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2017 (9) TMI 237

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..... any services which are not for the purposes of business. Nature of expenses were shown to be not for the purposes of the business. Merely adhoc disallowance without pointing out any specific defect in details showing that it is not related to the business, such disallowance cannot be sustained Disallowance of written off by the assessee as sum becomes irrecoverable - Held that:- According to us the assessee is exploring the new business opportunity in the power sector and for that it hires a consultancy to carry out certain studies as the assessee is engaged in the business of support services. The assessee has obtained this project during the year and hence legal fees paid was written off. According to us the assessee is eligible for this deduction of expenses as it has incurred it for the purpose of the business and for consultancy expenses to be allowed i.e. deduction of income tax nowhere provided that corresponding credit to the profit and loss account should have been given. In view of this we allow ground of the appeal of the assessee and direct the ld AO to delete the disallowance. Disallowance on account of travelling expenses and conveyance expenses - Held that:- N .....

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..... of the AO as it violates the Principles of Natural Justice in not providing opportunity to the Appellant before passing the order dated 02.04.2014 on the issues appealed herein. 1.2 That the Ld. CIT (A) erred in upholding the order of the AO to the extent appealed herein even though the same was based on his surmises and conjectures. 1.3 That the Ld. CIT (A) erred in upholding the additions made by the AO without application of mind on the details/evidence/supporting documents filed/ produced by the Appellant. 2. Legal Professional Expenses 2.1 That the Ld. CIT(A) has erred on facts and circumstances of the case and in law, by disallowing 25% of the total Legal and Professional expenses on ad- hoc basis, and thereby making an addition of ₹ 31,38,066. 2.2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in up-holding the disallowance made by the A.O on the ground that the Appellant has failed to provide details of services rendered by persons to whom payments have been made. 2.3 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by discounting the details and information .....

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..... l and professional charges is wholly and exclusively for the purpose of business in terms of Section 37(1) of the Act, whereas a bare perusal of the submissions/documents/ledger account made by the Appellant shows that, the purpose of the expenditure so provided by the Appellant in the ledger account is expenditure undertaken for business. 2.11 Whether the Ld. CIT(A) failed to appreciate that the Appellant had deducted and duly submitted the ledger account of TDS on Professional Payments to the AO in support of his claim for allowance u/s 37(1) of the Act. 2.12 Without prejudice to the above, Ld. CIT(A) has erred on facts and circumstances of the case and in law, in upholding the disallowance of expenditure which has been incurred to earn service income by the Appellant, even though the same was offered to tax. 2.13 That the Ld. CIT(A) has erred on facts and circumstances of the case and in law, to appreciate that the service income has been offered to tax by the Appellant at arm‟s length, which has been accepted by the jurisdictional transfer pricing officer, and therefore, no under lying expenditure ought to have been disallowed. Advances written off .....

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..... he head of travelling and conveyance were wholly and exclusively for business purpose as relocation of Directors along with family members and annual holidays of Directors as per company policy of the Appellant in relation to the facilities to be provided to its Directors is to be allowable as an expenditure incurred wholly exclusively for business purpose u/s 37(1) of the Act immediately preceding year is a reason for rejection of otherwise allowable claim in the present Assessment Year? 4.3 That Ld. CIT(A)/AO have erred on the facts and circumstances of the case and in law, by arbitrarily rejecting the submissions of the Appellant, by holding that the expenditure incurred on travelling and conveyance in the present Assessment Year is higher than the expenditure incurred in the immediately preceding Assessment Year. 4.4 Whether the increase in expenditure from immediately preceding year is a reason for rejection of otherwise allowable claim in the present Assessment Year? 5. Penalty Proceedings 5.1 That on the facts and circumstances of the case and in law, the Ld. AO/CIT(A) have erred in initiating the penalty proceedings under Section 271(1)(C) of the A .....

