9911796707
TMI Blog2014 (5) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... entity level by considering 5 other comparables - the difference between the operating margin of the assessee and the comparable cases is determined at 3.83% (16.50% - 12.67%) and this difference is applied to total turnover of Rs.412.14 crores to make adjustment of 15.75 crores in the ALP of the finished goods imported by the assessee - adjustment is to be restricted to the international transaction and not to the entire turnover of the assessee – Relying upon Deputy Commissioner of Income-tax*, Circle 16(3), Mumbai Versus Ankit Diamonds [2010 (11) TMI 565 - ITAT, MUMBAI] - Determination of ALP of an international transaction has to be only at the transaction level or at the level of a class of transactions - TPO is not authorized to determine the net operational profits at the enterprise level but he shall determine only ALP of international transaction. The fact that the TPO himself has admitted that assessee is a market leader and it will be extremely difficult to identify the comparables and the fact that neither in earlier years nor in subsequent years any adjustment has been made by comparing the results at entity level - the international transaction entered by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payment - he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable - the disallowance made by the AO is set aside – Decided in favour of Assessee. Disallowance of depreciation on vehicles – Evidences not submitted – Held that:- All the vehicles which are referred in the assessment order are registered in the name of the assessee – the assessee is the owner of the vehicles and it is entitled to depreciation on these vehicles - the disallowance made by the AO is set aside – Decided in favour of Assessee. Addition of DDA provision – Details could not be furnished – Held that:- The amount is appearing in the details of other liabilities as old provision - No material is placed by the department that the provision is made during the year by debit to P&L A/c - similar addition made in AY 96-97 while processing the return was deleted by the AO himself in order u/s 154 dated 30.06.1998 - no amount is debited to the P&L a/c during the year on account of the provision – thus, the addition is set aside – Decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Both the authorities have also erred in making various observations which is not correct on facts and also not considered the subsequent decision of Hon'ble ITAT on this issue. 3. The Ld. AO has erred on facts and in law in making lumpsum disallowance of 50,00,000/- out of travelling and conveyance expenses and the Ld. DRP has erred in not giving direction to delete the disallowance proposed by the AO in this regard. 4. The Ld. AO has erred on facts and in law in making disallowance of Rs. 52,87,28,092/- in respect of advertisement and sale promotion expenses and Ld. DRP has erred in not giving direction to delete the disallowance proposed by the AO in this regard. Both the authorities have erred in: (i) Observing that on payment made to Group-M Media (P) Ltd. for Rs. 36,70,04,056/-, the liability of deduction of tax at source arises u/s 195 and therefore it attracts provisions of sec.40(a)(i). (ii) Not allowing the claim of trade incentives paid to distributors for Rs. 16,17,24,036/- holding it as not incurred wholly and exclusively for business purpose and presuming that the payment is against services received on which tax ought to have been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the total income at Rs. 150,46,47,000/-. Against this order, assessee preferred reference u/s 144C(2)(b)(i) of the Act to the Dispute Resolution Panel (DRP). The DRP vide its order dated 08.09.2010, gave certain direction to the AO in pursuance of which the AO passed the impugned order under appeal determining the total income at Rs. 144,85,49,890/- and the book profit u/s 115JB at Rs.94,73,52,452/-. It is against this order; the assessee has preferred appeal before us by taking various grounds as reproduced above. 3. The first ground of appeal is against the adjustment of Rs.15,75,28,786/- made u/s 92C(3) in respect of the import of finished goods for resale. The international transaction entered into by the assessee with its associate enterprises during the year u/s 92 as per the order of the TPO is as under: S. No. Description of the transactions Method/Function Amount (In Rs.) 1. Import of raw materials TNMM/Mgf. 15,76,85,072 2. Purchase of stores and spares TNMM/Mgf. