HIMALAYA WELLNESS COMPANY,BENGALURU vs. DCIT, CIRCLE-6(1)(1), BENGALURU

Facts

The assessee, Himalaya Wellness Company, filed an appeal for Assessment Year 2021-22 against the assessment order dated 27/09/2024, passed by the Deputy Commissioner of Income Tax, Circle 6(1)(1), Bengaluru, determining total income at Rs. 544,41,16,186/-. The assessee is aggrieved by transfer pricing adjustments and disallowance of expenses. The assessee's grounds of appeal challenge the validity of the reference to the Transfer Pricing Officer (TPO) under Section 92CA(1), the rejection of its Transfer Pricing study using the TNMM method, the adoption of CPM as the Most Appropriate Method (MAM) by the TPO, adjustments related to Advertisement and Marketing Promotion (AMP) expenditure, and the disallowance of expenditure on scientific research under Section 35(1)(i). The assessee relies on previous ITAT orders in its own case for multiple assessment years where similar additions were deleted.

Held

The Tribunal addressed Ground No. 9 concerning the disallowance of expenditure on scientific research under Section 35(1)(i). The Tribunal noted that identical issues were examined in earlier and subsequent years without disallowance, even without a certificate from the Department of Scientific and Industrial Research. While the assessee submitted some details, including on a sample basis, the Tribunal found that complete details were not produced to the satisfaction of the AO. Therefore, in the interest of justice, the issue was set aside to the file of the AO with a direction to the assessee to substantiate the expenditure with evidence. The AO was directed to examine the same and decide afresh after granting an opportunity of hearing. Grounds not pressed were dismissed. The appeal was partly allowed. The judgment does not explicitly record findings on the transfer pricing issues (Grounds 1-8) or the AMP expenditure issue (Ground 6), other than noting that Ground 7.1 to 7.6 were allowed and Ground 7 became infructuous. The operative direction was to remand the scientific research expenditure issue to the AO.

Key Issues

1. Whether the reference made by the Assessing Officer (AO) to the TPO under Section 92CA(1) was valid, considering the conditions precedent were not satisfied, and if the Principal CIT's approval was mechanical, thereby rendering subsequent proceedings void ab initio and barred by limitation under Section 153(1) (mixed law and fact, concerning Section 92CA(1) and Section 153(1)). 2. Whether the assessee and various foreign entities are associated enterprises as defined under Section 92A(2), given the absence of the specified conditions (mixed law and fact, concerning Section 92A(2)). 3. Whether the TPO and DRP erred in rejecting the assessee's Transfer Pricing study under TNMM and adopting CPM as the MAM, particularly concerning the appropriateness of CPM and adjustments under Rule 10B(1)(c) (mixed law and fact, concerning Section 92C and Rule 10B(1)(c)). 4. Whether AMP expenditure incurred by the assessee constitutes an international transaction under Section 92B and if adjustments for AMP expenditure are justified (mixed law and fact, concerning Section 92B). 5. Whether the disallowance of expenditure claimed under Section 35(1)(i) for scientific research is justified, given the assessee's submission of details and prior year precedents (mixed law and fact, concerning Section 35(1)(i)). Assessee's Contentions: The reference to the TPO was mechanical and bad in law. Identical additions in earlier years were deleted by the Tribunal. The entities are not associated enterprises. TNMM is appropriate, not CPM. AMP expenditure is not an international transaction. No notional income should be taxed. The assessee is the economic owner of the brand. Profit split method is not applicable. Disallowance of scientific research expenditure is unjustified as complete details were provided, and similar expenditure was allowed in earlier years. Revenue's Contentions: The revenue supported the orders of the lower authorities. For scientific research expenditure, it was argued that the assessee failed to submit complete details, and sample submissions were insufficient.