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TMI Blog2016 (7) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a special mechanism to deal with determination of ALP of IT. s. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. So, confirming his order, we decide first effective ground against the AO. - Decided in favour of assessee Business promotion expenses disallowed - payment for expensive gifts of jewellery and watches were made to a sister concern - Held that:- We find that the AO had disallowed an amount on an ad hoc basis without assigning any reason. In our opinion the basic approach of the AO is fautly. During the remand report when all the material was available to him he should have conducted fresh inquries to justify the disallowance. Documentary evidence cannot be brushed aside without dealing them logically. In our opinion the FAA has rightly held that the AO. s. are not authorised to enter in to the proverbial shoes of the assessee. In the case before us, the AO had exactly done it. He has not doubted the genuineness of the payment. If the payment was as per the provisions of the Act then irrespective of the figure involved same had to be allowed. We are of the opinion that no interference is required to disturb the order of the FA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid consultancy fee. Vide his letter dated, 23. 3. 2006, he asked the assessee to justify the payment of consultancy charges. He invoked the provisions of section 92C of the Act. As per the AO, the assessee did not make any submission to justify the payment of consultancy charges. He held that the auditors, while endorsing the International Transactions (IT)with the AE, had only relied on the information provided by the assessee, that the assessee had not submitted any evidence to justify the payment of consultancy fee to its AE. Therefore, he restricted the consultancy charges, payable to the AE to the extent of 75% of the consultancy fees. He determined the Arm s Length Price(ALP)of the IT as under: Consultancy fees received(Rs.) Paid (Rs.) Allowed(Rs.) Disallowed(Rs.) MSRDC 3 Project 32,76,750 34,36,720 8,19,187 26,17,533 Jaypee DSC Project 26,39,226 18,19,554 6,59,806 11,59,748 Ahmedabad Mehsana Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garian party, that the assessee had demonstrated that the scope of service contained in the agreement with the assessee was wide and encompassed the entire spectrum of management and consulting services as against only support services contained in the agreement with MIT-Hungary, that as per the agreement the AE was also required to provide additional services to the assessee, that the AO had rejected the CUP analysis carried out by it without providing any cogent reason, hat the AO was duty bound to rebut the method adopted by the assessee before replacing his own analysis, that AO was mandatorily required to carry out an analysis and to select one of the prescribed methods. After considering the assessee s submission, remand report and other available material the FAA held that TP proceedings were not whimsical exercise to suit the tax payer/the AO, that the assessee had availed technical services from its AE, that it had selected the CUP method as MAM, that it had identified a service agreement entered into by the AE with MIT Hungary, that it had compared the hourly rates charged by the AE to the assessee with those charged to MIT. The analysis of the scope of the services an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was in order and the transaction with its AE was at Arm s Length. 2. 2. Before us, the Departmental Representative(DR) supported the order of the AO and state that TPO had rightly rejected the CUP method, that the basis of the charges recovered from the Hungarian party was not available. The Authorised Representative (AR) stated that the year under consideration was the initial year of operation, that the agreement entered into by the AE with the Hungarian party and with the assessee were made available to the AO, that from the agreements it is clear that the AE was charging lesser consultation fee from the assessee, that there was no reason to reject the CUP method. 2. 3. We have heard the rival submissions and perused the material before us. We find that the assessee had entered into agreements with three companies for executing projects namely Ahmedabad-Mehsana Highway;Mumbai-Pune Expressway and Delhi Gurgaon Expressway, that it had made payment to its AE for providing it consultancy, that it had selected CUP method for determining the ALP of the IT, that the AO had directed the assessee to justify the basis of determination of the ALP, that it furnished an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparables selected by it, that he can make adjustment rejecting the TP study conducted by the assessee. But, his rights are not unbridled. It is said that rights and duties are two sides of the same coin. In other words, rights demand that a person using his rights should also observe his duties. In taxation matters discretionary powers have been given to the AO. s. , but they are expected to use the power in a fair and just manner. State as an institution can levy and collect only due taxes from its subjects. So, the if the AO. s. determine the tax liability in an unfair manner and if the demand is not of the DUE taxes appellate authorities are expected to allow relief to the assessee . It is what the FAA has done in the case before us. He found that the assessee had selected CUP method one of the valid methods. If the AO had some reservations that the method adopted by the assessee was not MAM, he should have give reasons for rejecting it. He had two chances to rebut the claim of the assessee-during the assessment proceedings and during the remand proceedings. He very well knew that the assessee had objected to the ad hoc disallowance and rejection of the CUP method. But, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of business. 3. 1. During the appellate proceedings before the FAA, the assessee argued that it had filed full details of the expenditure incurred during the year under consideration, that there was no allegation that excessive payment was made to sister concern, that it was not the prerogative of the AO to tell the assessee as how to run his business, that during the remand proceedings the AO had not carried out any fresh enquiry. After considering the submission of the assessee and the remand report, the FAA held that the AO had issued a notice dt. 23. 3. 2006 directing the assessee to appear on 27. 3. 2006 and produce additional information, that the assessee asked for some time, that the AO rejected the request made by it, that sufficient opportunity was not given to the assessee, that the AO failed to avail the opportunity granted by the-then- FAA and did not add anything new in his remand report, that the payment for expenditure on business promotion including that to the sister concern was by cheque, that there was no finding of fact that the gifts were either not bought or not given, that the AO cannot step into the shoe of the businessman to decide what expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench and the AR supported the order of the FAA. We are of the opinion that the AO had made the ad hoc disallowance without any basis. The assessee had filed necessary details. Secondly, in the case of a corporate entity no disallowance should be made citing personal element of expenditure . So, endorsing the order of the FAA we dismiss fourth ground. 5. Next ground of appeal is about deleting the disallowance of ₹ 75, 000/-. While completing the assessment, the AO held that the assessee had claimed telephone expenses of ₹ 1. 16lakhs for the month of March 2006 out of the total expenditure of ₹ 3. 80 lakhs. Vide his letter dt. 23. 3. 2006, he asked the assessee to justify the expenditure and to explain the reasons for incurring heavy expenses in the month of March. As per the AO the assessee did not file any explanation. Therefore he disallowed an amount of ₹ 75, 000/- out of the total expenditure. 5. 1. Before the FAA, the assessee submitted that the nature of business warranted continuous use of mobile, that there cannot be any personal use of mobile in the case of a company. After considing facts of the case the FAA deleted the addition. 5. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that in the remand report the AO had himself produced certain clauses of the agreement, that the agreement supported the claim made by the assessee , that the assessee was not the unquestioned owner of the money received as advance, that it was a pure mobilization advance, that the figure of ₹ 81. 80 lakhs consisted of three components, project start-up(Rs. 36. 97lakhs); recruitment (Rs. 5. 49lakhs) and system designing, interim management meetings etc. (Rs. 39. 33 lakhs). He further observed that the AO had not given proper opportunity to the assessee at the time of assessment stage, that he did not examine the documents during the remand proceedings, that the recognition of ₹ 81. 80 lakhs was on sound basis, that there was nothing on record to suggest that revenue had not been properly recognized. Finally, he deleted the addition made by the AO. 6. 3Before us the DR supported the order of the AO. The AR relied upon the order of the FAA and stated that all the income from mobilisation charges were offered in the AY 05-06. After considering the rival submissions we are of the opinion that the order of the FAA does not suffer from any legal infirmity, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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