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's operating margin at entity level worked out at 12.67%. Accordingly, he worked out a difference of Rs.15.75 crores which is reduced from the purchase of traded goods of Rs.64.67 crores to work out the ALP of the import from AE of traded goods at Rs.48.92 crores and thus an addition of Rs.15.57 crores was proposed by him. The AO therefore made this addition which is confirmed by the DRP by observing that the order of the TPO sufficiently answers all the objection of the assessee, is based on sound reasoning and as per the provisions of the law. 3.3 A perusal of the record shows that the assessee has analyzed the international transaction entered with the AE in distribution segment and the manufacturing segment as under: (Rs. In crore) Particulars Allocation Key Distribution Segment Manufacturing Segment (Domestic and Export) Sales Actual 75.46 336.68 Other income Actual 1.10 4.93 Direct Costs Actual 30.63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin of 16.5% (on gross sales) 68,00,37,352/- Difference 15,75,28,786/- The TPO held that as the major transaction undertaken by the assessee pertains to purchase of traded goods from AE at Rs.64.67 crores, the difference of Rs.15.75 crores is adjusted to the import price of traded goods to determine the ALP of import from AE at Rs.48.92 crores. This difference is 24.35% of the international transaction i.e. above 5% and therefore addition of Rs.15.75 crores is made to the income of the assessee. 3.5 The Ld. AR in respect of Ground No. 1(i) referred to the explanation given in Para 10.1 to 10.18 (Page 9-13) of Form No. 35A. In respect of Ground No. 1(ii), he referred to his explanation given in Para 10.1 to 10.36 (Page 15-20) of Form No. 35A. In respect of Ground No. 1(iii), he referred to the explanation given in Para 10.1 to 10.57 (Page 27-42) of Form No. 35A. The Ld. AR also pointed out certain mistakes in working of the addition and also raised certain contentions in his submission as under: i. As per the TPO, OPM of assessee at entity level is 16.5% as against 12.68% declared by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 119.95 Lacs (PB 287). If this is considered, the operating margin of the assessee would increase to 54.62 Crores and difference worked out by TPO / A O would come down to Rs. 13.38 Crores (Rs. 15.75 - Rs. 2.37). Even this difference of Rs. 13.38 Crores is fully explainable and has no relation with the International Transaction on account of following: -Increase in inventory written off from Rs. 3.70 Crores to Rs. 8.28 Crores i.e. Rs. 4.58 Crores. - Increase in advertisement and sales promotion expenses from 14.10% to 16.05% i.e. 1.95% on sale, which in terms of the value on sale shows increase of Rs. 9.20 Crores (PB 316). iv. Even if the aggregation approach adopted by TPO is accepted as correct, the comparable cases selected by him are not correct as he failed to take into consideration the manufacturing/trading ratio of assessee vis-a-vis the comparable cases selected by him. The manufacturing / trading ratio of assessee is 82: 18. Hence only those comparable which have a minimum trading sales of 10% needs to be selected for comparison. On this basis the operating margin of comparable cases works out as under: Sr. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2 The case laws relied upon the assessee do not hold any water after the amendment in Act. There was no incorrectness in the action of the AO. 5.3 GOA2: The TPO was well within her rights in rejecting the T. P. study report of the assessee. The various reasons have been detailed by the TPO in her order. Page No.4 Para No.5 Page No.5,Para No.6, Page No.6 Para No.7,Page No.11 Para No.8.1.2 of the T.P. order has detailed discussion on the same and this may kindly be perused. 5.4 The detailed analysis given in the order as to the submission by the assessee of incorrect segmental accounts etc. very clearly bring out the reasons for rejection of the T. P. study report of the assessee. The case laws and circulars of CBDT quoted by the assessee talk of reliable and correct data to be used. To call for correct information from the assessee time and again can in no way be construed to cause undue hardship to the assessee. Circular No.12 of CBDT does not mean to encourage non compliance by the assessee. Circular No.14 of CBDT talks of usage of reliable and correct data. The assessee did not submit correct data during TP proceedings. The order quoted as AAC (56 ITR 198) only speaks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue are mentor Graphics, Goedis Overseas(P) Ltd. (2011-TII-34-ITAT-Del-TP), Honeywell Ltd. -2009-TIOL-104-ITAT-Pune, NGC Network(India) (P) Ltd. (2011-TII-45-ITAT-M um-Intl.) 5.10 The reason for evaluating the OPM at entity has been detailed in the transfer pricing order. The mean OPM of comparables has been taken at 16.48% compared with the OPM of the assessee at the entity level. As correct segmental has not been drawn by the assessee, it will not mean that the OPM of each segment or each transaction is 12.67%(OPM of the assessee at the entity level). Hence, the mean margin of the comparables has to be necessarily applied at the entity level. In absence of the correct segmental financials submitted by the taxpayer, it is not possible to apply the mean OPM of 16.48% to any one transaction of the assessee. In order to make any changes, the correct data/calculation should have been submitted by the assessee; which would have changed the OPM of the assessee(as calculated at entity level at 12.67%). Thus, what the TPO did i.e. applied the mean margin of 16.48% at the entity level is correct. 