Advance Power Display Systems Ltd. v. Commissioner of Income-tax­-8
[Citation -2015-LL-1012-28]

Citation 2015-LL-1012-28
Appellant Name Advance Power Display Systems Ltd.
Respondent Name Commissioner of Income-tax­-8
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 12/10/2015
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags substantial question of law • transfer pricing officer • business expenditure • foreign buyer
Bot Summary: In terms of the agreement, the appellant assessee manufactures /assembles SMPS on demand and specification of its A.E. and supplies the entire production to A.E.(QCS) Thereafter, the A.E. further sells the SMPS to its customers and the appellant assessee is not ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 3 7itxa1869-13.doc concerned. In particular to point out that the appellant assessee is required to travel abroad so as to carry out joint B inspection of the raw material to be supplied by the raw material supplier at the instance of the A.E. to the appellant assessee. In the above view, it is the submission of the appellant that the aforesaid expenses were wholly and exclusively incurred for the purpose of business of the ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 5 7itxa1869-13.doc appellant assessee and ought to be allowed. No one cannot dispute the proposition that it is for the assessee concerned to decide as to what y expenses is necessary for its business and it is not for the Assessing officer ba to disallow the expenses which the assessee feels is necessary for its business. The undisputed facts are that to determine the arm's length om price , the appellant assessee had, before the CIT(A) forwarded three more comparables. On the basis of the remand report, the CIT(A) considered three further comparables being relied upon by the appellant C assessee to determine ALP of the appellant's product and by order dated 19 July 2011 arrived at a margin of 5.42. If the answer is in the affirmative by the TPO, ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 10 7itxa1869-13.doc then necessary adjustment would be needed to be done so as to make an appropriate comparison between the sale made by the appellant assessee rt to its A.E. and the independent sales made of three comparables, ou alongwith the four comparables already on record.


PVR 1 7itxa1869-13.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION rt INCOME TAX APPEAL NO.1869 OF 2013 ou Advance Power Display Systems Ltd. Appellant. Vs. Commissioner of Income Tax 8. ... Respondent C Mr.Y. P. Trivedi, Senior Advocate with Mr.Vipul Joshi and Ms.Usha Dalal, for Appellant, Mr.Arvind Pinto, for Respondent Revenue. ig CORAM : M.S.SANKLECHA & G.S. KULKARNI, JJ. H DATE : 12th October, 2015. P.C. : 1. Heard. This appeal under Section 260 of Income Tax ba Act,1961 (the Act), challenges order dated 8 May 2013 passed by Income Tax Appellate Tribunal (the Tribunal). Assessment Year om involved is Assessment Year 2003 04. B 2. appellant assessee urges following questions of law for our consideration: (1) Whether, on facts and in circumstances of case and in law, Tribunal was justified in confirming disallowance of 'Export Promotion ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 2 7itxa1869-13.doc Expenses' being foreign travelling expenses incurred by President, Director and Executive Director on rt ground that said expenses were not incurred wholly and exclusively for purpose of business ? ou (2) Whether, on facts and in circumstances of case and in law, Tribunal ought to have restored issue determining applicability C of all three comparable relied upon by appellant assessee to Transfer Pricing Officer to determine h applicability of three comparable to subject Assessment Year, particularly after having held that ig merely comparable relied upon by appellant assessee was accepted in subsequent Assessment Year H would not ispo facto applies to subsequent Assessment Year? y 3. Regarding Question (1): ba (a) appellant assessee is 100% Export Oriented Unit manufacturing Switch Mode Power Supplies (SMPS) at instance of its om Associated Enterprise (A.E.) namely M/s.Quality Components and Systems PPE. Ltd. (QCS) in terms of agreement arrived at between B two. In terms of agreement, appellant assessee manufactures /assembles SMPS on demand and specification of its A.E. (QCS) and supplies entire production to A.E.