9911796707
TMI Blog2018 (1) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... 09-10. The coordinate Bench of the Tribunal in taxpayer s own case (supra) proceeded to hold that incurring of AMP expenses by the taxpayer is not an international transaction of brand building of Goodyear brand undertaken by the taxpayer with AE and as such, no adjustment can be made. Netting off of export incentive from the cost of goods sold and set aside the issue of netting off of rebate/ discount from the cost of goods sold to the file of AO/TPO for verification of the claim in view of the decision rendered by the Tribunal for AY 2006-07 [ 2012 (12) TMI 1166 - ITAT DELHI] by providing an opportunity of being heard to the taxpayer. Disallowance of provision made by the taxpayer for replacement loss - taxpayer has not incurred expenditure on account of replacement of goods in the subsequent years; that the same is not ascertained and is contingent in nature - HELD THAT:- The taxpayer has filed complete details on the basis of past trends and experience of actual guarantee claims on a scientific and actual basis, we are of the considered view that provision for warranty made by the taxpayer is allowable one. Disallowance being 30% of the total expenditure - taxpayer has incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, the ld. DRP has issued specific direction to the AO to allow these expenses if the same are found to be genuine on filing necessary evidence in support of its claim by the taxpayer. When the accounts are audited and duly supported with evidences discussed in the preceding paras, the AO is to allow the same after verifying its genuineness and to proceed accordingly. Decided in favour of the taxpayer. Disallowance being the provision for obsolete stocks and spares - it was only a provision and not an actual write off and on the ground that the taxpayer has failed to provide the basis and working of the provision of the obsolete stores and spares - HELD THAT:- The taxpayer has brought on record the complete details of obsolete stocks and spares, available - DRP directed the AO to allow the provision of obsolete stocks and spares in case the same has been scientifically worked out. However, the AO proceeded to disallow the same on the ground that the taxpayer has failed to produce the details of the stocks and spares written off. When the taxpayer has brought on record details of amount and items of slow moving article and the Revenue has not disputed that this system is being f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. The Appellant, M/s. Goodyear India Limited (hereinafter referred to as 'the taxpayer') by filing the present appeals sought to set aside the impugned order dated 29.12.2015, Nil & 27.01.2017, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment years 2010-11. 2011-12 & 2012-13 on the grounds inter alia that :- "ITA No. 1516/Del./2015 (AY : 2010-11) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income tax Act, 1961 ('the Act') at an income of Rs. 134,76,30,400 as against the income of Rs. 112,28,90,705 returned by the appellant. 2. That the assessing officer erred on facts and in law in making an addition of Rs. 16,65,18,068 allegedly on account of difference from the arm's length price of the international transactions entered into by the appellant with its associated enterprise, on the basis of order passed by the Transfer Pricing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 4.3 The assessing officer / TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 4.4 The assessing officer/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 4.5 That assessing officer/TPO erred on facts and in law in not appreciating that such a Transfer Pricing adjustment could not at all be made in respect of AMP expenses which were found to constitute legitimate, bonafi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in respect of export of finished goods, should not be taken into account for determining the profit/cost in respect of the international transaction of export. 5.3 That the assessing officer I TPO has erred on facts and in law in holding that "if the appellant's method of calculation of 'cost of goods sold' is followed, it would tantamount to a claim that benefit, which has not yet accrued at the time of sale of goods, being treated as a component of cost of goods sold." 5.4 That the assessing officer I IPO erred on facts and in law in ignoring that the Global Transfer Pricing Policy of the group company provides for reducing the cost of merchandise by the export incentives available to the exporting entity. 5.5 That the assessing officer / TPO erred on facts and in law in holding that the export incentive does not form part of invoice price of goods sold and hence the same cannot be reduced from the cost of goods sold. 6. That the assessing offer erred on facts and in law in making disallowance of provision for replacement loss amounting to Rs. 61,53,000 allegedly on the ground that the appellant did not incur expenditure on account of replacement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spares. 