Herbalife International India Private Limited, Bangalore V. DCIT, Bangalore

ITA 924/BANG/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5536 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Business expenditure; International transaction; Commercial expediency
• Section: 37(1); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER 1. IT(TP)A NO.1406/BANG/2010 ASSESSMENT YEAR : 2006-07 2. IT(TP)A NO.924/BANG/2012 ASSESSMENT YEAR : 2007-08 M/S. HERBALIFE INTERNATIONAL INDIA PVT. LTD., ... APPELLANT #14, COMMISSARIAT ROAD, BENGALURU-560025. PAN : AAACH8025R VS. 1. ASSISTANT COMMISSIONER OF INCOME-TAX, RESPON DENTS CIRCLE 11(4), BENGALURU. 2. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(4), BENGALURU. APPELLANT BY : SHRI. RAJAN VORA, CA RESPONDENT BY : 1. SHRI. RAJA SEKHAR REDDY, CIT-DR 2. SHRI. KAMALADHAR, SD. COUNSEL DATE OF HEARING : 18.01.2017 DATE OF PRONOUNCEMENT : 17.04.2017 IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 2 OF 13 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAINS T THE ASSESSMENT ORDER PASSED UNDER 143 R.W.S. 144C OF THE ACT DATED 8.10.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY DULY INCORPORATED UNDER THE COMPANIES ACT, 1956. IT IS A SUBSIDIARY OF HLI INC., USA. IT IS ENGAGED IN THE BUSINESS OF DEALING IN WEIGHT MANAGEMENT, FOOD AND DIETARY SUPPLEMENTS AND PERSONAL CARE PRODUCTS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 WAS FILED DECLARING NIL INCOME ON 22.11.2006 AFTER PROCESSING THE SAID RETURN OF INCOME UNDER SECTION 143(1), THE CASE WAS SELECTED FOR SCRUTINY 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/- IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 3 OF 13 3. THE ASSESSEE COMPANY SOUGHT TO JUSTIFY THE CONSI DERATION PAID FOR THE ABOVE INTERNATIONAL TRANSACTIONS ENTERED WITH I TS AE TO BE AT ARMS LENGTH. THE ASSESSEE COMPANY ALSO SUBMITTED TRANSF ER PRICING STUDY REPORT ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) WHI CH IS CONSIDERED TO BE THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF B ENCH MARKING THE ABOVE INTERNATIONAL TRANSACTIONS. THE ASSESSEE COM PANY ALSO ADOPTED PROFIT BEFORE INCOME TAX TO SALES AS A PROFIT LEVEL INDICATOR. THE ASSESSEE COMPANYS PROFIT MARGIN WAS COMPUTED AT 5%. THE AS SESSEE COMPANY CLAIMED THAT THE SAME WAS COMPARABLE WITH OTHER COM PANIES AND CLAIMED THAT THE PAYMENT OF MANAGEMENT FEES AND ROYALTY ARE AT ARMS LENGTH. FOR THE PURPOSE OF TRANSFER PRICING STUDY, THE ASSESSEE COMPANY HAS CHOSEN COMPARABLES WHOSE PROFIT MARGIN WAS COMPUTED AT 5%. THUS IT WAS CLAIMED THAT THE PAYMENTS OF MANAGEMENT FEES AND RO YALTY IS AT ARMS LENGTH. 4. THE AO REFERRED THE MATTER TO THE TPO FOR THE PU RPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS THE ASSESSEE COMPANY HAD ENTERED WITH AE. THE TPO BY ORDER DATED 16.10.2009 PASSED UNDER SECTION 92CA(3) OF THE ACT COMPUTING THE TRANSFER PRICING A DJUSTMENT OF RS.7,85,84,738/- BY DETERMINING THE ARMS LENGTH PR ICE FOR ADMINISTRATIVE SERVICES PAID TO ITS AE HERBALIFE INTERNATIONAL INC ., OF RS.5,47,91,533/- AND IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 4 OF 13 THE ROYALTY PAYMENT OF RS.2,37,93,205/-. THE LEARN ED TPO HAD TREATED THE PAYMENT