3.7 On further clarification sought by the Bench, the Ld. AR filed the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction is flowing from AY 2004-05 and represents the residual amount of re-export. Just as a background, it may be noted that the assessee company has amalgamated itself Duracell India effective AY 2000-01, however the said business was closed by the company in the year 2002-03. The plant and machinery and raw material related to Duracell battery was re-exported to Duracell China / SA in the year relevant to AY 2004-05 except for some items which were delivered in the year relevant to AY 2005-06 and AY 2006-07. The transaction is flowing from A.Y. 04-05 05-06. The details were provided to the AO in A.Y. 05-06 vide letter dt. 15.10.2008 where it was accepted no adjustment was made. Considering the same, AO in the year under consideration has also not taken any adverse view on the sale of raw material vis-a-vis the ALP of the same. 6. The import of raw material, stores and spares and supplies of Rs. 17,43,76,914/- is consumed by the assessee in manufacturing of the goods which has been sold to non-related parties in India. On goods manufactured in India and sold to non-related parties, the gross profit margin is Rs. 56.63% and the net profit margin is 11.59%. The overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6% which is marginal. c. In working out the operating margin of the assessee at 12.67%, the TPO has excluded the other income but has not excluded other expenses / unrelated expenses of Rs. 2.37 Crores comprising of depreciation on let out building, 99.77 Lacs, write off of fixed assets, Rs. 17.24 Lacs and VRS Expenses of 119.95 Lacs (PB 400). If these expenses are considered, the operating margin of the assessee become 13.25% (52.25 + 2.37 / 412.14) which is comparable with that of Colgate Palmolive India Ltd. The assessee has also submitted its working regarding exclusion of such non-operating expenses in its segmental analysis submitted to the TPO (PB 400) but the same is not considered by him though the non-operating income has been excluded. d. If a comparison is made of the profit before tax to the gross turnover of the assessee and the companies selected by the TPO, it can be noted that the margin of the assessee is 16.33% as against margin of 16.05% in case of Colgate Palmolive India Ltd., 16.65% in case of Emami Ltd. and 15.90% in case of Dabur Ltd. Thus the net result shown by the assessee is comparable with the other companies selected by TPO (PB 397). 9. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Selling and Distribution expenses 185978717 829750089 - 1015728806 Depreciation 7794164 138111903 9977208 155883275 155883275 VRS Expenses - - 11994761 11994761 11994761 Total Expenses 314915722 1508344715 23695715 1846956152 1846956152 Net profit 144292456 401411767 127529439 673233662 673233662 NPM 18.85% 11.75% 15.54% 16.33% Gross Profit Margin 59.40% 55.27% 56.03% 56.03% Corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with associate concerns are at ALP no adjustment is required. 3.8 The Ld. DR, on the above submission of the assessee has given his remark on 18.04.2012 which is reproduced as under: 1. In Para's 1 to 7 of his above submission Ld. AR has explained the TP study submitted by the assessee before the TPO. He has claimed that the TPO summarily disregarded the segmental TP study of the assessee and adopted the entity level TP study without giving any opportunity to the assessee. 