TaxTMI 
TaxTMI 
2013 (9) TMI 481
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....provision of Rs. 60,00,000, in its books of account for Prolpex fair and exhibition to be held in Singapore. Before the Assessing Officer, the assessee submitted that it had sponsored the visit of some of its major distributors / customers to the trade fair and exhibition held at Singapore and such a sponsorship was in the nature of incentive and, hence, in the nature of revenue. Based on certain estimate, the assessee has made provision in the books of account. This exhibition was held in the beginning of the financial year 2004-05, relevant for assessment year 2005-06. The Assessing Officer disallowed the same on the ground that, firstly, the exhibition was held during the period relevant to the assessment year 2005- 06, and secondly, the assessee has already paid Rs. 2,09,01,000, as incentive to their major distributors / customers and, therefore, it is difficult to believe that such a provision pertains to incentive given on achieving the sales target for the financial year 2003-04. He finally held that the said trade fair and exhibition took place in the next assessment year and, therefore, the same cannot be allowed as a provision made on estimate basis in this year. 4. Th....
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....ar 2005-06 for which the bills and vouchers have been produced before the lower authorities and has also been placed before us in the paper book. We agree with the conclusion drawn by the learned Commissioner (Appeals) that such a provision cannot be allowed in this year and if at all it is to be allowed, the same can be allowed only in the assessment year 2005-06, wherein such expenditure has been incurred. Accordingly, we direct the Assessing Officer to verify this expenditure and to allow the same on the actual basis in the assessment year 2005-06. Consequently, ground no.1 and 2 are treated as partly allowed. 8. In ground no.3, the assessee has challenged the disallowance of office expenses aggregating to Rs. 82,878. 9. The Assessing Officer, on scrutiny of the details of office expenditure observed that some capital expenditure and prior period expenses have been claimed as office expenditure. The Assessing Officer sought explanation from the assessee as to why the following office expenses should not be disallowed:- Amount in Rs. Reason 8700 Purchase of tea table 14544 For March 2003 prior period expenses 59634 No details filed, invoice not trace....
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....and submitted that in case of the major amount of Rs. 59,634, the assessee was unable to give any proper explanation and evidence and, hence, the same cannot be allowed. 14. After carefully considering the submissions of the parties and the findings of the Assessing Officer and the learned Commissioner (Appeals), we are of the opinion that insofar as the expenditure for Rs. 14,544 is concerned, the same is allowable in this year as the bill is dated 2nd April 2003 and was received in this year for the services of security guards though pertaining to the month of March 2003. In such cases, expenditure relating to rendering of services can be allowed in the year when bill is received. With regard to the expenditure incurred on tea table for Rs. 8,700, the same cannot be allowed as revenue expenditure, however, looking to the fact that the Assessing Officer has treated it as capital expenditure, depreciation should be allowed as per rules on this amount. With regard to expenditure of Rs. 59,634, admittedly, no details or invoice could be filed before any of the authorities and, therefore, the same cannot be allowed. Accordingly, the disallowance of Rs. 59,634, is confirmed. Consequ....
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.... asset in the "block of assets" in the earlier years and the depreciation on such asset has been allowed by the Department in the assessment years 2000-01, 2001-02 and 2002-03. In the assessment year 2003-04, the depreciation which was disallowed had come up for consideration before the Tribunal. However, the Tribunal has restored the matter to the file of the Assessing Officer on the ground that the details of intangible has not been given. The effect of such order dated 13th May 2009, has not been given by the Department till date. Otherwise also, he submitted that once the depreciation has been claimed on the assets forming part of "block of assets" entered in the earlier years, the same cannot be disallowed in the subsequent years. Moreover, transferring of marketing data base facility for use of network and human resources is a commercial right and is, therefore, an intangible asset eligible for depreciation under section 32(1). He, however, submitted that if the Assessing Officer's conclusion is taken into consideration that it is a "goodwill", then in view of the judgment of Hon'ble Supreme Court in CIT v/s Smifs Securities Ltd., [2012] 348 ITR 302, the assessee is e....
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....ember 2008, raised by the said party described the services as "Selling the Workshop-I Needs Analysis, Alignment, Preparation, Delivery and facilitation of workshop with one lead tutor and one facilitator" is in the nature of technical service as defined under section 9(1)(vii) of the Act. Since the fees for the above service was accrued in India, therefore, in view of the provisions of section 9(1)(vii), the said income is taxable in India and, hence, liable for TDS. With regard to assessee's explanation that no TDS is to be deducted in view of Article-7 of Indo Malasian DTAA he held that such an argument is not tenable because services rendered were technical in nature and was rendered in India and irrespective of whether the said enterprise has P.E. in India or not, the said income is liable to be taxed in India in view of the provisions of section 9(1)(vii). Accordingly, he disallowed a sum of Rs. 5,84,682 under section 40(a)(i). 24. Regarding payment made to GLEG of Rs. 2,61,807 and Paul Software of Rs. 2,74,313, the assessee submitted as under:- "This amount charged was on account of expenses paid on our behalf. This credit note was set off against a debit not....
