2015 (12) TMI 1784

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....e Ld. Counsel of the assessee that similar issue arose in A.Y. 2009-10 which had reached up to Tribunal, and Tribunal decided the same in favour of the assessee by allowing these expenses. The reasons and the facts for the disallowance in A.Y.2010-11 are same in A.Y. 2010-11, and therefore, Tribunal's order should be followed and these expenses should be allowed. 3.1 On the other hand, Ld. CIT-DR has relied upon the orders of the lower authorities. We have gone through the facts of this case as well as order of the earlier year and also considered the submissions made by both the sides. 3.2 The brief facts as brought before are that KSS Ltd. (formerly K. Sera Sera Ltd. and even before that it was known as K. Sera Sera Production Ltd) is engaged in production and distribution of films. It has 100% subsidiary called K. Sera Sera Productions FZ-LLC which is incorporated in Dubai and engaged in preproduction, film/TV distribution, film/TV rights management and film/TV post-production in the sector of film entertainment/production and post- production. In the assessment order, the AO has disallowed the film preview expenses amounting to Rs. 19,189/- on the ground that these....

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....ground, the assessee has challenged the action of lower authorities in disallowing legal expenses of Rs. 2,62,457/- out of total expenses of Rs. 5,24,915/- claimed by the assessee. 4.1 During the course of hearing, it has been brought to our notice by Ld. Counsel of the assessee that in A.Y. 2009-10, the Tribunal has sent back this issue to the file of the AO and requested that the facts and circumstances being the same, in this year also the issue can be sent back to the file of AO. On the other hand, Ld. CIT-DR has given objection if this issue is sent back to the file of the AO. 4.2 We have gone through the orders of the lower authorities and submissions of both the sides. The disallowance was made on the ground that the assessee was not able to substantiate these expenses with the help of complete evidences. It is noted that this issue has been sent back by the Tribunal in A.Y. 2009-10 to the file of the AO with some directions. We find it appropriate to send this issue back to the file of the AO in pursuance to the order. We also direct the AO to follow the directions as given by the Tribunal in A.Y. 2009-10 as far as may be applicable on the facts of the case of this ye....

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....d it out to the assessee for inviting its response. In case AO was not satisfied with response of the assessee, then the same could have been considered for the disallowance. There should not be a practice of making an ad-hoc disallowance on the ground of personal expenditure, because there is no concept of personal expenditure in the case of a company. The company is a separate legal juristic person. In case any expenses are incurred on behalf of director or any other senior employees, then the same is liable to be taxed in the hands of the said person as part of perquisite/remuneration, as per law. In our considered view, disallowance had been made beyond the provision of law and therefore same is directed to be deleted. We find our support from the judgment of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. (supra). Thus ground no. 4 is allowed. 7. Ground No. 5: This ground deals with the action of the lower authorities in disallowing u/s 36(1)(iii), proportionate interest expenditure of Rs. 9,62,071/- incurred by the assessee. 7.1 During the course of hearing, it has been submitted by the Ld. Counsel of the assessee that assessee had in its possess....

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.... more than Rs. 205 crores and reserves of more than Rs. 2 crores, and aggregate of amount of loan given to the subsidiary companies amounted to Rs. 4.71 crores only. Thus, there is a force in the arguments of the ld. Counsel that the own funds far exceeded the amount of interest free loan given to its subsidiary. Thus, we find that there being sufficient interest free own funds in possession of the assessee, no presumption should be drawn that the assessee has given the disallowance out of interest bearing funds only. Further, the amount has been invested with subsidiary of the assessee company and thus taking support from the judgment of Hon'ble Supreme Court in the case of S.A. Builders Ltd. (supra), it can be said that no disallowance would be made if the amount has been advanced for the strategic business needs. The assessee has submitted copy of resolution signifying its business necessity. Taking in to account all the aforesaid facts and circumstances of the case, we find that the said disallowance is not sustainable as per law and facts of the case and therefore, the same is directed to be deleted. Thus, ground no. 5 is allowed. 8. Ground No. 6: In this ground, the as....

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....rejected." 8.3 It is noted by us that this issue was raised by the DRP for the first time, since no disallowance was made by the AO in the draft assessment order. It is further noted that various factual issues have been raised by the assessee in its reply e.g. Availability of interest free own funds in possession of the assessee for more than the amount of investment made in the subsidiaries, these investments have been made for strategic reasons and these were strategic investments and that no exempt income has been earned by the assessee during the year. We find that all these issues go to the root of the matter. These have not been properly dealt with by the DRP. The mind of the AO could also not be applied on all these issues at all. The assessee also could not get proper opportunity to explain this issue with proper evidences. There has been lot of development in the legal position with respect to all the contentions raised by the Ld. Counsel. These judgments which have been relied upon by the Ld. Counsel were not available before the AO/DRP. Therefore, for thrashing out the facts properly, and to meet ends of justice and in all fairness, we deem it appropriate to send thi....

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....the transaction. Since the cost of borrowing of the assessee was 10.19% and the average net margin rate of various banks was 2.3%, the TPO applied the mark-up rate of 12.49% and hence determined the Arm's Length Interest at Rs. 4,22,12,216/- in respect of the loans given by the assessee to its AE, which the AO added in the draft assessment order. 9.5 The assessee contested the matter before DRP. But the TPO's order was confirmed by the DRP with the following observations: "It may be seen that in the current year, the TPO has applied the same methodology as was directed by the DRP in the preceding year to come to the arm's length price of the international transaction. Since the facts in the current year are identical to those in the preceding year, we do not find any reason to differ from the DRP in the preceding year Hence no interference is called for so far as the decision of the AO/TPO in this regard is concerned. This objection is rejected." 9.6 It may thus be noted from the orders of the lower authorities that order of A.Y.2009-10 has been simply followed in this year while making this addition. Thus, this issue is entirely dependent upon the A.Y.20....