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TMI Blog2022 (8) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... er the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. The issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. Addition dealer commission u/s 37 - Whether it was wholly and exclusively incurred for the purpose of business? - HELD THAT:- The assessee claimed that it has paid a sum towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below erred in disallowing the commission expenditure to dealers amounting to Rs.2,42,33,641/- u/s 37 of the Act by holding it as not wholly and exclusively incurred for the purposes of business. 9. The above disallowances have been made ignoring the binding principles of natural justice as required under law and the Act. 10. The authorities below erred in adopting the assessed income at Rs.46,46,73,880/- without any discussion or providing reason whereas the Assessing Officer in his order dated 04.09.2013 has determined the income at Rs.4,33,24,017/-. It is prayed that the assessed income should ...be as per the order dated 04.09.2013 and disallowance/adjustment should be based on the said amount. 11. The appellant denies the liability for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income. No opportunity has been given before the levy of interest u/s 234B of the Act. 12. Without prejudice to the appellant's right of seeking waiver before appropriate authority the appellant begs for consequential relief in the levy of interest u/s 234B of the Act. 13. For the above and other grounds and reasons whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty payment by the assessee then the TPO/AO may consider the royalty payment as part of the international transactions under trading segment and then determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment.'' 3.4 During the set aside proceedings, the assessee vide reply dt.05.06.2019 submitted that by considering royalty payment as part of the international transaction under trading segment, the margin of the assessee is higher than that of the comparable company. However, the TPO in para 4.5 & 4.6 has stated as follows: ''4.5 During the set aside proceedings, the taxpayer has not identified any comparable in respect of the royalty payment. Since the TPO has chosen the company, M/s Advanced Micronic Devices Ltd., as a comparable to the taxpayer, in the trading segment, the same is considered as comparable for the royalty transaction also. 4.6 The R&D expenses of the comparable & royalty over net sale is considered as per the annual report for the current year is: Sl No Company name R&D Exp Royalty/ trademark Net sale Margin over sale 1 Advanced Micronic Devices Ltd. 0 0 2684.75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal where the Tribunal given a direction that in case comparable is not found in respect of payment of royalty by the assessee, then the TPO/AO may consider the royalty payment on part of the international transaction under trading segment and determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. Before us, Ld. A.R. submitted that if it is considered as operating cost, then the margin of the assessee is higher than the margin of comparable i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. 4. Next ground No.8 is with regard to sustaining addition of Rs.2,42,33,641/- u/s 37 of the Act by holding that it was wholly and exclusively incurred for the purpose of business. Facts of this case are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not in a position to furnish the particulars (name, address, evidence of deduction of TDS, etc.) in respect of persons to whom commission amounting to Rs.2,42,33,641/- have been paid pertaining to AY 2005-06. Therefore, he is not in a position to prove identity of the payee, genuineness of expenses incurred and substantiate that expenses are incurred wholly and exclusively for the purpose of business. The assessee's claim of following the practice of accounting also could not be substantiated as the assessee is unable to discharge the primary onus of establishing the identity and the genuineness of the transaction. In view of the circumstances, Ld. DRP held that the assessing officer has correctly held that the dealer commission amounting to Rs.2,42,33,641/- has not been incurred wholly and exclusively for the purpose of business. 4.4. We have heard the rival submissions and perused the materials available on record. The assessee claimed that it has paid a sum of Rs.2,42,33,641/- towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng is the aforesaid Royalty adjustment. Hence the assessed income computed is erroneous. 8. The appellant denies the liability for interest u/s 234B & 234D of the Act. Further prays that the interest if any should be levied only on returned income. No opportunity has been given before the levy of interest u/s 234B & 234D of the Act. 9. Without prejudice to the appellant's right of seeking waiver before appropriate authority the appellant begs for consequential relief in the levy of interest u/s 234B & 234D of the Act. 10. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 5.1 With regard to ground Nos.4 to 6 the facts of the case are as follows:- 5.2 The addition proposed in the draft assessment order on which the assessee has filed its objections are hereunder: a) Adjustment u/s 92CA (Arm's length price difference in royalty payment) - Rs. 2,76,52,064/- 5.3 The assessee has paid royalty of Rs.2,76,52,064/- as in A.Y. 2005- 06. Facts are also similar in this A.Y. as in A.Y. 2005-06. 5.4 In this assessment year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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