TaxTMI 
TaxTMI 
2013 (9) TMI 225
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.... 2. That the learned CIT(A) has erred in law, on facts and in the circumstances of the case in upholding the order of A.O. in which he had disallowed a sum of Rs.29,30,504/- out of legal and professional expenses on wholly illegal, erroneous and untenable grounds. 3. That the learned CIT(A) has erred in law, on facts and in the circumstances of the case in upholding the order of A.O. in which he had disallowed a sum of Rs.7,60,621/- out of traveling expenses on wholly illegal, erroneous and untenable grounds. 4. That the learned CIT(A) has erred in law, on facts and in the circumstances of the case in upholding the order of A.O. in which he had disallowed a sum of Rs.602,000/- relating to accrued loss on account of foreign fluctuations on wholly illegal, erroneous and untenable grounds." 3. With respect to ground no-1, it was submitted by the Ld. AR that the issue in the light of the judgement of the Jurisdictional High Court has to be restored back to the AO as neither the AO nor the CIT(A) have followed the guidelines set out in the case of Maxop Investments and only what may be kept in mind is that this should not lead to a double disallowance as has ....
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.... 7. In support of its claim, it was further submitted that the assessee was in the business of entering into joint venture with other companies and promoting companies which dealt with in products of the parent company. Accordingly, it was urged that there was no question of any income from its shareholder and parent company as it was exploiting the brand "Gillette" of its parent company without any payment. It was further stated that being a non-banking financial company, all its income derived from other sources was necessarily business income. The expenditure incurred was claimed to be in furtherance of its business of studying business projects in India taking legal and professional advice thereon, investing in joint venture companies, promoting subsidiary companies which conducted this business and then at opportune time exited out of it as well. It was emphasized that it was a separate legal juristic entity entitled to taxation as an independent entity. 8. Not convinced with the explanation, the AO pointed out that the assessee had changed its stand on the nature and purpose of its business from that what it had disclosed in the tax audit report. Accordingly, he require....
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....ng other companies which were in the same business as that of Gillette Group USA. On fact the AO was of the view that on the contrary, the facts showed that the assessee is actually doing the work of establishing Gillette business in India which would be evident from the investments made by the assessee company in the last several years which are made towards manufactured/sale of products which are also manufactured/sold by Gillette USA Group. The details of investments are set out at page 5 of the assessment order which are reproduced below:- Details of Investment from FY 1996*97 to 2000-01 I As on Purchase/Sales Purchase/Sales I Purchase/Sales I Purchase/Sales Name of the Company 31/3/1997 1997-98 1998-99 1999-00 2000-01 Quantity Amount Quantity Amount Quantity Amount Quantity Amount Quantity Amount Gillette Diversified Operations Pvt. Ltd. 9760889 97608890 -1394413 -13944130 69292954 693766188 4882738 51250110 L. P. Pens Private Limited 120000 1200000 Hi Line Pens Private Li....
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....company. He also observed that the assessee has made investments in business which the parent company has entered into and has exited those business which the parent company has exited which facts would be illustrated from the assessee company's investment in M/s Luxor Writing Instruments Pvt. Ltd. As such it was concluded that the assessee company is in fact carrying on the business of promoting Gillette's business in India. In this scenario, it was observed that the Gillette Group USA and assessee company may be different legal juristic entities but if the assessee company is incurring expenditure for its parent company's business without receiving any remuneration, let alone recovering the costs it incurs for doing that work. The AO concluded that it cannot be said that its expenditure is incurred for the purpose of its business solely. The AO was of the view that even when considering the assessee's submissions that it is doing its own business and should be assessed independently, it would be necessary to address which head of income, the assessee's income would fall under and what are the expenses pertaining to those heads of income. Admittedly, the assessee has used its fund....
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....011) 15 Taxman.com 390 (Del.) wherein specific direction have been given by their Lordships as to how the AO is to proceed in the years where the Amendment to section 14A which has been hold to have a retrospective effect shall apply. In the facts of the present case, it is also necessary to direct the AO to ensure that there shall be no double disallowance. Accordingly, ground no-1 of the assessee's appeal is allowed for statistical purposes. 15. The next issue agitated by the assessee pertaining to the expenses of the Parker Pen Division are found addressed by ground nos-2 & 3. 16. Inviting attention to the same, the Ld. AR submitted that the assessee claimed an expenditure of Rs.1,17,90,278/- in its P & L account on account of legal and professional expenses. The AO observing the fact that the same had increased from 42,60,211/- rejected the explanation of the assessee. The explanation offered by the assessee was rejected who held that the expenses were incurred on behalf of Gillette USA. Specific attention was invited to page-9, 10, 11 & 12 of the assessment order, wherein the facts and submissions are considered. Referring to the same, it was reiterated that in furtheran....