10. That the assessing officer erred on facts and in law in making an ad-hoc disallowance of Rs. 25,00,000 holding 50% of the salary paid to administrative staff of the appellant which was allegedly attributed to the capital work in progress and was ought to be capitalized along with the capital work in progress. 11. That the assessing officer erred on facts and in law in making disallowance of stores and spares written off amounting to Rs. 53,93,000 allegedly holding that such details and supporting evidence of write off of stores and parts were not furnished and also such write off was not verifiable with reference to physical disposal. 12. That the assessing officer erred on facts and in law in under Section 234B and Section 234C of the Act." "ITA No. 1004/Del./2016 (AY : 2011-12) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 132,46,38,800 as against the income of Rs. 109,38,32,595 determined by the appellant in its income tax return. 2. That the DRP/assessing officer erred on facts and in law in making an addition of Rs. 19,08,88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer/ TPO erred on facts and in law in disregarding the comparable uncontrolled price of royalty submitted during the course of assessment proceedings, for benchmarking the transaction of payment of royalty applying CUP method . 4. That the DRP/assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 9,54,44,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 4.1 That the DRP/assessing officer erred on facts and in law in making the said additional allegedly holding that the appellant was promoting the brand of the associated enterprise and instead of payment of the trademark fee to the AE of Rs. 9,54,44,000, the appellant ought to have received equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 The DRP/assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finding in the preceding assessment year allegedly holding that the expenditure was incurred for the benefit of the enterprise who owns brand name. 6.1 That the assessing officer erred on facts and in law in not appreciating that the advertisement and publicity expenses were incurred by the appellant in the course of carrying on of its business and were allowable deduction as business expenditure. 6.2 That the assessing officer erred on facts and in law in making disallowance of Rs. 54,17,314 allegedly on account of short fall of interest on provident fund. 7. That the assessing officer erred on facts and in law in under Section 234B and Section 234C of the Act." "ITA No. 1706/Del./2017 (AY: 2012-13) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Incometax Act, 1961 ('the Act') at an income of Rs. 1,19,58,49,260 as against the income of Rs. 92,07,70,135 determined by the appellant in its income tax return. 2. That the DRP/assessing officer erred on facts and in law in making an addition of Rs. 22,36,02,000 allegedly on account of difference from the arm's length price of the internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng adjustment amounting to Rs. 11,18,01,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 4.1 That the DRP/assessing officer erred on facts and in law in making the said additional allegedly holding that the appellant was promoting the brand of the associated enterprise and instead of payment of the trademark fee to the AE of Rs. 11,18,01,000, the appellant ought to have received equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 The DRP/assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 4.3 The DRP/TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty (replacement loss) amounting to Rs. 1,49,77,293 allegedly holding that the same was contingent in nature. 5.1 That the DRP erred on facts and in law in observing that the provision for warranty is based on estimate and the behavior pattern of customer to claim warranty or not cannot be predicted. 6. That the assessing officer erred on facts and in law in making an ad hoc disallowance of Rs. 3,64,99,828 being 30% of the total expenditure of Rs. 12,16,66,095 incurred by the appellant on advertisement and publicity following the finding in the preceding assessment year allegedly holding that the expenditure was incurred for the benefit of the enterprise who owns brand name. 6.1 That the assessing officer erred on facts and in law in relying on the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited to held that if the brand name is not owned by the assessee, such expenditure is incurred for the benefits of the enterprise who own the brand name, not appreciating that the said decision was made redundant by the Hon'ble Supreme Court. 