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..... (A) has erred in disallowing the expenditure incurred by the Appellant to earn service income based on it‟s order for AY 2007-08 even though the expenditure in that year was disallowed only to the extent of 25% and that too on the sole reason of the alleged non-furnishing of break-up of details. [Without Prejudice] 3.4 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in disallowing the expenditure incurred by the Appellant to earn service income based on it‟s order for AY 2007-08, as the same has not been accepted by the Appellant, and an appeal for AY 2007-08 has been filed before this Ld. Tribunal. [In Alternate] 3.5 That on facts and circumstances of the case and in law, the Ld. CIT(A) erred, as though the Ld.CIT(A) chooses to rely on the Appellate order dated 02.04.2014 for AY-2007-08, it does not take into account the copy of the service agreement, accepted by the CIT(A) in proceedings for AY 2007-08, between the Appellant and it‟s holding company, wherein it is implicitly stated that the Appellant provides sales, marketing and consultancy services amongst others to all Toshiba Group Companies. 3.6 The L .....

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..... he Ld. AO/CIT (A) have erred in initiating the penalty proceedings under Section 271(1)(C) of the Act. 6. Interest under 234 B of the Act 6.1 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that charging of interest under Sections 234 B of the Act is consequential. 4. The brief facts of the case are that the assessee is a company engaged in the business of providing services to its holding company subsidiaries and its associates. During the year, it started business of trading of home appliances such as refrigerators and washing machine manufactured by its associate companies. The assessee filed its return of income on 15.11.2007 for ₹ 15436200/-. The assessment u/s 143(3) was made on 29.12.2010 on ₹ 22574110/-. During the assessment the ld AO made certain disallowance which are contested before the ld CIT(A) unsuccessfully and therefore further appeal was preferred before us. 5. Ground No. 1 of the appeal of the assessee is general in nature and therefore same is dismissed. 6. Ground No. 2 of the appeal of the assessee is against the disallowance of 25% legal and professional expenses on adhoc bas .....

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..... ld AO cannot be sustained when the details of legal expenses are available with the AO where each and every party to whom the fees is paid is mentioned. Ld AO could not point out any services which are not for the purposes of business. Looking at the details before us alos none of the nature of expenses were shown to be not for the purposes of the business. Merely adhoc disallowance without pointing out any specific defect in details showing that it is not related to the business, such disallowance cannot be sustained. In the result ground No. 2 of the appeal of the assessee is allowed. 8. Ground No. 3 of the appeal is with respect to disallowance of ₹ 275000/- written off by the assessee as sum becomes irrecoverable. The claim of the assessee is that this sum was given to one of the company named Frost and Suilliven for preparing a report for the business of the company. This advances were written off during the year as the service provider did not provide further information about the assignment of the work. The ld AO disallowed the same which was confirmed by the ld CIT(A). The assessee gave the assignment to the above party for strategic analysis of power sector in In .....

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..... 8377; 325170/- was also paid for air ticket for Tokyo. It was submitted that these expenses are incurred by the assessee for the relocation of employee who are designated as directors by the company with their family as well as in connection with annual holiday of the directors. These expenses are in terms of employees employed with the assessee. The assessee is a subsidiary company of a Japan Company, therefore, a person such as Director can be travelling for the purpose of business etc by the employee of the company to Japan and therefore, these expenses are necessarily incurred for the purpose of business of the assessee. None of the expenditure of travelling are related to the share holder owners of the appellant company. As the relocation expenditure and transfer expenditure which is incurred for the purpose of the business is not the perquisite in the hands of the assessee therefore, naturally they are not entering into the Form No. 16 issued to those employees. It was further stated that merely because FBT is not paid does not make the expenditure disallowable. We do not find any infirmity in the submission of the assessee and we also see considerable force in the arguments. .....

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..... see has incurred expenditure related to joint venture between Toshiba Corporation and JSW Steel for power project in Hyderabad. The fee was paid to Trilegal, KPMG and E Y Etc. The assessee explained that assessee s primary source of income is of providing marketing support services to its holding company and other group companies. The above expenditure is incurred to provide the market support for a joint venture between the assessee s holding companies as well as other party. The assessee s role was prescribed in the memorandum of understanding entered by these parties. According to that assessee was paid $135225/- for certain services. Further it was stated that by both bills have been charged to Toshiba Corporation at cost plus mark up , theses sums are already credited in the profit and loss account of the assessee in the service income. Therefore, it was submitted that the expenditure incurred by the assessee is debited to the profit and loss account as an expenditure and similarly the above sum mark up is credited to the profit and loss as income. The AO disallowed the above sum holding it as capital expenditure the ld CIT(A) upheld the addition. 17. We have carefully cons .....

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