TaxTMI 
TaxTMI 
2013 (10) TMI 414
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....-. The learned TPO ought to have accepted the valuation report by the independent valuer as external CUP. 3. The learned AO erred in disallowing the depreciation on intangible asset considering the TPO's order. The learned AO ought to have allowed depreciation on the web portal cost. 4. The learned Dispute Resolution Panel (DRP) is not justified in law in denying the cost incurred by the appellant of Rs. 3,67,82,683/- as cost of the website by attributing unsustainable reasons and by overlooking the commercial wisdom of the appellant company. 5. The learned AO/TPO are not justified in questioning commercial wisdom of the assessee's decision to incur the expenditure towards market promotion expenses of Rs. 53,88,834/-. The learned AO/TPO ought to have allowed market promotion expenses incurred by the assessee. 6. The learned AO has erred in levying interest u/s 234B of the Act on additional income arising due to transfer pricing adjustment by completely disregarding the provisions of the Act and the judicial precedence. 7. The learned Dispute Resolution Panel (DRP) legally erred in merely endorsing AO/TPOs action in respect of issues explained in the earlier grounds. ....
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.... order, as under: "26. Coming to the pure question of the arms' length price, Grant Thornton did apply three methods and came out with the price of Rs. 5,38,31,832/- on cost method. As against that, the assessee purchased the website at Rs. 3,67,82,683/-. So, by this reckoning the price paid by the assessee was substantially lower than the valuation price. Given that, the website purchase can be considered at arms' length. But since the major issues were not answered by the assessee the value of the website is taken at NIL, as determined by the TPO. The purchase price of the website of Rs. 367,82,683/- was not debited to the profit and loss account. Therefore, an addition to the income is not called for. However, the depreciation on the capital expenditure was rightly disallowed. The AO is directed to keep these directions in mind while implementing the orders of this Panel." 4. With reference to the market promotion expenses also, the DRP rejected the same by stating as under: "27. The TPO treated the arms length price of payment made towards market promotion expenses for Rs. 53,88,834/- at Rs. "NIL" by treating the transaction as Intra-group services. The assessee compan....
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....ovided by Grant Thornton, submitted that the DRP has wrongly taken the valuation at Rs. 5,38,31,832/- based on the TPO's observation when in fact the valuation made by the said valuer was at Indian Rupees 3,67,82,683/-; (at GBP 453848 at the conversion of 81.0462 per one GBP). The learned counsel, therefore, submitted that the observation of the DRP that Grant Thornton arrived at the price on cost method at higher price is not correct and in fact out of the three methods listed by Grant Thornton in the absence of business activity on that intangible asset, the excess earning method, market approach and income approach were not accepted and valuation was based on the cost incurred by AE Axill Europe Ltd. It was submitted that since the same was actual cost incurred by the AE at which the assessee purchased, the TPO is not correct in determining the value at NIL. Further, he relied on the orders of the coordinate bench of ITAT, Mumbai Bench in case of Thyssen Krupp Industries India (P.) Ltd., [2012] 27 Taxmann.com 334 (Mum.) wherein it was held that the TPO cannot determine the ALP at Nil as jurisdiction provided to him is to determine the ALP on the transactions under the methods pr....
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....nclusion that the web purchase was at ALP. However, they agreed with the TPO for determining the value at Nil on the reason that the major issues were not answered by the assessee. We are unable to understand what major issues were raised by the TPO, which went unanswered. On a question was raised by the TPO that whether there is any need for purchase of such intangible, we are of the view that what is to purchase and what not to purchase is not in the domain of the AO, because it is a business decision of the assessee company and accordingly, when assessee purchased an intangible asset, what is required under the law is to examine whether the price paid by the assessee is arms length price or not. The TPO has no role to play in examining the decision of commercial nature. Another question raised, as listed out in para 24 of the DRP's order, is that whether the so-called intangible is actually delivered and if delivered what are the commensurate benefits to the taxpayer on its use. We find that there is no dispute with reference to the delivery of the intangible asset as the assessee has done business on this website. In fact, it was submitted and also recorded by the DRP vide para....
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....ument or analysis of the benefit principle to determine the services as per the OECD guidelines. Since it is reimbursement of expenditure, the issue of benefit principle may not arise in this case. We are of the opinion that both the TPO and DRP went on wrong consideration in determining the market promotion expenses at Nil, treating the transaction as intra-group service. First of all, as held by the Hon'ble Delhi High Court in case CIT Vs. EKL Appliances Ltd., [2012] 24 taxmann.com 199 (Delhi), the TPO has no power to restrict the ALP at Nil, but is supposed to have determined the ALP of the international transaction as per the methods provided. The Hon'ble High Court held as follows: "19. There is no reason why the OECD guidelines should not be taken as a valid input in the present case in judging the action of the TPO. In fact, the CIT (Appeals) has referred to and applied them and his decision has been affirmed by the Tribunal. These guidelines, in a different form, have been recognized in the tax jurisprudence of our country earlier. It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business....
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.... the language is somewhat narrower than the language employed in Section 37(1) of the Act. This fact is recognized in the judgment itself. The fact that the language employed in Section 37(1) of the Act is broader than Section 57(iii) of the Act makes the position stronger. 20. In the case of Sassoon J. David & Co. Pvt. Ltd. v. CIT, (1979) 118 ITR 261 (SC), the Supreme Court referred to the legislative history and noted that when the Income Tax Bill of 1961 was introduced, Section37(1) required that the expenditure should have been incurred "wholly, necessarily and exclusively" for the purposes of business in order to merit deduction. Pursuant to public protest, the word "necessarily" was omitted from the section. 21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure shoul....