the assessee also did not justify as to how the bench marking of its transactions has been carried out except for stating that the price on which plates have been purchased / imported from the A.Es is based on their price list worldwide. Thereafter, before the TPO, the assessee took a different plea that CUP method should be followed based on certain data on which third parties have been importing similar kind of plates. This has been rejected by the TPO on the ground that the assessee could not show as to whether similar kind of plates were imported by third party as the Kodak will sell its plates only to its A.E. and not to the third party - Ultimately, he has bench marked the gross profit margin of the assessee on sales of various other segments which was at 28.56% and thereby made the adjustment in trading segment of plates - entire issue needs to be restored back to the file of the TPO for denovo adjudication - The assessee can file before the TPO all the additional evidences which have been filed before us to justify that unrelated parties / third parties were also procuring similar products by and large on the same price range. Secondly, all the relevant details which are required for adjudication of this issue can be furnished by the assessee to justify its arm s length transactions - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Rs. 60,00,000 for trade fair and exhibition provisions. 2. Disallowance of office expenses aggregating to Rs. 82,878. 3. Disallowance of depreciation claim of Rs. 9,23,774. 4. Disallowance under section 40(a)(ia) on various payments aggregating to Rs. 10,84,802. 5. Disallowance towards sample demonstration expenses of Rs. 1,75,000. 6. Transfer pricing adjustment of Rs. 3,83,08,000 for transactions relating to the purchase of graphic plates from the Associate Enterprise (A.E.). Issue-wise Detailed Analysis: 1. Disallowance of Rs. 60,00,000 for trade fair and exhibition provisions: The assessee challenged the disallowance of Rs. 60,00,000 claimed for provisions made for trade fair and exhibition expenses. The Assessing Officer (AO) disallowed the claim on the grounds that the exhibition took place in the next assessment year and that the provision was based on estimates. The Commissioner (Appeals) upheld the disallowance, stating that revenue expenditure can only be allowed when the liability is ascertained. The Tribunal agreed with the Commissioner (Appeals) and directed the AO to verify and allow the expenditure in the assessment year 2005-06 based on actual expenses incurred. 2. Disallowance of office expenses aggregating to Rs. 82,878: The AO disallowed office expenses amounting to Rs. 82,878 due to lack of supporting invoices and details. The Commissioner (Appeals) confirmed the disallowance. The Tribunal allowed the expenditure of Rs. 14,544 related to security services received in the current financial year and treated the purchase of a tea table for Rs. 8,700 as capital expenditure, allowing depreciation on it. However, the Tribunal confirmed the disallowance of Rs. 59,634 due to the absence of supporting invoices. 3. Disallowance of depreciation claim of Rs. 9,23,774: The AO disallowed the depreciation claim on the grounds that it was related to "goodwill." The Commissioner (Appeals) upheld the disallowance, stating that the transfer of marketing database and human resources was not an intangible asset under section 32(1)(ii). The Tribunal, however, noted that the assets formed part of the block of assets and directed the AO to allow the depreciation as it was allowed in earlier years. 4. Disallowance under section 40(a)(ia) on various payments aggregating to Rs. 10,84,802: The AO disallowed payments to non-residents for non-deduction of TDS. The Commissioner (Appeals) confirmed the disallowance. The Tribunal restored the issue to the AO for re-examination, directing the AO to verify the nature of payments and the assessee's contention that it was business income covered under Article-7 of the Indo-Malaysian DTAA. The Tribunal also directed the AO to verify the nature of reimbursement expenses to determine if TDS was applicable. 5. Disallowance towards sample demonstration expenses of Rs. 1,75,000: The AO disallowed the sample demonstration expenses due to the lack of supporting documents. The Commissioner (Appeals) confirmed the disallowance. The Tribunal upheld the disallowance, noting that the assessee failed to provide any documentary evidence or proper explanation for the expenses. 6. Transfer pricing adjustment of Rs. 3,83,08,000 for transactions relating to the purchase of graphic plates from the A.E.: The AO made an upward adjustment based on the gross profit margin of other segments, rejecting the assessee's claim that the purchases were at arm's length based on global price lists and custom data. The Commissioner (Appeals) upheld the adjustment. The Tribunal restored the issue to the TPO for a fresh examination, directing the TPO to determine the most appropriate method (RPM or CUP) and to consider additional evidence provided by the assessee. Conclusion: The Tribunal's decision resulted in partial relief for the assessee by allowing certain claims and directing the AO/TPO to re-examine specific issues with proper verification and analysis. The appeal was treated as partly allowed for statistical purposes.
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