TaxTMI 
TaxTMI 
2014 (4) TMI 568
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....iate that the assessee in the course of the assessment proceedings did not submit the complete details of the advertisement and sales expenditure to justify and establish that the entire expenditure was laid out or expended wholly and exclusively for the purposes of its business. 3. On the facts and circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance of miscellaneous expenses of Rs. 4,65,00,000/- made by the Assessing Officer on the ground that it was not proper on the part of the AO to disallow expenses on adhoc basis at 50% of the expenses claimed in the P & L A/c. and more so, when the accounts have been subject to tax audit u/s.44AB and no adverse comment has been made by the Auditor. 4. On the facts and circumstances of the case and in law, the Id. CIT(A) failed to appreciate that the assessee in the course of the assessment proceedings did not submit the complete details of the miscellaneous expenses to justify and establish that the entire expenditure was laid out or expended wholly and exclusively for the purposes of its business. 5. On the facts and circu....
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.... material. The accounts of the assessee were audited, therefore, adhoc disallowance could not be made for both the expenses. Ld. CIT(A) has deleted the disallowance by holding that sample copy of invoices indicate name and addresses of the parties reflecting the amounts raised by each of these parties. The accounts are duly audited and sample copies were also checked by statutory auditor, therefore, it was proved that expenditure are genuine in nature and actually incurred by the assessee for its business purposes. It was not proper on the part of AO to disallow the expenses on adhoc basis @ 50% of the expenses claimed in the P&L account. There was no adverse comment by the auditors. The disallowance was made by the AO following the doctrine of tokenism and adhocism and was not justified. In this manner Ld. CIT(A) has deleted the impugned additions. 4. After narrating the facts it was submitted by Ld. DR that Ld. CIT(A) has deleted the addition without applying his mind simply on the basis that accounts of the assessee are audited. He submitted that simply because the accounts are audited and there was no adverse comment by the auditor does not mean that it is proved that the ex....
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.... claim of the assessee as per provisions of law and addition can only be made with regard to expenses which do not fall within the ambit of section 37 of the Act. We direct accordingly. For statistical purposes, these grounds of the revenue are considered to be allowed in the manner aforesaid. 7. Ground No.5,6 & 7 relate to TP adjustment of Rs.1,54,45,230/-. The assessee has several international transaction with its AEs. The transaction which is in dispute is relating to payment of royalty which is a total sum of Rs. 4,38,05,583/-. The royalty has been paid by the assessee in pursuance to an agreement dated 23/01/1997 with Dow Netherlands with regard to a process technology relating to Chloropyrifos. According to the said agreement royalty was to be paid @ 5% on net domestic sales and @ 8% on net exports. The assessee claimed that its net profit margin before tax of manufacturing division is at 11.53%, whereas the arithmetical mean of the net margin of the comparables have been 5.15%. Therefore, it was claimed that the assessee's transactions should be considered at arms length. However, the TPO found that Dow Netherlands had also entered into an agreement with its UK AE, w....
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....24 Royalty payable by DAS under Dow UK formula i. 5% on gross sales 13,025,908 4,989,662 Adjustment (7,622,445) (4,665,709) 991,461 (345,038) Total impact (11,641,731) It was further found by the TPO that international transaction of Rs.4,38,05,583/- consists of payment relating to assessment year 2002-03, 2003-04 and the same read as under: Assessment Year Totals (Rs.) For A.Y 2002-03 2,22,83,628 For A.Y 2003-04 2,15,21,955 Total 4,38,05,583 7.3 Accordingly, the addition was computed as under: A.Y.2002-03 A.Y.2003-04 Net Internal sales A 23,39,18,328 29,45,02,720 3% Royalty on above as Arms Length Price B=3%of A 70,17,550 88,35,081 Royalty Claimed by assessee 5% on net sales) C 1,16,95,916 1,47,25,136 Difference to be added D=C- B1 46,78,366 58,90,055 Net Export sales A 10,45,02,4....
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....ing the course of hearing it was brought to our notice that in subsequent years the assessee had submitted the calculations regarding calculation of net domestic / export sales for the purpose of calculating the payment of royalty and described that if the royalties calculated on the basis of agreement of the assessee with Dow Netherland then royalty paid by the assessee will be on lower side and such contention of the assessee has been accepted by the TPO in respect of assessment year 2005-06, 2006-07 and 2007-08, copies of these orders of TPO are placed on our record and were also given to Ld. DR. 7.7 It was observed from the aforementioned orders passed by TPO that he has given the rebate out of export sales as well as local sales and for assessment year 2005-06 the chart is as follows: Sr. No. Particulars Amount in Rs. 1 Export Sales A 219,921,415 2. Less: Cost of imported goods(as per RBI guideline) B 91,964,535 3. Net Sales amount for royalty (1-2) C 127,956,880 4. Royalty on net sales @ 5% D 6,397,844 5. Royalty paid by the assessee (8% on the Net Sales as per RBI approval) E 10,236,550 6....