1.1 In this regard, it is submitted that the TPO did not reject the TP study of the assessee without any reasons or basis. The TPO has evaluated the TP study of the assessee in para 6 7 of her order (APB pg. 131 onwards). It is wrong to say that before rejecting the TP analysis of the assessee the TPO did not give any opportunity. Kind attention is drawn to para 7 of TPO order (APB pg. 132). The TPO has reproduced the letters dated 07.09.2009 and 18.09.2009 in which the deficiencies in the segmental analysis of the assessee have been specifically pointed out. The TPO issued further letters on 30.09.2009 and 15.10.09 and when the assessee could not furnish further details/clarifications called b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to products of the assessee. In this regard, it is submitted that whenever any TP study is done using TNMM method, it is not possible to have exactly the same comparables. Here the TPO has picked up comparables under the FMCG segment involving personal care products which is the right segment to compare. Further, in its own segmental TP study the assessee has itself taken companies which have vastly different products from the products in which the assessee deals (APB 250 - distribution segment comp. and APB - 255- manufacturing segment comp.) 2.3 In para 8(c) Ld.AR has pointed out that in calculating operating margin the TPO has excluded other income but has not excluded other expenses. In this regard, first of all it may be noted that this objection was never raised by the assessee before the TPO. Secondly, the TPO has not excluded the other expenses even for the comparable companies Therefore, if the other expenses are to be excluded for the assessee company they have to be excluded for comparables also. 2.4 In para 8(d), the Id. AR is requesting even for complete change of Profit Level Indicator (PLI) which cannot be done at this stage. 2.5 In para 10, Ld. AR has ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.48% at the entity level is correct. 4. The argument of Ld. AR in para 11 is not acceptable because in income tax proceedings each year is different from other. If the Arm's Length Price adjustment has not been made in some years it does not mean it cannot be applied in any other year. 5. In para 12 again Ld. AR has raised the issue of using gross margin instead of the net margin. Here again Ld. AR is requesting for changing the PLI itself which cannot be done at this stage in appeal. 3.9 We have gone through the entire material on record with the assistance of the Ld. AR and the Ld. DR. So far as Ground No. 1(i) is concerned, the main thrust of the assessee is that as per sec. 92CA(4), the AO on receipt of order from TPO u/s 92CA(3) shall compute the total income of the assessee u/s 92C(4) having regard to ALP determined by the TPO. However, there is an amendment in this section by Finance Act, 2007 w.e.f. 01.06.2007 where the word 'having regard to ALP' determined by the TPO has been substituted by the word, 'in conformity with the ALP as so determined by the TPO'. In our view, this amendment is merely procedural in nature. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions under Chapter X. Such things are done only when AO invokes section 144. Therefore, AO was directed to restrict adjustments, if any, only to international transactions, which are found by him to have taken place at a price other than ALP. In case of Ankit Diamonds (supra), it was held that Determination of ALP of an international transaction has to be only at the transaction level or at the level of a class of transactions. TPO is not authorized to determine the net operational profits at the enterprise level but he shall determine only ALP of international transaction. Therefore, transfer pricing adjustments suggested by TPO is illegal against the law. In case of Huntsman Advanced Materials (India) (P.) Ltd. (supra), it was held that adjustment for arm's length price is to be made only in respect of assessee's transactions with associated enterprises instead of its entire turnover of trading segment. The other cases relied by the assessee are also to the same effect. Therefore, if the operating margin difference of 3.83% is applied to the transaction with the AE of Rs.64.68 crores, the adjustment would be of Rs.2.47 crores which is within the permissible range of 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable with the margin of 13.43% of Colgate Palmolive India Ltd. Considering all these factors and also the fact that the TPO himself has admitted that assessee is a market leader and it will be extremely difficult to identify the comparables and the fact that neither in earlier years nor in subsequent years any adjustment has been made by comparing the results at entity level, we hold that the international transaction entered by the assessee with the AE even at entity level is at arm's length and therefore the adjustment made by the AO is not justified. Hence, the addition of Rs.15,75,28,786/-made by the AO is deleted. Ground No. 1(iii) of the assessee is therefore allowed. 4. The second ground of appeal is against disallowance of claim of inventories written off at Rs.8,28,35,757/-. This disallowance is made by the AO observing that claim of inventory written off is not supported by item wise details, circumstances in which it was damaged, procedure supported with documents etc. The DRP confirmed the order of the AO on the ground that in earlier years the write off of inventory has not been allowed by the department. As against this Ld. AR argued that the complete details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nals in case of the assessee, the claim of the inventory written off of Rs. 8,28,35,757/- is allowed and hence the addition made by the AO is deleted. This ground is therefore allowed. 