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TMI Blog2013 (9) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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. - ITA No. 1557/Mum./2009 - - - Dated:- 26-6-2013 - Shri B. Ramakotaiah And Shri Amit Shukla, JJ. For the Petitioner : Mr. P. J. Pardiwala a/w Mr. Jitendra Jain For the Respondent : Mr. Ajit Kumar Jain a/w Mr. Mahesh Kumar ORDER Per Amit Shukla, J. M. The present appeal has been preferred by the assessee challenging the impugned order dated 26th November 2008, passed by the learned Kodak PolychromeCommissioner (Appeals)-XXXII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short the Act ), for the assessment year 2004-05. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills and vouchers for the expenditures incurred during the trade fair, copies of which have been placed in the paper book from Pages-21 to 57. He submitted that there is no dispute that such expenditure has actually been incurred for the purpose of the business and to the extent of actual incurring of expenditure, the same should be allowed. Alternatively, he submitted that the same should be held allowable in the assessment year 2005-06 on the basis of actual expenditure incurred. 6. On the other hand, the learned Departmental Representative, Mr. Mahesh Kumar, on behalf of the Revenue, strongly relying upon the findings of the learned Commissioner (Appeals), submitted that the provisions cannot be allowed unless liability in respect of this expenditure has been crystallized and ascertained. The basis of estimate also could not be proved by the assessee either before the Assessing Officer or before the learned Commissioner (Appeals). Therefore, such provision for incurring expenditure in future cannot be allowed. 7. We have heard the rival contentions and perused the findings of the Assessing Officer as well as of the learned Commissioner (Appeals) and the material placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred towards miscellaneous office expenses such as tea tables, etc. Further merely because the relevant invoices could not be traced at that time did not imply that the expenditures were not supported or not explained, when the account heading in the books indicated the nature of expenses and the accounts were subjected to statutory audit by auditors of the company. 11. The learned Commissioner (Appeals) held that these expenses cannot be allowed in absence of any documentary evidence and, accordingly, he confirmed the disallowance made by the Assessing Officer. 12. Before us, the learned Sr. Counsel, submitted that insofar as the expenditure of ₹ 14,544, is concerned, the same relates to the bill for the month of March 2003 for the services of security guard at Chembur office. Copy of the said bill has been placed in the paper book at Page-58. He submitted that though the bill pertains to March 2003, but the bill is dated 2nd April 2003 which was received in this financial year, therefore, the same is to be allowed in this year only. Regarding the expenditure of ₹ 8,700, incurred, he submitted that the same was on account of purchase of tea table which the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, in response to the show cause notice issued by the Assessing Officer, submitted that the amount paid for such transfer of marketing data base, use of network and transfer of human resources was intangible asset and can be termed as Any other business or commercial right of similar nature acquired after 1st April 1998, in view of the provisions of section 32(1)(ii). The Assessing Officer disallowed the assessee's claim for depreciation on the ground that depreciation cannot be allowed on goodwill under the provisions of Income Tax Act, 1961. 17. Before the learned Commissioner (Appeals), it was submitted that consideration paid for transfer of business was mainly for transfer of certain business or commercial rights which were marketing data base unit of network and transfer of human resources. All these are in the nature of intangible assets within the meaning of section 32(1)(ii). There was no element of goodwill as held by the Assessing Officer. Detailed explanation was made before the learned Commissioner (Appeals) in this regard which has been incorporated by the learned Commissioner (Appeals) in his order from Paras-7.2 to 7.4. The learned Commissioner (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. Thus, without going into the aspects as to whether marketing data base and facility for use of network and human resources are in the nature of business or commercial rights of similar nature in the nature of intangible assets within the meaning of section 32(1)(ii), we set aside the impugned order passed by the learned Commissioner (Appeals) and direct the Assessing Officer to allow the depreciation on such assets as it has been allowed in the earlier year and is part of block of assets . Consequently, ground no.4, raised by the assessee is treated as allowed. 21. In ground no.5, the assessee has challenged the disallowance made under section 40(a)(ia) on various payments aggregating to ₹ 10,84,802. 22. The Assessing Officer noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee's contention and relying upon the following case laws; i. Steffen, Robertson and Kirsten Consultant Engineers Scientists (1998) 230 ITR 206 (AAR) ii. Danfoss Industries P. Ltd. (2004) 268 ITR 1 (AAR) iii. Timken India Ltd. (2005) 143 Taxman 257 (AAR) He disallowed the said payment under section 40a(i). 