6.1 That the assessing officer erred on facts and in law in not appreciating that the advertisement and publicity ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the taxpayer was promoting the brand of its Associated Enterprise (AE) for which the taxpayer was not compensated determined the value of compensation on brand building further proposed adjustment of Rs. 7,84,24,000/- on this score. TPO also questioned the taxpayer's approach of benchmarking by reducing the export incentive from the total cost and then determined the mark up of 5% on total cost to arrive at the value of export and proceeded to hold that 5% mark up should have been charged on the total cost and thereby proposed an adjustment of Rs. 96,70,068/-. Consequently, TPO proposed the determination of ALP relating to export of traded goods at Rs. 17,16,20,264/-, relating to payment of trademark fee/creation of marketing intangibles at Rs. 7,84,24,000/- and directed the AO to enhance the income of the taxpayer by Rs. 96,70,068/- by not allowing the taxpayer to reduce the export incentives to calculate the value of the goods sold and made the total enhancement of taxpayer's income at Rs. 16,65,18,068/-. 5. The taxpayer carried the matter before the ld. DRP by filing objections who has disposed of the objections. Feeling aggrieved, the taxpayer has come up before the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions relied upon. Ld. Counsel of the assessee has emphasized on the benchmarking of payment of trademark as closely linked transaction with the manufacturing segment. The Ld. Counsel of the assessee has submitted that the royalty relates to the entire turnover/production of the appellant and constitutes an essential part of the cost of sales. The entire business model of the appellant is based on the licenses granted by the associated enterprise to manufacture the tyres which have been highly successful and renowned throughout the world, and for providing all the I.P. rights and technology necessary for the same, for which the royalty payment has been made. Without which, the appellant's business will cease to exist and its entire operations would come to a halt. Accordingly, since the entire operation of the appellant is based on rights and licenses to manufacture the automobile tyres and tubes, for which royalty is being paid, the royalty payments cannot be separately evaluated. In the case of the appellant, it is nobody's case that the company has entered into diverse activities. The international transactions of the appellant primarily relate to its business of manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range." The Hon'ble Tribunal accordingly held that the assessee was correct in applying overall TNMM for examining royalty. 10. The aforesaid decision of this Tribunal has been upheld by the Hon'ble High Court in the case of ACIT vs. Lumax Industries Ltd. (ITA No. 102/2014). 11. The assessee has also rightly made reference to the decision of Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd vs. CIT (ITA No 16/2014) reported at 374 ITR 118, wherein, the Court has upheld clubbing of closely linked transactions for undertaking benchmarking analysis applying entity wise TNMM. In fact, in the case of CIT vs. Reebok India Co Ltd (ITA no 213/2014), being part of the decision of Hon'ble High Court in the case of Sony Erickson, the Court has held as under: "185. Royalty payable for availing the right to use would depend upon corresponding price, which would have been paid by an independent or unrelated enterprise. This is judged by applying comparables. TPO has not rejected the quantum of royalty on the said principle. The reasoning given by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing given to the expression 'uncontrolled transaction' leaves no room for any doubt that it is a transaction between two non-associated enterprises. If he transaction is between two associated enterprises, it goes out of the ambit of 'uncontrolled transaction' under Rule 10A. When section 92C is read along with Rule 10B(e) and 10A, it becomes abundantly clear that in computing ALP under the transactional net margin method, a comparison of the assessee's net profit margin from international transactions with its AEs has necessarily to be made with that of the net profit margin realized by the same enterprise or an unrelated enterprise from a comparable but definitely uncontrolled transaction, i.e., a transaction between non-associated enterprises. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. When it has been clearly mandated in all the relevant methods for determining ALP that the comparison has to be made by the enterprise's international transaction with comparable uncontrolled transaction, by no sheer logic a comparable controlled transaction can be employed for the purposes of making comparison. There is no wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequently, when the financial position of the assessee improved, the AE started charging royalty in consideration for allowing the assessee to use its valuable brand name. The reasons given by the AR of the assessee, for not charging royalty by the AE, prior to the year under consideration is duly corroborated from the year to year profits shown by the company. It is valid reason that the AE was not charging royalty prior to financial year 2006-07 was due to the losses incurred by the assessee and prior to year 2000, no Indian companies were allowed to pay trademark fees under automatic route. Nevertheless, the Mumbai Bench of Tribunal has, in the case of Dresser- Rand India Pvt Ltd vs. ACIT (ITA No. 8753/Mum/2010 held that whether the services given by the AE to the assessee, without charging consideration, on gratuitous basis in the preceding year, cannot de bar the AE from charging fee for the same services subsequently. The observations are: "8……When evaluating the arm'slength price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Furthermore, the doctrine of benefit test applied by the TPO cannot be invoked as it is prerogative of the businessman to see if any service is beneficial to the promotion of its business or not. So, consequently, the AO is directed to delete the adjustment made on account of ALP of international transaction of payment of trademark fees of Rs. 7,84,24,000/-, Rs. 9,54,44,000/- & Rs. 11,18,01,000/- for AYs 2010-11, 2011-12 & 2012-13 respectively. Consequently, Grounds No.3, 3.1, 3.2, 3.4 of ITA No. 1516/Del./ 2015, Grounds No.3, 3.1, 3.2, 3.4, 3.5, 3.6 & 3.7 of ITA No. 1004/ Del./2016 and Grounds No.3, 3.1, 3.2, 3.4, 3.5 & 3.6 of ITA No. 1706/Del./2017 are determined in favour of the taxpayer. GROUNDS NO.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 & 4.11 OF ITA No. 1516/Del./2015 (AY: 2010-11) GROUNDS NO.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 & 4.7 OF ITA No. 1004/Del./2016 (AY: 2011-12) GROUNDS NO.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 & 4.10 OF ITA No. 1706/Del./2017 (AY: 2012-13) 11. The issue as to making transfer pricing adjustment of Advertisement, Marketing and Sales Promotion (AMP) has also been dealt with by the coordinate Bench of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords that HSPP is responsible for "brand building and maintaining brand loyalty in domestic market." Reference is made to the statement that "this brand name has been developed and popularised by HSPP in India." According to the Revenue, therefore, there is no dispute that the Assessee is engaged in "developing and maintenance of brand/trade name in India." 28. A reference is made by the Revenue to the Export Agreement whereunder the Assessee has been granted rights to export products to certain 'permitted countries' for payment of royalty of 8 per cent of the export price, which was subsequently raised to 12.25 per cent from 1st February 2008. Honda, Japan reserved the right to change the permitted countries at any time. According to the Revenue this indicates that the Assessee has not been an independent manufacturer and is only functioning as a contract manufacturer for the AE. It is also pointed out that the list of countries to which export is permitted by Honda, Japan included the countries falling in the same geographical location as India. It is stated that the terms of the agreement with such distributors in other countries "could have worked as a sound comparable" but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.10 of ITA No. 1706/Del./2017 are determined in favour of the taxpayer. GROUNDS NO.5, 5.1, 5.2, 5.3, 5.4 & 5.5 of ITA No. 1516/Del./2015 (AY 2010-11) 13. The taxpayer during the year under assessment made purchases from Goodyear South Asia Tyres Pvt. Ltd. and resold to AE's overseas. The taxpayer contended that export incentives are a valid source of profit for any exporters. However, TPO taken the view that export incentives does not form part of the invoice price of the goods sold and as such, the taxpayer is not allowed to reduce value of export incentives to calculate the cost of goods sold and thereby determined the ALP regarding this transaction as under :- Particulars Amount Purchase price of goods 160,989,991 Add : Freight cost 7,287,579 Less : Rebate received -4,829,700 Total Elective cost 163,447,870 Add : 5% markup 8,172,394 Arms length price of export sales of traded goods 171,620,264 Revenue shown 161,950,196 Difference 9,670,068 14. The TPO accordingly proposed ALP of international transactions relating to export of trading goods at Rs. 17,16,20,264/- as against Rs. 16,19,50,196/- determined by the taxpayer. 