(QCS) Thereafter, A.E. (QCS) further sells SMPS to its customers and appellant assessee is not ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 3 7itxa1869-13.doc concerned. (b) During subject Assessment Year appellant assessee rt sought deduction on account of foreign travel expenditure of Rs.85.90 ou lakhs incurred on its President and Directors for purpose of marketing and selling its goods. Assessing Officer held that President and C Directors of Company had not only travelled to Singapore where A.E. (QCS) is situated but also to other countries. travel to Singapore h was held to be for purpose of business and expenses of Rs.5 lakhs ig incurred on visit to Singapore was allowed as business expenditure while balance amount of Rs.80.95 lakhs was disallowed by Assessment H Order dated 22 March 2006. y (c) On appeal, Commissioner of Income Tax (Appeals) ba (CIT(A)) concurred with view of Assessing Officer held that Assessee had responsibility of only to supply and sell its SMPS to its sole om customer i.e. A.E. (QCS). Thus by order dated 19 July 2011 CIT(A) upheld order of Assessing Officer. B (d) Being aggrieved, appellant assessee carried issue of travel expenditure in appeal to Tribunal. Before Tribunal, assessee contended that travel expenses incurred in respect of ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 4 7itxa1869-13.doc travel of its President and Directors to foreign countries were to have meeting and discussion with buyers of its finished products. rt Tribunal by impugned order dated 8 May 2013 upheld order dated ou 19 July 2011 of CIT(A) to extent of claim made in respect of foreign travel expenditure. impugned order holds that appellant C assessee was only obliged to supply SMPS to its A.E.(QCS) in accordance with its specifications. impugned order on facts held that h expenditure incurred for travel to meet buyer of finished ig products could only be allowed to extent appellant assessee met its foreign buyer A.E.(QCS) at Singapore. Thus, expenses of travel to H other destination was disallowed. In these circumstances, impugned order of Tribunal dismissed appellant assessee's appeal. y ba (e) Mr.Trivedi, learned Senior Counsel appearing for appellant relies upon terms of agreement which have been om reproduced in impugned order. In particular to point out that appellant assessee is required to travel abroad so as to carry out joint B inspection of raw material to be supplied by raw material supplier at instance of A.E. (QCS) to appellant assessee. In above view, it is submission of appellant that aforesaid expenses were wholly and exclusively incurred for purpose of business of ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 5 7itxa1869-13.doc appellant assessee and, therefore, ought to be allowed. It was further submitted that method and manner of doing its business cannot be rt dictated upon by Revenue. Therefore, expenses which are ou commercially expedient in view of assessee ought to be allowed under Section 37(1) of Act. In support reliance is placed upon C decision of Supreme Court in case Sassoon J.David and Co.P.Ltd. Vs. Commissioner of Income Tax, Bombay, (118 ITR 263(SC)) and h decision of this court in case Commissioner of Income Tax Vs. Sales ig Magnesite (Pvt.) Ltd., (214 ITR 1 (Bom.)) . It is also further pointed out by learned Counsel for appellant that for subsequent years i.e. H 2005 06 to 2011 12, these expenses have been allowed. However, for Assessment Year 2002 03 and 2004 05, Tribunal has set aside y matter for consideration of Assessing Officer and it is still pending ba decision. In further support, it is submitted that Board's Circular also requires Revenue to adopt broad approach in allowing expenses om incurred by businessman as deduction. B (f) We find that Authorities under Act have disallowed expenses incurred by appellant assessee on travel to countries other than Singapore. This in view of fact that on examination of record and of agreement, it is clear that appellant assessee ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 6 7itxa1869-13.doc company's work is more in nature of job worker manufacturer that is to convert raw material to finish product at instance of its A.E.(QCS) rt on basis of raw material and specifications made available to it. ou contention placed before us is that appellant assessee is required to meet its raw material suppliers as is evident from clauses of C agreement for purpose of joint inspection of raw materials alongwith its A.E. (QCS). However, we find that before authorities h including Tribunal deduction was sought on aforesaid travel ig expenses only on ground that these expenses have been incurred for purpose of meeting its foreign buyers. Undisputedly, it has only one H buyer who is situated at Singapore. No one cannot dispute proposition that it is for assessee concerned to decide as to what y expenses is necessary for its business and it is not for Assessing officer ba to disallow expenses which assessee feels is necessary for its business. In present facts, case of assessee before Tribunal om is that those expenses are necessary to meet foreign buyers. In this view of matter, view taken by Authorities under Act to B restrict expenses of travel only