26. The learned Commissioner (Appeals) too confirmed the said disallowance after observing and holding as under:- 8.2 I have considered the above submissions. Regarding the payment of ₹ 5,48,682 to Insight Asian Pacific, Malaysia, The A.O. has held the same to be in the nature of technical services as per Explanation 2 to section 9(1)(vii) of the Act. The A.O. has examined the invoice received in this regard from Insight Asia Pacific, Malaysia dated 30.11.2003. The invoice contains details of services rendered by the said Malaysian Company to the appellant, the services which included analysis, alignment, preparation and delivery as well as training workshop were provided in India at Bangalore preparation and delivery as well as training workshop were provided in India at Bangalore from 24th to 25th November 2003. Hence, this is an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book from Pages-96 to 98. He submitted that, on a perusal of the invoice, which has been placed in the paper book at Pages-94 and 95, it is evident that it was not in the nature of fees for technical services and the TPO as well as the learned Commissioner (Appeals) has not discharged the burden that this was taxable in India and is in the nature of fee for technical service or business profit. The personnel from the said company had come to India only for two days and, therefore, there cannot be any P.E. in India, hence, the same cannot be taxed under the head Business Income . In support of his contention, he strongly relied upon the decision of the Tribunal, Mumbai Bench, in Channel Guide India Pvt. V/s ACIT, [2012] 20 ITR (Trib.) 438 (Mum.). 28. Regarding reimbursement of expenditure, he submitted that the assessee has reimbursed the expenditure to Singapore A.E. who has issued debit note which relates to training expenses and software expenses. These are purely reimbursement of expenses which do not attract any tax liability, hence, the question of deduction of TDS does not arise. In support of his contentions, he relied upon the judgment of Hon'ble Jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. On a perusal of the invoice, it is seen that the content mentioned therein reads as under:- Particulars Amount Selling the value workshop-I USD 11,500.00 Needs Analysis, Alignment Preparation,Design Development, Delivery Facilitation of Workshop with 1 lead tutorand 1 facilitator Travel internal India Travel only- Travel - Kingsley Weber (ChennaiBangalore - Mumbai- Travel - Steve Robinson (Chennai -Bangalore - KL) Expenses - minor external - not charged ) USD 316.06 USD 211.16 33. From the above, it is not very clear as to whether the bill has been raised for any kind of supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged the disallowance of ₹ 1,75,000, towards sample demonstration expenses. 36. Before the Assessing Officer, the assessee was asked to submit the bills / evidence to show that the assessee company has distributed samples worth ₹ 1.75 lakhs. However, the same could not be furnished. Accordingly, the Assessing Officer disallowed the entire claim of ₹ 1.75 lakhs on account of sample demonstration expenses. Even before the learned Commissioner (Appeals), no supporting documents could be filed and, hence, the same was confirmed by the learned Commissioner (Appeals) also. 37. Before us, the learned Sr. Counsel submitted that looking to the fact that the assessee has sales of more than ₹ 57 crores, the distributive samples are only to the extent of ₹ 1.75 lakhs which is minuscule and no adverse inference could be drawn because distribution of samples are given on a normal business conduct in such types of business. 38. On the other hand, the learned Departmental Representative submitted that such expenditure cannot be allowed without any cogent material or evidence or proper explanation, therefore, the learned Commissioner (Appeals) as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in its transfer pricing study report, applied TNMM for the purchase of rolls of graphic art films and for various other items it has applied Resale Price Method (for short RPM ). It has been noted by the TPO that the assessee has made a loss of 7% at gross level in its transactions relating to import of plates. However, the assessee did not provide the working or the basis of its bench marking of ALP for this segment. The assessee, in response to the query raised by the TPO, submitted that it has justified the arm's length nature of its transactions as it has imported these plates at the prices based on global price list of the suppliers. The main submission of the assessee was that selling price of plates in Indian market are driven by competition and marketing strategy of the company whereas the import purchases are at comparable prices at which some of the other importers have also imported such plates from different sources such as Denmark and Korea on some prices. It relied on customs data relating to import of plates in India to show that prices on which it has made purchases from the A.E. was similar to that of purchases / import made by the third parties. The TPO ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ₹ 7.83 crores is as under:- COMPUTATION OF ARM'S LENGTH PRICE IN TRADING SEGMENT FOR PLATES AND OTHER ITEMS (Rs. in '000) Trading Sales of the assessee of plates and other items 1,09,064 Arm's Length GP margin @ 28.56% on sales 31,149 Arm's length cost 77,915 Actual total cost of goods sold 1,16,223 Purchases from AE in trading segment for plates and other items 78,349 Non-tainted costs (1,16,223 less 78,349) 37,874 Arm's length purchase price from AE (77,915 less 37,874) 40,041 Safe Harbour Limit of purchase (40,041 x 1.05) 42,043 Assessee's purchase at are higher than the 78,349 permissible safe harbour limit of As such 42,043. adjustment amounting to ₹ 38,308 (78,349). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er third parties. The TPO had also required the appellant to furnish details of discount if any which may have been extended to other importers by the appellant's AEs or other third parties. However, none of these details were furnished by the appellant. Further more since the TPO noted that the appellant had suffered losses in respect of purchases and sale transactions of the plates, he had required the appellant to provide such results or margins earned by the comparable companies in respect of the purchase and sales transactions of plates. This information was also not supplied to the TPO by the appellant. The appellant has also not given any reason as to why these details were not furnished or else as to why these details were not available with the appellant specially when they have themselves used RPM for bench markng the transaction of import of plates. I find from the details filed that the appellant has only compared the prices of other importers of plates with that of its own import prices to justify his purchases through RPM. However if RPM is followed the methodology as per Rule 10B would he as under:- xxx xxx xxxx 11.8 It is seen from the analysis made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customs data. Before the TPO, the assessee has furnished sample purchase invoice in respect of its purchases of lithographic plates to show that the same has been purchased at the prices mentioned in the global price list of the A.E. The major expenditure has been incurred due to business strategy of penetrating the market among the Indian customers for which the assessee had to sell at a low margin or negative margin also. This has nothing to do with the transactions carried on with the A.E. In support of the prices on which the assessee has purchased the same as provided in custom data of comparable import transactions during the financial year 2003-04, the assessee has also filed additional evidence in the form of further exhaustive custom data to show that the prices on which the other importers have purchased the plates were on the same range. A petition for additional evidence dated 28th May 2013 filed on 29th May 2013 was also placed before us. He submitted that these additional evidences are purely corroborative and to buttress the evidences filed before the TPO and the learned Commissioner (Appeals), therefore, the same should be admitted. The TPO has applied gross prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been demonstrated by the assessee either before the TPO or the learned Commissioner (Appeals). Regarding furnishing of additional evidence, he raised strong objection as there are no cogent reasons as to why the same was not furnished before the authorities below. Regarding use of custom data for bench marking the transaction, he relied upon various Tribunal decisions, that valuation done by the custom authorities and custom data cannot be applied under the transfer pricing mechanism of the Income Tax Act. In support of this contention, reliance was placed on the following case laws:- i) Panasonic India Pvt. Ltd. v/s ITO, ITA no.1417/Del./2008, order dated 24th September 2010; ii) ACIT v/s Denso India Pvt. Ltd., ITA no.3104/Del./2009 and ITA no.887/Del./2010, order dated 27th February 2013; iii) Serdea Pharmaceuticals India P. Ltd. v/s ACIT, ITA no.2469/Mum./ 2006, ITA no.3032/Mum./2007 and ITA no.2531/Mum./2008 order dated 31st December 2010. 45. Regarding the assessee's contentions that list price of the A.E. on which it has been selling its products to various parties, he submitted that the same cannot be given much credence because the prices are mostly neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, the same has been borne out by the assessee because the A.E. has sold the graphics plates based on the list price sold to everybody. Thus, the addition made in the present case cannot be sustained on the reasoning given by the TPO and the learned Commissioner (Appeals). 47. We have given our anxious consideration to the rival contentions, perused the relevant findings of the TPO and the learned Commissioner (Appeals) as well as the material placed on record. The main issue involved in the present ground is upward adjustment of ₹ 3,83,08,000, on the purchase price in respect of international transaction of import of photographic plates from various A.Es in Europe. In the TPR (Form 3CEB), the assessee has adopted RPM for bench marking the import of finished goods plates as the most appropriate method. The assessee's case has been that the procurement price of various finished plates was as per the prices decided by the supplier for supplies over worldwide on FOB basis. It has been claimed that this was the first time that the assessee has imported these plates and as a part of marking strategies to win customers for the future, the assessee has sold this product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of other parties to whom the A.E. have supplied the same plates, then such a plea of the assessee could have been accepted. Similarly, certificate issued by the A.E. in this regard cannot be accepted in the absence of any proper analysis being done. The assessee is, in fact, engaged in distribution activities as it has been importing the plates from its A.E. and selling them to the third parties in India without any value addition. In such an activity, RPM can be considered to be the most appropriate method because the bench marking is done at a gross profit level. Even if the assessee's plea is to be accepted that CUP is the most appropriate method, then also it has not been examined as to whether the third party were also importing the similar products and carrying out similar business functions. For applying the CUP method, products and functional comparability are most relevant factors. No reason whatsoever has been given as to why RPM cannot be followed as most appropriate method and by following CUP method, it will result into most appropriate determination of ALP. The basic tenet of the transfer pricing mechanism is to determine the most appropriate determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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