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The Tax Publishers Avineon India (P) Ltd. v. Dy. CIT [IT Appeal Nos. 152, 262 (Hyd.) of 2015, dt. 20-1-2016] : 2016 TaxPub(DT) 0827 (Hyd-Trib) Payment of settlement compensation through AE, whether extraordinary item to be excluded for ALP calculation. Loyalty rewards provision to employee whether falling in the scope of section 43B *Facts:* Assessee in the business of IT software development had to reimburse to its US AE settlement to avoid litigation from a trademark infringement by an employee who had lifted some photos from another website. The assessing officer simply disallowed the expenditure. Assessees plea was that it was an extraordinary expenditure thus has to be excluded from the ALP benchmarking. The allowability was also rejected by the DRP. On appeal: Provision was made for employee loyalty rewards program, the same was disallowed under section 43B then partly allowed on actual expenditure incurred before due date of filing return as for the balance disallowance assessee went in appeal: Held by the ITAT in favour of the assessee that loyalty rewards program provision was not bonus and hence did not fall in the scope of section 43B. As for the infringment penalty compensated to AE, it was remanded on facts to examine if it was a spend in the normal business of the assessee also whether it formed part of the operating expenses.

The Tax Publishers

Avineon India (P) Ltd. v. Dy. CIT [IT Appeal Nos. 152, 262 (Hyd.) of 2015, dt. 20-1-2016] : 2016 TaxPub(DT) 0827 (Hyd-Trib)

Payment of settlement compensation through AE, whether extraordinary item to be excluded for ALP calculation.

Loyalty rewards provision to employee whether falling in the scope of section 43B

Facts:

Assessee in the business of IT software development had to reimburse to its US AE settlement to avoid litigation from a trademark infringement by an employee who had lifted some photos from another website. The assessing officer simply disallowed the expenditure. Assessees plea was that it was an extraordinary expenditure thus has to be excluded from the ALP benchmarking. The allowability was also rejected by the DRP. On appeal:

Provision was made for employee loyalty rewards program, the same was disallowed under section 43B then partly allowed on actual expenditure incurred before due date of filing return as for the balance disallowance assessee went in appeal:

Held by the ITAT in favour of the assessee that loyalty rewards program provision was not bonus and hence did not fall in the scope of section 43B.

As for the infringment penalty compensated to AE, it was remanded on facts to examine if it was a spend in the normal business of the assessee also whether it formed part of the operating expenses.