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....d that these payments are by way of reimbursements. The AC has relied on certain decisions of the AAR. It is submitted by the Appellant that the said rulings are based on the peculiar facts in those cases and are not to be applied in its case. However, it is seen that even the reimbursement of expenses is in the nature of payments for services and hence subject to tax deducted at source in India. The 3 case laws cited by the AC in the assessment order in which the decision has been given by the authority by Advance Rulings also support the view of the AC. From the assessment order, it is evident that the appellant has not submitted full facts in regard to reimbursement of these expenses. Therefore the AC has rightly disallowed these payments made without tax deducted at source as per provision of section 40(a)(ia). His decision is upheld." 27. Before us, the learned Sr. Counsel submitted that under Indo Malaysian treaty, there is no clause for "fees for technical service" and moreover the assessee's case has been that it was a business of income of non-resident company i.e., Insight Asia Pacific and, hence, the same can be taxed only under Article 7(1) of the DTAA. Since the....
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....not agreed that it was in the nature of reimbursement and the assessee has also not filed the details as to what was the nature of expenditure incurred for which the assessee has reimbursed the said expenditure. If the expenses have been paid on assessee's behalf by the Assessing Officer to the third party, then it cannot be termed as "reimbursement of expenses". In support of his contention, he has relied upon the decision of Mumbai Bench of the Tribunal in C.U. Inspections India Pvt. Ltd. v/s DCIT, ITA no.577/Mum./ 011, order dated 6th March 2013 and the decision in ACIT v/s First Advantage Pvt. Ltd., ITA no.3029 and 3030/Mum./2010, order dated 18th May 2012. 31. In the rejoinder, the learned Sr. Counsel submitted that the said decisions relied upon by the learned Departmental Representative are not applicable at all, as in those cases, services were rendered by the third party to the assessee for which payment was made by the A.E. and the assessee has reimbursed the said payment to the A.E. In the present case, the facts are entirely different. Thus, the ratio of the said decisions will not apply to the facts of the present case. 32. We have heard the rival contentions....
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....idered opinion that this matter should be restored back to the file of the Assessing Officer to re-examine the issue denovo. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer to re-examine this issue afresh after verifying the nature of payment and also the assessee's contention that it is a business income covered under Article-7 of Indo-Malaysian DTAA. Needless to say that the Assessing Officer shall provide due and effective opportunity of hearings to the assessee to present its case. 34. Similarly, with regard to the reimbursement of expenses, it is also not clear as to what was the nature of payment and what was the services rendered to the assessee company for which the payment was made by the A.E. and reimbursement of such expenses was made by the assessee. Even if the debit note has been issued against the credit, then also the nature of expenditure has to be ascertained. Accordingly, this issue is also restored to the file of the Assessing Officer for denovo adjudication. However, if it is found that the payment made to the A.E. is only in the nature of reimburse....
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.... decline to interfere in the matter as such. Accordingly, the disallowance of Rs. 1.75 lakhs is hereby confirmed. Thus, ground no.6, is treated as dismissed. 40. In ground no.7, the assessee challenged the transfer pricing adjustment of Rs. 3,83,08,000 to the Arm's Length Price (for short "ALP") of the transactions relating to purchase of graphic plates from the Associate Enterprise (for short "A.E"). 41. Relevant facts, apropos this issue, are that the assessee is wholly owned subsidiary of Kodak Polychrome Graphics B.V., Netherlands. The company deals in the business of graphic art films, graphic art chemicals, graphic plates and other allied products required in the printing industries. The international transactions entered by the assessee with the A.E. mostly related to purchases of various items which has been elaborated in Para- 11.2 of the assessment order as well as Para-4 of the TPO's order. It has been noted by the TPO that the assessee has shown net profit before tax of Rs. 4.34 crores upon the sales of Rs. 54.04 crores. The assessee has bifurcated its activity into plates segment wherein the assessee has bought plates from the A.E. for sale in India and o....
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....lates in future. Hence, as part of marketing strategy to win such customers for future also, the assessee has sold these products on a negative margin, ensuring turnover level of Rs. 10.90 crores for the plates. 42. This plea of the assessee has not been accepted by the TPO and held that the A.E. has over charged the assessee which has resulted in loss at gross profit level and further the assessee has itself submitted the bench marking of the transaction using RPM. However, while doing so, the assessee has not provided margin of comparables with which its international transactions relating to the import of items valuing to Rs. 7,83,48,953, could be bench marked. He also held that the assessee should have obtained the price from the A.E. at which it could have earned final net profit of at least 6% by supplying those goods to the customers. Accordingly, he made an upward adjustment in the following manner:- "The assessee as per its own calculation has earned a gross profit margin of 28.56% on sales (sales Rs. 43,16,44,000/- gross profit Rs. 12,32,84,000, cost of goods sold Rs. 30,83,60,000/-). Over cost, the gross profit margin translates to 39.98% (Rs. 12,32,84,000/- ....