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....ion which needs to be examined is whether the amount in question can be treated as an expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee which is admissible as a deduction under s.37 of the Act. It is no doubt true that the solution to a question of this nature sometimes is difficult to arrive at. But, however difficult the task may be, a decision on that question should be given having regard to the decisions bearing on the question and ordinary principles of commercial trading and of commercial expediency....... The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it to pay and not in any other capacity then that of a trader." 12.1 In light of the above case law, the assessing authority has to consider the question of fact whether the expenditure incurred was in fact for the purpose of the business of the appellant. IN the facts of the case before me, I notice the following :- (i) The whole transaction for ente....
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.... owned subsidiary companies or on their own by making investments directly or in joint venture with any Indian partner". In its averments, it is also canvassed that no payment is being made to the parent company except for interest payments as the entire paid up share capital of the assessee was held by the Gillette company USA through its subsidiary companies. The assessee has admittedly used its funds for investing in joint venture and subsidiary companies and in giving loans to these companies. Consequently, the companies main source of income was interest earned on the money which it had loaned to the joint venture company or those companies which had been promoted by it. In furtherance of its, stated position as per material available on record, the assessee had entered into pen business through Luxor Writing Instrument Ltd. (LWIL) with M/s JHPL Holding Ltd. (Jain Group). The Gillette USA Group as per record sold its Parker Pen division to Newell Rubbermaid Incorporation and as the assessee as 100% subsidiary of Gillette USA and not Gillette USA had entered into a Joint Venture Agreement with M/s JHPL (Jain Group) in Luxor Writing Instrument in India. Payment was made by Gille....
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....tes was the Joint Venture partner with its Jain Group as being a separate legal juristic entity. The waiver agreement should have been signed by the assessee because it was the assessee company which has entered into a joint venture agreement with M/s JHPL i.e Jain Group and if the Gillette, USA sold its global rights, the joint venture could not have been terminated without the consent of the Jain Group and the assessee company. In these circumstances, the AO worked out a disallowance of 36,91,125/- observing as under :- "The assessee has tried to establish a case that the services rendered by the legal consultants were purely for the business interest of the assessee. It has further submitted that the assessee company is a separate and distinct legal entity from Gillette Company USA. I have considered the submissions made by the assessee. However, a plain reading of the consent and waiver agreement reproduced above makes it crystal clear that M/s Gillette USA, the ultimate holding company of the assessee company was taking decisions on its behalf. If the argument of the AR is relied upon the M/s Gillette Company, USA had no business to sign the wai....
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....rs for the other side and all other services rendered in connection therewith and incidental thereto. "The other bills submitted by the consultants narrate the following "drafting of diverse agreements for divestiture of interest in Luxor Joint Venture, negotiating and finalization of diverse agreements." Both the bills mention the reference as "international sale of parker pen business". The narrations given make it unambiguously clear that for working out the compensation paid to Jain group in connection with international deal, the assessee company at the behest of Gillette company USA, has incurred legal expenses and also traveling expenses of visits of consultants abroad. It is pertinent to mention here that the consultants have used the word settlement agreement and consent letter, which is nothing but the consent and waiver agreement signed by the Gillette Co., USA for protecting its worldwide business interest, the other expenses related to it cannot be business expense of the assessee company. With this discussion I hereby disallow a sum of Rs.36,91,125/- which is the total expense related to legal consultancy traveling and accommodation incurred in connect....
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....assessee on account of restatement of foreign exchange liability at the year end was not to be allowed, thereby making an addition of Rs.6,02,000/-. 23. In appeal before the CIT(A)'s, the said action was upheld. 24. Aggrieved by this, the assessee is in appeal before the Tribunal. The Ld. AR submitted that the said issue is covered in the favour of the assessee by virtue of the order of the Tribunal in assessee's own case for 1997-98 and 1998-99 assessment years and the said view is further supported by the judgement of the Apex Court in the case of Woodward Governor 312 ITR 254 (SC) It was clarified that the said issue pertains to working capital. 25. Ld. CIT DR relies upon the impugned order. However no argument to persuade a contrary view then the view taken by the Coordinate Bench in assessee's own case was advanced. 26. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, it is seen that issue is covered in favour of the assessee by virtue of the orders of the Tribunals in assessee's own case. Copy of these it is seen has been placed in the paper book at page no-25-34. A perusal of the same shows ....