OF ADMINISTRATIVE SERVICE FEE AT NIL ON THE GROUND THAT THE ASSESSEE COMPANY HAD FAILED TO ESTABLISH THAT THE A DMINISTRATIVE SERVICES ARE ACTUALLY RECEIVED BY THE ASSESSEE COMPANY AND T HE ASSESSEE HAD FAILED TO ESTABLISH THE BENEFITS ACCRUED AS A RESUL T OF MANAGEMENT SERVICES AND ALSO THE NECESSITY OF SUCH EXPENDITURE. SIMILA RLY THE SAME REASONS WERE GIVEN BY THE LEARNED TPO FOR TREATING THE PAYM ENT OF ROYALTY OF RS.2,37,97,205/- AT RS.NIL. THE LEARNED TPO ALSO N OT AGREED TO THE SUBMISSION OF THE ASSESSEE COMPANY THAT THE TRANSAC TION OF PAYMENT OF ROYALTY AND ADMINISTRATIVE SERVICE SHOULD BE AGGREG ATED WITH THE OTHER TRANSACTIONS, BY HOLDING THAT THE AGGREGATION OF TR ANSACTIONS IS PERMISSIBLE ONLY IN RESPECT OF SERIES OF CLOSELY LINKED TRANSAC TIONS WHICH CANNOT BE ANALYSED SEPARATELY. THE TPO ALSO HAS NOT ACCEPTED THE CALCULATION OF MARGIN OF THE ASSESSEE COMPANY AT 5% WHICH WAS CALC ULATED BY THE ASSESSEE COMPANY AFTER DEDUCTING A SUM OF RS.3,64,2 0,069/- THAT IS COST TOWARDS MEGA EVENT OF RS.1,73,37,669/-, RENT FOR VA CANT PROPERTY, ADMINISTRATIVE FEE OF RS.1,50,00,000/- AS EXCEPTION AL COST. THE TPO HELD THAT WITHOUT INCLUDING THE ABOVE COST, THE MARGIN O N SALES SHOULD BE WORKED OUT AND ACCORDINGLY THE TPO WORKED OUT ON TH E SAID BASIS THE MARGINS AT -3.33% AND WHEREAS ACCORDINGLY THE LEARN ED TPO WORKED OUT THE MARGINS OF THE COMPARABLES AT 10.36%. THE LEAR NED TPO ALSO DISALLOWED A SUM OF RS.59,48,301/- AS BEING 25% ROY ALTY PAID TO HERBALIFE INC., USA AS CAPITAL IN NATURE. IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 5 OF 13 5. BASED ON THE TPOS ORDER, THE AO PASSED THE DRAF T ASSESSMENT DATED 24.12.2009 INCORPORATING THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY LEARNED TPO IN HIS ORDER PASSED UNDER SECTION 92 CA. 6. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, T HE OBJECTIONS WERE FILED BEFORE THE HONBLE DRP WHICH UPHELD THE TPO O RDER. PURSUANT TO DIRECTIONS OF HONBLE DRP, THE AO PASSED FINAL ASSE SSMENT ORDER DATED 8.10.2010 INCORPORATING THE ABOVE ADDITION. 7. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFO RE US IN THE PRESENT APPEAL AND RAISED THE FOLLOWING GROUNDS OF APPEAL: IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 6 OF 13 8. GROUND NO. 1 AND 2 ARE GENERAL IN NATURE, DO NOT REQUIRE ANY ADJUDICATION. GROUND NO. 3,5 & 6 CHALLENGES THE AD DITION 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 THA T THE ASSESSEE HAD FAILED TO DEMONSTRATE THE BENEFITS DERIVED OUT OF S UCH EXPENDITURE AND ALSO THE NECESSITY OF INCURRING SUCH EXPENDITURE AND FIN ALLY ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE ASSESSEE HAS ACTUALLY RECEIVED THE SERVICES. THE HONBLE DRP ALSO CONFIRMED THE A DDITION HOLDING THAT THE ASSESSEE ONLY MADE THE SUBMISSION REGARDING THE NAT URE OF SERVICES IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 7 OF 13 RECEIVED BUT HAD NOT BEEN ABLE TO PROVE THAT THE SE RVICES ARE ACTUALLY RECEIVED BY THE ASSESSEE COMPANY. 9. WE HEARD THE RIVAL SUBMISSION AND PERUSED THE MA TERIAL ON RECORD. NOW THE LAW IS QUITE SETTLED THAT IT IS BEYOND THE SCOPE AND POWERS OF TPO/AO TO QUESTION THE NECESSITY OF INCURRING THE E XPENDITURE OR THE BENEFITS OF THE EXPENDITURE INCURRED. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES 345 ITR 241 HELD THAT THE TPO CANNOT DETERMINE THE ALP AT NIL BY HOLDING THAT THERE WAS NO NEED OF INCURRING SUCH EXPENDITURE. IN THE SAID CASE, THE HONBLE DE LHI HIGH COURT AFTER REFERRING TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. WALCHAND AND CO. P. LTD., 65 ITR 381 AND SASSOON J DAVID & CO (P) LTD., 118 ITR 261 AND CIT VS. RAJENDRA PRASAD MOODY 115 ITR 519 HELD AS FOLLOWS: 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHOULD N OT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE IN JUDGING THE ACTI ON OF THE TRANSFER PRICING OFFICER. IN FACT, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS REFERR ED 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 COU NTRY EARLIER. IT HAS BEEN HELD BY OUR COURTS THAT IT IS FOR THE REVENUE AUTHORITIES TO DI CTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE THE ASSESSEE CAN INCUR. WE MAY REFER TO A FEW OF THESE AUTHORITIES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENTS LTD. V. CIT [1951] 20 ITR1 (SC) IT WAS HELD BY THE SUPREME COUR T THAT (PAGE 6) 'THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABOUT IN BUSINESS CIRCLES BUT IT IS NOT FOR THE COURT TO DECIDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDE R SECTION 12(2) OF THE INCOME-TAX ACT'. IT WAS FURTHER HELD IN THIS CASE THAT 'IT I S NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT AN Y PROFIT AS EARNED'. IN CIT V. WALCHAND AND CO. P. LTD. [1967] 65 ITR 381 (SC), IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETE RMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 8 OF 13 EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THERE IS CORRESPONDING INCREASE IN THE PROFITS AS E RRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES (INSPECTOR OF TAXES) V. BANK OF NEW 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 PRES ENCE 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 A NY 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 52 3): 'WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THE RE 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 CIRCUMS TANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOM E.' IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE M ADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SO MEWHAT NARROWER THAN E LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED 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 AND CO. PVT. LTD. V. CIT [1979] 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY A ND NOTED THAT WHEN THE INCOME-TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT THE EXPENDITURE SHOULD HAVE BEEN INCU RRED 'WHOLLY, NECESSARILY AND EXCLUSIVELY' FOR THE PURPO SES 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 T HAT 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 EXPENDI TURE INCURRED BY HIM FOR THE PURPOSE O: BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT O R INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EX PENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT, INTER ALIA, FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPH S WHICH WE HAVE QUOTED ABOVE. 