5. The third ground of appeal is against disallowance of Rs. 50 lacs out of travelling and conveyance expenses. We noted that AO made lumpsum disallowance out of expenses of Rs.9,94,33,712/- on the ground that assessee has not filed supporting evidence to justify the claim which is approved by the DRP. The Ld. AR contended that the AO has wrongly stated that assessee has not filed supporting evidence to justify the claim and failed to explain the nature and purpose of expenses and therefore it lacks verification. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. To produce the voluminous files of vouchers serves no purpose. There is no adverse comment from the auditors on the expenses incurred under this head. The AO has not required assessee to produce vouchers for any specific expenditure. In the past, no disallowance out of these expenses were made by AO. In A.Y. 07-08, the DRP has also deleted such ad hoc disallowance. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at these expenses have been incurred for the purpose of business of the assessee, these amounts are disallowed u/s 37 of the Act. The services have been received against these payments and the assessee should have deducted tax at source on the value of the gifts. The DRP approved the disallowance made by the AO on the ground that tax is not deducted at source and therefore same is disallowable u/s 40(a)(ia). 6.1 The Ld. AR made detailed written submission and also advance the oral arguments. For the sake of completeness, the written submission made by the AR is reproduced as under: Advertisement expenses - Group M Media Pvt. Ltd. 1. During the year under consideration, the assessee had mandated the Media Planning activities i.e. advertisement of its various products to Group M Media Pvt. Ltd ('GroupM'). For the said purposes, various invoices were raised from time to time on the assessee, aggregating to Rs. 36,70,04,056. A sample copy thereof was provided to the AO vide letter dated December 7, 2009 . Further, in respect of the payment for the said advertisement expenses to GroupM, the assessee had deducted tax as per provisions of Section 194C of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration, various invoices were raised by GroupM, in respect of the advertisement work executed from April 1, 2005 by GroupM. The AO has failed to appreciate the fact that the AOR Contract was executed only on January 1, 2006 and was effective only for the period January 1, 2006 to June 30, 2006 whereas GroupM, independent of the said AOR contract was carrying out advertisement work for the assessee for a period much prior to execution of the AOR contract. Hence, this clearly defies the AO's conclusion that the services were rendered pursuant to the said AOR contract and also his assumption that it was for and on behalf of Mindshare, Singapore, a non-resident entity. 5. Further, the assessee wants to highlight an important fact that the invoicing for the media planning services which the affiliates of Mindshare, Singapore will be rendering to the Gillette, Singapore and its other related party as stated in the Appendix 1 of the AOR contract, will be done by the affiliates of Mindshare, Singapore on Gillette, Singapore only and the payment will be made by Gillette, Singapore only. In this regard, attention is invited to the following extract of the AOR con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expense have been incurred by the assessee wholly and solely for the 'purpose of its business'. In this regard, from the perusal of the details mentioned in the invoice of GroupM, it may be noted that the advertisement work has been carried out by GroupM, as the same has been telecasted in India for various products of the assessee; and the assessee has been benefited by such advertisement. The AO also has not disputed the fact of incurrence of expenditure and that it is wholly and exclusively for the purpose of business. Hence, it is submitted that the said advertisement expenses were incurred wholly and solely for the assessee's business and are therefore allowable as deduction. For this proposition assessee relies on the following decisions to prove its claim: CIT v. Associated Electrical Agencies [2004] 266 ITR 632 (Mad.)