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TMI Blog2014 (11) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A to dividend income – Decided partly in favor of assessee. Advertisement expenses yield any benefit to the assessee or not – Held that:- The TPO has accepted profitability of these transactions on the basis of TNMM and yet picked up this reimbursement, which constitutes a charge on such profitability, for rejection – the expenses were incurred on behalf of the assessee, and this position remains uncontroverted - Whether the assessee was under an obligation to incur these expenses or not is, therefore, not really relevant - The question of incidental benefit to the assessee, for expenses incurred by the AE, would arise only when the expenses are incurred by the AE in its own right though for the common benefit of group as a whole – thus, the order of the CIT(A) is to be set aside – Decided in favour of assessee. - IT APPEAL NO. 3520 (DELHI) OF 2010 - - - Dated:- 13-10-2014 - PRAMOD KUMAR AND C.M. GARG, JJ. For The Appellant : T.N. Chopra For The Respondent : Y.K. Verma ORDER Per Pramod Kumar, Accountant Member: 1. This appeal is directed against the order dated 25th September 2009, passed by the Additional Commissioner of Income Tax, Range 2, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, is, therefore, rightly held as inadmissible 5. The AO thus proceeded to make this disallowance. The assessee is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and taken into accounts facts of the case in the light of the applicable legal position. 7. We find that the assessee had made detailed submissions on this issue which have not been dealt with at all. It was claim of the assessee that while, vide business transfer agreement dated 16th December 2004, total business was transferred at ₹ 3,965.45, subject to adjustment in the valuation of inventories by an independent valuer as on the effective date of transfer, it was agreed by the parties to the agreement that bad debts will not exceed 5% of total sales consideration. It was in this background that a sum of ₹ 165 lakhs was considered to be bad debts as on the date of transfer and the same was adjusted against the sales consideration The assessee company had made a provision of bade debts of ₹ 28.65 lakhs relating to erstwhile pharam division, in the immediately preceding assessment year i.e. when the said unit was being sold, but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it clear that it will be open to the assesse to take up all the legal and factual aspects, unfettered by our prima facie observations above, and it will be incumbent on the Assessing Officer to specifically deal with the same. 9. Ground no. 2 is thus allowed for statistical purposes. 10. In ground no. 3, the assessee has raised the following grievance: The learned AO erred in law and on facts in making disallowance of ₹ 8,17,045 under section 14A of the Income Tax Act, 1961, read with rule 8D of the Income Tax Rules, on account of exempted dividend income received by the appellant company without considering the applicability of Rule 8D during the assessment. 11. During the course of scrutiny assessment proceedings, the Assessing Officer noted that the assessee has disclosed receipt of tax free dividends aggregating to ₹ 91,36,000 but has not offered any related business expenditure for disallowance under section 14A. When he probed the matter further, it was explained by the assessee that the related shares were acquired by the assessee by own funds, that no borrowings are made for these investments and that no expenditure is incurred in earning this inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , including the transfer pricing study report of the Pricewaterhouse Coopers. (c) The impugned addition of ₹ 44,28,721 is on facts and circumstances of the case, without jurisdiction, invalid and illegal since none of the conditions under section 92C(3) of the Act are fulfilled in the instant case. 16. So far as this grievance of the assessee is concerned, the relevant material facts are as follows. The assesse is engaged in international trading of tyres, tubes and flaps through tyretech global division . The assesse procures these products from Apollo Tyres Limited and exports it to its associated enterprises namely, (i) Apollo International FZC Sharjah UAE, and (ii)Apollo International Trading LLC, Dubai UAE. During the course of relevant previous year, the assessee entered following international transactions with its these AEs: Sl No. Description of transaction Method Value 1. Export of Automobile tyres, tubes and flaps TNMM 133,07,52,059 2. Payment of selling commission TN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AE under instructions from the assessee and it is also not in dispute that the assessee has reimbursed these costs, without any mark up, to the AE. It is not even the case of the TPO that this reimbursement was reimbursement of normal business expenditure of the AE, and, therefore, it cannot amount to any advantage to the AE that these expenses are reimbursed by the assessee. As long as expenses are incurred under instructions from, and on behalf of, the assessee, as is the uncontroverted position before us, the arm s length price of the same cannot be taken at zero. Whether the assessee was under an obligation to make this reimbursement or not could be relevant only when the expenses were normal business expenses of the AE and yet the assessee decides to bear the same. There is nothing to indicate that the reimbursement is for expenses already incurred by the AE in its normal course of business. It is specifically stated that these expenses were incurred on behalf of the assessee, and this position remains uncontroverted. Whether the assessee was under an obligation to incur these expenses or not is, therefore, not really relevant. The question of incidental benefit to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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