22 EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE I NCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF T HE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE L0B. WHETHER OR NOT TO ENTER INTO THE TRANSACT ION IS FOR THE ASSESSEE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TRANSFER PRICING OFFICER AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A PART THEREOF O N THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTI- NUOUS LOSSES. THE FINANCIAL HEALTH OF THE ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF A N EXPENSE; THERE IS CERTAINLY NO AUTHORITY FOR THAT W HAT THE TRANSFER PRICING OFFICER HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 9 OF 13 FEE, BECAUSE IT HAS BEEN SUFFERING LOSSES CONTINUOU SLY. 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 AN Y EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTERNATI ONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLESALE DISALLOWAN CE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN BY THE TRANSFER PRICING OFFIC ER IS NOT CONTEMPLATED OR AUTHORIZED. 10. THUS, THE RATIO OF THE ABOVE JUDGMENT IS THAT T HE ALP IN RESPECT OF ANY TRANSACTION CANNOT BE DETERMINED AT NIL BY HOLD ING THAT THERE WAS NO BENEFIT ACCRUED ON ACCOUNT OF INCURRING SUCH EXPEND ITURE NOR THERE WAS ANY NECESSITY OF INCURRING SUCH EXPENDITURE. BUT THE M ATTER DOES NOT END THERE. THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE ACT UAL SERVICES FOR WHICH THE ADMINISTRATIVE SERVICES FEES WERE PAID ARE ACTU ALLY RENDERED OR THE USE OF TECHNICAL KNOWHOW @ 5% OF THE DOMESTIC SALES. I T MAY BE MENTIONED THAT THE QUESTION OF THE BENCH MARKING OF TRANSACTI ON WOULD ARISE ONLY IF THE ASSESSEE PROVES THAT THERE WAS ACTUAL TRANSFER OF T ECHNICAL KNOWHOW TO THE APPELLANT AND THE TECHNICAL KNOWHOW WAS ACTUALLY US ED BY THE ASSESSEE IN THE MANUFACTURING ACTIVITY OF THE APPELLANT. IT IS A MATTER OF FACT THAT BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US, THE ASS ESSEE COMPANY HAD ONLY DESCRIBED THE NATURE OF TECHNICAL KNOWHOW AND NATUR E OF ADMINISTRATIVE SERVICES RECEIVED. IT DOES NOT CONCLUSIVELY PROVE THAT THE ASSESSEE COMPANY ACTUALLY RECEIVED THE ADMINISTRATIVE SERVIC ES AS WELL AS THE TECHNICAL KNOWHOW WHICH ARE USED IN THE MANUFACTURI NG ACTIVITY OF THE APPELLANT. IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 10 OF 13 11. THE APPELLANT HAD NOT FILED ANY ADDITIONAL EVID ENCES TO PROVE THE ADMINISTRATIVE SERVICES/TECHNICAL KNOWHOW ARE ACTUA LLY RECEIVED BY THE APPELLANT AND THUS THE ASSESSEE COMPANY HAD FAILED TO DISCHARGE THIS ONUS OF PROVING THIS ASPECT. THEREFORE, EVEN AS PER THE PROVISIONS OF INDIAN EVIDENCE ACT, THE PRESUMPTION CAN BE DRAWN THAT THE ASSESSEE HAS NO EVIDENCE TO PROVE THIS ASPECT. THEREFORE, THE AO/T PO WAS JUSTIFIED IN ADOPTING THE ALP IN RESPECT OF PAYMENT OF ADMINISTR ATIVE SERVICES AND ROYALTY AT NIL. THUS, THE GROUNDS OF APPEAL IN GRO UND NOS. 2 TO 7 ARE DISMISSED. IN RESPECT OF THE OTHER GROUNDS OF APPE AL, SINCE WE HELD THAT THERE WAS NO PROOF OF RECEIPT OF ADMINISTRATIVE SER VICES AS WELL AS TECHNICAL KNOWHOW WHICH IS USED IN THE PROCESS OF MANUFACTURI NG ACTIVITY, THE QUESTION OF BUNDLING OF TRANSACTION