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TMI Blog2017 (9) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 brought forth by the Appellant in the form of ledger account for the legal and professional services. 2.4 That on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the data furnished by the Appellant was never held to be unreliable or incorrect by the AO, however at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 3.1 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in disallowing advances written off, and thereby making an addition of Rs. 2,75,000/-. 3.2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in rejecting the contention of the Appellant that the same was a ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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. 3. The assessee has raised the following grounds of appeal in ITA No. 5011/Del/2014:- "Based on facts and circumstances of the case and in law, the Appellant, respectfully craves leave to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Ld. CIT(A) has erred on facts and circumstances of the case and in law, in upholding the disallowance of expenditure to earn service income on account of legal and professional expenses, as the income therefrom has been offered to tax by the Appellant at an arm‟s length, which has been accepted by the jurisdictional TPO. 3.7 The Ld. CIT (A) has erred on facts and circumstances of the case and in law, in upholding the disallowance of expenditure on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 15436200/-. The assessment u/s 143(3) was made on 29.12.2010 on Rs. 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 basis amounting to Rs. 3138066/-. During the year the assessee incurred Rs. 12552264/- as legal and professional fees. During the course of assessment proceedings Assessee submitted the ledger accounts as well as the names of the parties to whom it is paid. The ld AO holding that the assessee in last year incurred expenses of Rs. 3262514/- but in current year such expenses is of Rs. 12552264/- which has increased more than 400% and therefore he disallowed 25% of total expenditure of Rs. 3138066/-. The ld CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult ground No. 2 of the appeal of the assessee is allowed. 8. Ground No. 3 of the appeal is with respect to disallowance of Rs. 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 India and mapping of selected competitors for the power equipment sector. The original fees offered was for Rs. 550000/- which was accepted vide letter dated 01.08.2006 according to that offer letter 50% of such sum was payable as advance. The assessee paid the same advance and subsequently it was decided that the above assignment is not to be carried forward and hence written off the above sum. The ld AO has disallowed for the reason that income to the extent of this amount of advance has not been credited to the profit and loss accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily 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. The lower authorities have not appreciated the contention of the assessee in the right perspective and merely compared the increase in expenditure with the previous year and then disallowed the same. They have completely overlooked the fact that during the year company has started trading activities of refrigerators and washing machine. In view of this ground No. 4 of the appeal of the assessee is allowed and the ld AO is directed to delete the disallowance of Rs. 877940/- on account of travelling and convenience expenses. 10. Ground No. 5 of the appeal is with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered the rival contentions. As the assessee is engaged in the business of provide market support to its holding company such services was obtained by the assessee for and on behalf of its holding company which was also charged of holding company along with mark up and transfer pricing officer order dated 13.10.2012 has also considered the provision of such services at arms length. We do not find any reason that these expenditure can be disallowed in the hands of the assessee by holding that these are capital expenditure. In the result we reverse the finding of the ld AO and direct the ld AO to del ..... 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