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....ave been followed for bench marking imports from the A.E. The learned Commissioner (Appeals), after dealing with the observations and conclusions drawn by the TPO rejected the assessee's entire contentions after observing and holding as under:- "11.17 I have considered the submissions of the Appellant, as against the observations of the AO. I do not agree with the arguments of the appellant. The appellant followed Resale Price Method (RPM) to benchmark the transaction of purchase of plates. However, when the TPO required the appellant to submit full details of the transactions as well as comparable transact!ons, the same were not furnished. Th TPO had required the appellant to provide exact description of the items imported by other third parties in India and compare the same with the description of items imported by the appellant. The TPO had also required the appellant to state the terms and conditions on which the other importers had got such goods from the appellant's AE as well as from other third parties. The TPO had also required the appellant to furnish details of discount if any which may have been extended to other importers by the appellant's AEs or ....
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.... G.P. rate of 28.56% on sales at whole entity level returned by the appellant by applying the said rate to the transaction of import of plates." 43. Before us, the learned Sr. Counsel, Mr. P.J. Pardiwala, on behalf of the assessee, explaining the entire facts of the case, submitted that the assessee has imported the plates from its A.E. which was based on global price list and has also supplied customer data before the TPO to show that price on which it has imported the plates where at arm's length as the third parties have also purchased these plates on such prices only. In support, it has furnished customs data for the relevant year. The TPO has gone by the assumption that the A.E. should have given the margin of 6% on such price list to the assessee. Such presumption itself was uncalled for. Before the TPO and the learned Commissioner (Appeals), it was contended that the best way for bench marking the transactions was to apply the CUP method based on similar transactions carried out by the third parties as per the customs data. Before the TPO, the assessee has furnished sample purchase invoice in respect of its purchases of lithographic plates to show that the same has be....
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....sales that reduce the effective prices. The certificate along with the list has been placed in the paper book pages-127 to 129. 44. On the other hand, the learned Departmental Representative, Mr. Ajit Jain, on behalf of the Revenue, submitted that in the transfer pricing report, the assessee has adopted RPM as most appropriate method for bench marking of transactions of purchase made from the A.E. As per the RPM, the gross profit margin has to be bench marked with the comparables. In the present case, there is no reference to the comparables and how the same has been bench marked by the assessee. Now the assessee is harping upon the application of CUP method based on the custom data report to justify its arm's length and even in the present case also there is no short listing of comparables and the comparability analysis as to how there is a product and functional similarity with the third parties. For applying CUP method, exact nature of product comparability is required which, in the present case, has not been demonstrated by the assessee either before the TPO or the learned Commissioner (Appeals). Regarding furnishing of additional evidence, he raised strong objection as ....
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....om data in the petition for admission of additional evidence. The assessee has urged before the TPO and the learned Commissioner (Appeals) to apply CUP method instead of RPM because this would lead to proper determination of arm's length transaction for the products purchased by the A.E. in comparison with the similar products purchased by the third parties. Regarding the reliance placed by various Tribunal decisions for the custom data, he submitted that in all these decisions, the issue involved was whether the valuation and price determination by the custom authority should be given precedence on transfer pricing provisions under the Income Tax Act, and not for the use of custom data per-se. The custom data is available in public domain which is relevant for the price on which various goods are imported in India. It is not the case of the assessee that custom valuation should be adopted but the purchases at which graphics plates have been imported has to be looked into. Insofar as the risk factor is concerned, the same has been borne out by the assessee because the A.E. has sold the graphics plates based on the list price sold to everybody. Thus, the addition made in the pre....
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.... followed and the custom data which was made available to the Assessing Officer and further data now made available before us in the form of additional evidence should be considered to examine the fact that the assessee's purchase has been at ALP. 48. From the record, it is not very clear as to how the assessee which has initially adopted RPM as most appropriate method come to the conclusion that it is not suitable or appropriate for bench marking the purchase transactions and determination of ALP. Even while adopting the RPM in TPR, no comparability analysis has been carried out to compare it with uncontrolled independent transactions. Such a comparability analysis is the key factor under the transfer pricing mechanism. Simply relying on the fact that the A.E. has supplied the products at a price list worldwide cannot justify the assessee's stand because no analysis has been done on the supplies made by the A.E. to the other countries. If any comparability analysis would have been carried out in the case of other parties to whom the A.E. have supplied the same plates, then such a plea of the assessee could have been accepted. Similarly, certificate issued by the A.E. in....