15. This issue has come up before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit, which has not yet accrued at the time of sale of goods, being treated as a component of cost of goods sold. 11.6 The TPO's reference to the OECD guidelines is also germane. In this regard, we find that in the said guidelines gross profit are defined as "the gross profits from a business transactions are the amount computed by deducting from the gross receipts of the transactions the allocable purchased or production costs of sales, with due adjustment for increases or decreases in inventory or stock in traded, but without taking account of other expenses." 11.7 From the above it follows that while determining the gross profits from sale of goods such incentives cannot be adjusted to determine the cost of goods sold. TPO has rightly observed that export incentives does not form part of the invoice price of goods sold. In such a case, it cannot be reduced from the cost of goods sold. We agree with the TPO that an expenditure that does not form part of the books of accounts cannot be treated as an expense for the purpose of transfer pricing accounting. 11.8 Assessee's reliance of Accounting Standard (AS)-II- Verification of inventories issued by Institute of Chartered Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of goods is deductible from the value of cost of goods sold. Hence, in our considered opinion, assessee is entitled for deduction of rebate received upon purchase of goods from the value of goods sold. 12.2 We further find that the rebate amount was netted off and net amount of purchase cost shown in the profit and loss account. In this regard, TPO has contended that the said amount was not reflected in the books and accounts of the assessee. In our considered opinion, this factual aspect needs verification. Hence, we remit this issue regarding verification of netting off of rebate from cost of purchase to the file of Assessing Officer. Needless to add that the assessee should be given adequate opportunity of being heard." 16. So, following the decision rendered by the coordinate Bench of the Tribunal for AY 2006-07, the order passed by the TPO is upheld to the extent of netting off of export incentive from the cost of goods sold and set aside the issue of netting off of rebate/ discount from the cost of goods sold to the file of AO/TPO for verification of the claim in view of the decision rendered by the Tribunal for AY 2006-07 by providing an opportunity of being heard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of Rotork Controls (supra), the Hon'ble Delhi High Court in the case of CIT vs. Whirlpool of India [242 CTR 245], too, dismissed the grounds of the revenue for disallowing provision for warranty. Our attention is also invited to the order passed by the Delhi Bench of the Tribunal in the appellant's own case for the assessment year 2006-07, wherein, similar ad-hoc disallowance of warranty were deleted, as under: "We agree with the assessee's contention that provision for estimated expenditure to be incurred for warranty obligation in respect of sales made in the relevant previous years is to be accounted as expenditure in the year of sale, in order to match the cost with revenue. The provision for warranty is necessarily required to be made by the companies which are required to follow mercantile system of accounting. In this regard, we further find that Courts have consistently held the view that liability for provision for warranty for replacement on account of manufacturing defects arises at the time of sale and is to be allowed as deduction in that year on the basis of rational /scientific estimate, notwithstanding that the exact amount of liability is asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and precedent relied upon. We have already held that the advertisement expenditure incurred by the assessee is incurred wholly for the purpose of its business and profession and ought to be allowed deduction in entirety. Further, the assessing officer has clearly made an ad-hoc disallowance of advertisement expenditure incurred by the assessee, which is not permissible under the law. We are of the considered view that AO was not justified in making such ad-hoc disallowances and therefore, direct the assessing officer to delete the adjustment on this account." 30. Following the order passed by the coordinate Bench of the Tribunal, we are of the considered view that when the Bench has already held that the taxpayer has incurred advertisement expenses wholly for the purpose of business and profession, the same are required to be allowed in full. So, in the given circumstances, ad hoc disallowance of advertisement expenses incurred by the taxpayer is not permissible under law. So, AO is directed to delete the same accordingly. Consequently, Grounds No.7, 7.1, 7.2, 7.3 of ITA N0.1516/DEL./2015, Grounds No.6 & 6.1 of ITA No. 1004/DEL./2016 and Grounds No.6, 6.1 & 6.2 of ITA No. 1706/ D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Nagar Sugar Ltd. & ORs. vide order dated 19.11.2010 by deciding in favour of the assessee. 