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TMI Blog2017 (4) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... y and further in the absence of any agreement between the assessee and Mr. Rakesh Gupta regarding payment of sales commission we do not find any error or illegality in the orders of the authorities below qua this issue. Accordingly appeal is decided against the assessee. As regards the claim paid to Ms. Latha Gehani we find that the CIT(A) has not discussed any fact while allowing the claim of the assessee whereas the AO has disallowed the claim for want of evidence, agreement and identity as well as confirmation of rendering of service. Since the order of the CIT(A) is silent and non-speaking on this issue therefore in the facts and circumstances of the case we set aside this issue to the record of the AO for proper examination and verification of facts as well as evidence to be produced by the assessee. Reallocation of expenses among three segments - HELD THAT:- Allocation of cost can be made only in respect of indirect common cost incurred in respect of all the segments. Therefore the allocation of the cost can be made only in respect of the indirect cost. The cost which is directly related to a particular segment cannot be reallocated. The same can be examined for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any evidence to support the sales commission paid as well as confirmation of services rendered or other evidence like agreement, identity of persons receiving the sales commission the AO treated the said amount of ₹ 33,60,000/- as not a genuine expenditure and added to the income of the assessee. On appeal the assessee contented that a bill was raised by Shri Rakesh Gupta towards business promotion and development expenses at the rate of 11% on 6,40,00,000/-, the total order value of M/s. Khodayss System Limited. It was also claimed that this payment is also linked to the realization of debts. The assessee has pointed out that out of the said amount of ₹ 33,60,000/- the accrued selling expenses was ₹ 24 Lakhs and these were incurred during the ordinary course of business. The balance amount of ₹ 9,60,000/- was claimed to have been paid to Ms. Latha Gehani towards marketing services which is also incurred wholly and exclusively for the purpose of business. Thus the assessee claimed that this entire amount of ₹ 33,60,000/- is an allowable expenditure. The CIT(A) noted that Shri Rakesh Gupta has submitted the bill on 28.01.2003 much before the clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee. He has further submitted that the order booked from M/s. Khodayss System Limited was executed in the next year and therefore the assessee provided only ₹ 24 Lakhs on proportionate basis on the sales effected during the year. 6. We have considered the rival submissions as well as relevant material on record. This issue is common in both the appeals filed by the revenue as well as by the assessee. Since the CIT(A) has disallowed the substantial claim of the assessee to the extent of ₹ 24 Lakhs paid to Shri Rakesh Gupta and allow the remaining amount of ₹ 9,60,000/- paid to Ms. Latha Gehani therefore both assessee as well as revenue have challenged the impugned order of the CIT(A) on this issue. The assessee has raised this issue in ground no. 3 of the assessee s appeal. We find that the AO has disallowed the entire claim of the assessee of ₹ 33,60,000/- for want of any evidence, confirmation of service rendered, any agreement, identity of persons receiving the sales commission. The CIT(A) has dealt with this issue in para 6.3 as under. 7. It is apparent from the finding of the CIT(A) that the proper record and facts have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock are only apportioned. Thus the TPO was of the view that the direct employee cost in the AMC segment was allocated at ₹ 1,62,63,063/- for 18 employees, while the salary of shared services unit it was shown at ₹ 6,52,056/- total amounting to ₹ 1,69,15,086/- out of the total employees cost of the assessee of ₹ 3,14,46,386/-. The TPO noted that the payment of 1.62 crores to 18 employees means that the average payment to each employee is about ₹ 9 Lakhs per annum and monthly salary comes to ₹ 75,000/- per employee. Considering the nature of work the employee would be rendering for AMC the payment of monthly salary of ₹ 75,000/- was found to be highly excessive. Similarly under the head administrative, selling and general expenses ₹ 1,35,05,176/- were shown as pertaining to AMC segment out of the total expenditure under this head of ₹ 2,55,45,092/-. Thus the TPO found that out of the total cost of ₹ 5.69 cores ₹ 3.04 crores of operating cost was apportioned to AMC activity. The TPO has recomputed the allocation of the operating cost among three segments in proportionate to the revenue and then recomputed the arms lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the rival submissions as well as relevant material on record we find that the TPO has taken note of the fact that the employees cost allocated to the AMC segment was highly excessive in comparison to the other two segments. Further, the TPO has noted that the other indirect cost were also not properly allocated by the assessee while computing the operating margins for the purpose of bench marking its international transaction. The TPO then undertaken the exercise of reallocation of the total operating cost in the ratio of turnover of three segments. It is pertaining to note that the allocation of cost can be made only in respect of indirect common cost incurred in respect of all the segments. Therefore the allocation of the cost can be made only in respect of the indirect cost. The cost which is directly related to a particular segment cannot be reallocated. The same can be examined for the purpose of allowability and genuineness but not for the purpose of reallocation. Accordingly, we find that the action of the TPO in allocating the direct as well as indirect cost in the ratio of turnover of each segment is not proper and justified. Hence we do not find any error or illegality ..... X X X X Extracts X X X X X X X X Extracts X X X X
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