to Singapore visit where foreign buyer of appellant is situated, cannot be said to be perverse. It is possible view. fact that assessee's expenses on travel have been allowed for subsequent years or have been set aside by Tribunal in ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 7 7itxa1869-13.doc earlier Assessment Years or subsequent Assessment Years, would not by itself govern issue. It all depend upon claim made for deduction rt and contention of assessee with regard to what was that ou expenditure incurred in that particular year. C (g) In view of above, question no.1 does not give rise to any substantial question of law. Hence, not admitted. h 4. ig Appeal is admitted on substantial question of law no.2. H 5. At request of learned Counsel for both sides, question No.2 is taken up for final disposal as scope of dispute before us is very y narrow and would not take time. ba 6. undisputed facts are that to determine arm's length om price (ALP), appellant assessee had, before CIT(A) forwarded three more comparables. basis of appellant seeking to have three comparables also examined was that same had been considered B as comparables for subsequent Assessment Years. CIT(A) called for remand report from Transfer Pricing Officer (TPO) as TPO had no occasion to examine issue. remand report sought was whether three comparables which have been referred to him, have ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 8 7itxa1869-13.doc been used as comparables to determine ALP in subsequent Assessment Years. TPO by remand report informed CIT(A) that three rt comparables had been used to determine ALP in subject ou Assessment Years. On basis of remand report, CIT(A) considered three further comparables being relied upon by appellant C assessee to determine ALP of appellant's product and by order dated 19 July 2011 arrived at margin of 5.42 %. h 7. ig Being aggrieved, Revenue carried order dated 19 July 2011 of CIT(A) in appeal to Tribunal. Tribunal by impugned H order accepted Revenue's contention that merely because comparables have been accepted for subsequent assessment year y would not ipso facto lead to same comparables being applied to ba subject assessment year. On merits, Tribunal by impugned order rejected all three comparables. first comparable was rejected on om ground that it is loss making unit, second comparable was rejected on ground that it had extraordinary income in subject Assessment B Year and hence, not comparable; and third comparable was rejected on ground that product was different. Thus, impugned order of Tribunal allowed revenue's appeal before it. ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 9 7itxa1869-13.doc 8. We find that three comparables which were relied upon by appellant assessee before CIT(A) had not been examined by rt CIT(A) on merits of its applicability for subject Assessment Year nor ou did TPO, as same was not put before it for subject Assessment Year. No fault can be found with order of Tribunal to extent it holds C that merely because comparable has been used in subsequent assessment year for determining ALP, it would not ispo facto apply to h determine ALP in subsequent Assessment Year. However, after ig having held so, it would have been appropriate for Tribunal to restore issue to TPO to consider applicability of three comparables to H determine ALP in respect of subject Assessment Year. This is particularly so as in absence of same being examined by original y authority or by CIT(A) after having called for remand report on its ba applicability from TPO, would certainly cause prejudice to assessee. This would be on account of right of appeal on factual aspect om being lost. In this view of matter, we are of view that it would be appropriate in facts and circumstances of case that issue be B restored to TPO to determine whether or not three comparables companies which have admittedly have been accepted as comparables for subsequent Assessment year can be considered as comparables for subject assessment year. If answer is in affirmative by TPO, ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: PVR 10 7itxa1869-13.doc then necessary adjustment would be needed to be done so as to make appropriate comparison between sale made by appellant assessee rt to its A.E. and independent sales made of three comparables, ou alongwith four comparables already on record. C 9. Accordingly, question no.2 is answered in affirmative i.e. in favour of appellant assessee and against Revenue. h 10. ig appeal is disposed of in above terms. No order as to costs. H y (G.S.KULKARNI, J.) (M.S.SANKLECHA, J.) ba om B ::: Uploaded on - 16/10/2015 ::: Downloaded on - 15/01/2016 12:02:00 ::: Advance Power Display Systems Ltd. v. Commissioner of Income-tax­-8
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