- it is held that Payments made, having regard to the commercial expediency, need not necessarily have their origin in contractual obligations. If the assessee, which carries on a business finds that it is commercially expedients to incur certain expenditure directly or indirectly, it would be open to such an assessee to do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the advertisement expenditure is incurred for the purpose of its business, thus it should be allowable as business expenditure. For the purpose of determining the allowability of expenses u/s 37(1), it needs to be considered whether the expenditure incurred is for the purpose of business or not. Your Honours kind attention is invited to the following decisions wherein it has been held that the expression for the purpose of business is wider in scope than the expression for the purpose of earning profits and, therefore, expenses incurred for the purpose of business is duly allowable as a deduction u/s 37(1) of the IT Act: CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) Brlco Metal Industries P. Ltd. v. CIT [1994] 206 ITR 477 (Bom.). Jt. CIT v. ITC Ltd. [2008] 112 ITD 57 (Kol.) (SB) CIT v. Lake Palace Hotels Motels (P.) Ltd. [2007] 293 ITR 281)(Raj.) CIT v. Balaji Enterprises [1999] 236 ITR 589 (Mad.) 10. The assessee further submits that in respect of payments made to GroupM, it has deducted tax at source u/s. 194C of the Act. Section 195 of the Act, applies when a payment is made to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the nature of expenses has made the disallowance, though in all earlier years such expenses have been allowed. It is not in dispute that advertisement and sales promotion expenses are incurred for the purpose of business. Hence, such expenses are fully allowable under section 37(1) of the IT Act. Reliance is placed on following cases: Hemraj Nebhiomal v. UOI [2008] 306 ITR 40 (MP) Hemraj Nebhiomal sons v. CIT [2005] 278 ITR 345 (MP) 13. It is further submitted that the assessee had produced the bills and vouchers before the AO and the same have been verified by the AO on test check basis. Thus, after having verified the bills and vouchers, the A O was not justified in holding that the aforesaid claim made by the assessee is without any supporting documents. 14. The schemes under which their trade incentives were provided are prevalent scheme in this line of business of consumer goods and are not in relation to or in connection with any service rendered which may contemplates invoking of TDS provision. 6.2 The Ld. DR relied on the order of the AO. 6.3 After considering the rival submission, we find that Group M Media India Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate (PB 679 - 713). Thus it is established that assessee is the owner of the vehicles. The Ld. AR also pointed out that in respect of vehicles at S.No. 1, 2 8 on page 14 of the assessment order, the AO disallowed the cost of the vehicles and not the amount of depreciation claimed on the vehicles. Similarly at S.No. 3 to 7 the amount mentioned are in respect of addition to vehicle like stereo, speakers etc. which itself has been disallowed and not the depreciation there on. The Ld. AR further submitted that similar disallowance made in A.Y. 04-05 is deleted by Hon'ble ITAT in ITA No. 180/JP/09 dated 27.05.2011. On the other hand, the Ld. DR supported the order of the AO. 7.2 After considering the rival submission and perusing the material on record, we find that all the vehicles which are referred in the assessment order are registered in the name of the assessee as per the documents placed at Paper Book Page 679 to 713. Thus, assessee is the owner of these vehicles and it is entitled to depreciation on these vehicles. This issue is also decided by this Bench in A.Y. 04-05 in ITA No. 180/JP/09 dated 27.05.2011 in favour of the assessee. Therefore, the disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by AO on Page 2 of his order. All expenses are fully verifiable and supported by bills. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. There is no adverse comment from the auditors on the expenses incurred under this head. The AO has not required assessee to produce vouchers for any specific expenditure. Hon'ble ITAT in ITA No. 188/JP/07 dated 09.08.2010 (PB 40 - 42) has also deleted similar ad hoc disallowance made out of miscellaneous expenses in AY 2003-04 as per finding given in para 42 of the order. The DRP has also deleted such disallowance in A.Y. 07-08. 9.2 After considering the rival submission and perusing the material on record, we find that AO has made the disallowance without specifying any particular expenses which is not verifiable or not incurred wholly and exclusively for the purpose of business when he has given a finding at Page 2 of the order that bills and vouchers of expenses as desired were produced for verification and examined on test check basis. We also noted that such ad hoc disallowance is not approved by the DRP in A.Y. 07-08. Considering the same, the ad hoc disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
