TaxTMI 
TaxTMI 
2017 (4) TMI 1340
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....rutiny assessment. The assessee company also reported the following international transactions with its AE in its Form 3 CEB: Purchase of articles of Promotional Products 14,73,293/- Sale of Kits 70,576/- Royalty paid 2,37,93,205/- Cost Recharge 80,44,537/- Payment towards stock option 2,17,262/- Payment of Administrative Fee 5,47,91,533/- 3. The assessee company sought to justify the consideration paid for the above international transactions entered with its AE to be at arm's length. The assessee company also submitted transfer pricing study report adopting Transactional Net Margin Method (TNMM) which is considered to be the most appropriate method for the purpose of bench marking the above international transactions. The assessee company also adopted profit before income tax to sales as a profit level indicator. The assessee company's profit margin was computed at 5%. The assessee company claimed that the same was comparable with other companies and claimed that the payment of management fees and royalty are at arm's length. For the purpose of transfer pricing study, the assessee company has chosen comparables whose profit margin was computed at 5%. Thus it ....
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....rder. Pursuant to directions of Hon'ble DRP, the AO passed final assessment order dated 8.10.2010 incorporating the above addition. 7. Being aggrieved, the appellant is in appeal before us in the present appeal and raised the following grounds of appeal: 8. Ground No. 1 and 2 are general in nature, do not require any adjudication. Ground No. 3,5 & 6 challenges the addition made on account of payment of administrative services fees of Rs. 5,47,91,533/- and ground No. 7 challenges the addition on account of payment of royalty to AE of Rs. 2,37,93,205/-. The whole case of the TPO is that the assessee had failed to demonstrate the benefits derived out of such expenditure and also the necessity of incurring such expenditure and finally on the ground that the assessee has failed to prove that the assessee has actually received the services. The Hon'ble DRP also confirmed the addition holding that the assessee only made the submission regarding the nature of services received but had not been able to prove that the services are actually received by the assessee company. 9. We heard the rival submission and perused the material on record. Now the law is quite settled that it is beyond t....
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....ew Zealand [1938] 6 ITR 636 (HL) at "expenditure in the course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense". The question whether an expenditure can be allowed as a deduction only if it has resulted in any income or profits came to be considered by the Supreme Court again in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC), and it was observed as under (page 523): "We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income." It is noteworthy that the above observations were made in the context of section 57(iii) of the Act where the langu....
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....as done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the Transfer Pricing Officer to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the Transfer Pricing Officer is not contemplated or authorized." 10. Thus, the ratio of the above judgment is that the ALP in respect of any transaction cannot be determined at Nil by holding that there was no benefit accrued on account of incurring such expenditure nor there was any necessity of incurring such expenditure. But the matter does not end there. The onus lies on the assessee to prove that the actual services for which the administrative services fees were paid are actually rendered or the use of technical knowhow @ 5% of....