33. Undisputedly, the taxpayer has already paid the dues along with interest, as is evident from the details available at pages 254 & 255 of the paper book. This amount has been duly credited in the account of employees. The AO has disallowed this amount u/s 43B of the Act. 34. Ld. AR for the taxpayer contended that since the interest amount is not in the nature of PF, section 43B is not attracted. 35. Hon'ble Delhi High Court to decide the identical issue framed the substantive question of law as under :- "a) Whether the interest paid on the late payment of the provident fund can partake the character or nature of the provident fund? b) Whether the provisions of Section 43B of the Act are applicable on the interest paid by the assessee on the late payment of provident fund?" 36. Hon'ble High Court decided the aforesaid question in affirmative and operative part of the judgment is as under :- "11. We now revert back to the moot question, i.e., whether interest on delayed payment partakes the character of PF dues. Learned counsel for the Revenue laid great emphasis on the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployer in time, the interest payable thereon would become part of the provident fund dues and section 43B of the Act would be attracted. However, when the taxpayer has actually paid the interest, section 43B would not be attracted and the taxpayer is entitled to claim deduction thereof. So, we are of the considered view that AO/DRP have erred in making disallowance allegedly on account of shortfall of interest of provident fund. Consequently, the AO is directed to allow the same after verifying the facts as to the payment of dues paid along with interest by the taxpayer. So, Ground No.6.2 of ITA No. 1004/Del./2016 is determined in favour of the taxpayer. GROUND NO.8 & 8.1 OF ITA NO. 1516/DEL/2015 (AY 2010-11) 38. AO has made disallowance of Rs. 35,84,180/- and Rs. 12,74,347/- being the misc. charges and service tax written off out of misc. expenditure of Rs. 12,35,16,000/- on the grounds that the expenditure were not supported by vouchers and the taxpayer has failed to prove that the expenditure were incurred wholly and exclusively for the purpose of business; that the taxpayer has failed to deduct tax at source on certain expenditure and that some of the expenditure are in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and spares and has never been disallowed earlier and in the last year, amount of Rs. 20,36,000/- was written off on this account. 44. The taxpayer has brought on record the complete details of obsolete stocks and spares, available at pages 429 to 431 of the paper book. The ld. DRP directed the AO to allow the provision of obsolete stocks and spares in case the same has been scientifically worked out. However, the AO proceeded to disallow the same on the ground that the taxpayer has failed to produce the details of the stocks and spares written off. When the taxpayer has brought on record details of amount and items of slow moving article and the Revenue has not disputed that this system is being followed bonafidely by the taxpayer, the AO was required to follow the rule of consistency. So, in view of the matter, AO is directed to delete the disallowance on account of stores and spares written off after verifying the documents available at pages 429 to 431 of the paper book. Consequently, Ground No.9 & 9.1 of ITA No. 1516/Del/2015 is determined in favour of the taxpayer GROUND NO.10 OF ITA NO. 1516/DEL/2015 (AY 2010-11) 45. AO made ad hoc disallowance of Rs. 25,00,000/- bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure." 48. Following the decisions rendered by the Hon'ble Delhi High Court and the fact that the taxpayer carried out the expansion of the existing business for which services of Managing Director and Plant Supervisor who have also monitored and ensured day-to-day running of the factory and production along with capital work-inprogress for expansion of the same unit were availed of, which satisfies the test of unity of control, interlacing of funds, common management etc. and as such, their salary to the extent of 50% capitalized because the salary drawn by them is revenue expenditure. Consequently, we order to delete the disallowance of Rs. 25,00,000/- made by the AO and determine this ground in favour of the taxpayer. GROUND NO.11 OF ITA NO. 1516/DEL/2015 (AY 2010-11) 49. The AO made disallowance of Rs. 53,93,000/- on account of stores and spares written off on the ground that the details and supporting evidences of the written off stores and spares have not been furnished and the same was not verifiable with reference to physical disposal. The ld. AR for the taxpayer contended that in compliance to the directions issued by the DRP, they have submitted all details of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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