OR AGGREGATING ALL OTHER TRANSACTIONS DOES NOT ARISE. IT(TP) A NO. 924/BANG/2012 (ASSESSMENT YEAR 2007-08 ) 12. IN THIS APPEAL, VIDE GROUND NOS. 4 TO 7, THE GR OUNDS OF APPEAL RELATING TO THE DISALLOWANCE OF ADMINISTRATIVE FEES AND ROYALTY PAYMENT TO AE ARE DEALT BY US IN ITA NO. 1406 FOR THE ASSESSME NT YEAR 2006-07. SINCE IDENTICAL FACTS ARE INVOLVED IN THE PRESENT A SSESSMENT YEAR 2007-08, FOR THE PARITY OF THE SAME REASONING, WE UPHOLD THE ALP ADJUSTMENT IN RESPECT OF ADMINISTRATIVE SERVICE FEES AND ROYALTY PAYMENT. THUS ALL THE GROUNDS OF APPEAL RELATING TO THE ROYALTY AND ADMIN ISTRATIVE SERVICES HAVE BEEN DISMISSED. THEN THE ONLY GROUND OF APPEAL THA T SURVIVES IS GROUND IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 11 OF 13 RELATING TO UPHOLD OF DISALLOWANCE ON ACCOUNT OF DO UBTFUL ADVANCE WRITTEN OFF OF RS.1,20,16,395/-. THE BRIEF FACTS SURROUNDI NG THIS ADDITION ARE AS UNDER: IN THE EARLIER YEARS, THE APPELLANT MANUFACTURED W EIGHT MANAGEMENT PRODUCTS AND PAID EXCISE DUTY THEREON AND THESE PRO DUCTS COULD NOT SOLD IN THE MARKET OWNING TO UNFAVOURABLE CONDITIONS AND TH EREFORE, THE APPELLANT WAS FORCED TO EXPORT THESE PRODUCTS TO THE PARENT C OMPANY. ON ACCOUNT OF THESE EXPORTS MADE, THE COMPANY CLAIMED DUTY DRAW B ACK FROM CENTRAL EXCISE DEPARTMENT FOR THE DUTY ALREADY PAID. THE C LAIM WAS REJECTED BY THE CENTRAL EXCISE DEPARTMENT AND THIS CLAIM IS NOW PEN DING IN THE APPEAL STAGE. WHILE THE MATTER STOOD THUS DURING THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE APPELLANT WRITTEN OFF THIS AMOUNT AS A BAD DEBT AND CLAIMED AS DEDUCTION. THIS WAS R EJECTED BY THE AO BY HOLDING THAT IT IS NOT A DEBT BUT A STATUTORY DUTY RECOVERABLE FROM THE CONCERNED AUTHORITIES UNLESS AND OTHERWISE THE ISSU E OF IRRECOVERABILITY ATTAINS THE FINALITY BY THE DECISION OF THE APPELLA TE COURTS, THE SAME CANNOT BE ALLOWED AS DEDUCTION AND THE SAME CAME TO BE CON FIRMED BY THE CIT(A) HOLDING THAT THE IT CANNOT BE ALLOWED AS A BUSINESS LOSS. 13. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEF ORE US IN PRESENT APPEAL. IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 12 OF 13 14. WE HEARD THE RIVAL SUBMISSION AND PERUSED THE M ATERIAL ON RECORD. THE CONDITIONS NECESSARY FOR ALLOWANCE AS A BAD DEB T ARE NOT APPLICABLE IN THE PRESENT CASE. IT IS NOT A DEBT ARISING ON ACCO UNT OF ANY SALE TRANSACTION AND A BAD DEBT PRESUPPOSES EXISTENCE OF A DEBT AND THESE WERE NOT A FORMING PART OF THE TOTAL INCOME IN THE EARLIER YEA RS OF THE APPELLANT. THEREFORE, THE CLAIM CANNOT BE ALLOWED AS A BAD DEB T. FURTHER, THIS CANNOT EVEN BE ALLOWED AS A BUSINESS LOSS FOR THE REASON T HAT THE ISSUE OF IRRECOVERABILITY FROM THE DEPARTMENT HAS NOT ATTAIN ED THE FINALITY AS THE ISSUE IS PENDING BEFORE THE APPELLANT AUTHORITIES. THIS CAN BE CLAIMED AS A DEDUCTION ONLY IF IT BECOMES CLEAR THAT IT CANNOT B E RECOVERED AS A DEDUCTION. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 17 TH APRIL, 2017. SD/- SD/- (GEORGE GEORGE K) (INTURI RA MA RAO) JUDICIAL MEMBER ACCO UNTANT MEMBER BANGALORE. DATED: 17 TH APRIL, 2017. /NSHYLU/ IT(TP)A NO.1406/BANG/2010 IT(TP)A NO.924/BANG/2012 PAGE 13 OF 13 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.