HP INDIA SALES PRIVATE LIMITED,BANGALORE vs. DCIT, CIRCLE-3(1)(1), BANGALORE
What did the Tribunal hold?
On the issue of AMP expenses, the Tribunal observed that the assessee contended it had already considered AMP expenses while determining the ALP of international transactions in the distribution segment at the entity level. This factual aspect required verification by the TPO. Therefore, the issue was restored to the file of the TPO to examine whether these expenses were already considered in the distribution segment's ALP. If they were, no further disallowance would be called for. The Tribunal explicitly left the issue of whether AMP transactions are international transactions open, without delving into its legality. Regarding the disallowance of earnest money, the Tribunal held that the DRP had wrongly remitted this issue to the TPO instead of the AO, as it pertained to corporate tax and the TPO had no role. The issue was restored to the file of the AO for fresh examination, with directions to grant relief if the assessee could establish the nature of the transaction.
What were the facts?
The assessee, HP India Sales Pvt. Ltd., is engaged in importing computer peripherals for sale in India and providing support services. For Assessment Year 2021-22, the assessee filed its return declaring a total income of Rs. 6.92 Crores. The case was selected for scrutiny, and the Assessing Officer (AO) referred international transactions to the Transfer Pricing Officer (TPO). The TPO initially made an adjustment of Rs. 100,20,08,556/-. Following objections by the assessee to the Dispute Resolution Panel (DRP), the DRP directed the TPO to verify certain issues. The TPO subsequently passed an order on 11.9.2024, recomputing adjustments and making a final adjustment of Rs. 44,62,25,130/-, which was added by the AO. Additionally, the AO disallowed Rs. 66 lakhs on account of writing off earnest money. The assessee appealed the AO's order.
What were the issues?
1. Whether the Tribunal had to decide on the applicability of the bright-line test and the adjustments made by the TPO with respect to Advertising, Marketing, and Promotion (AMP) expenses, and what each side argued. The assessee contended that AMP expenses are not per se international transactions and thus not subject to TP adjustments, relying on CIT Ltu Vs. Whirlpool. The assessee also argued that its declared margin of 3.83% was sufficient, and the TPO's comparable margin of 2.33% was lower, asserting that the impact of these expenses was already considered in the distribution segment's ALP. The revenue relied on the orders of the authorities below. The Tribunal left the issue of whether AMP transactions are international transactions open. 2. Whether the Tribunal had to decide on the taxability of earnest money wrongly offered for taxation, and what each side argued. The assessee argued that the DRP wrongly remitted the issue to the TPO instead of the AO. The assessee explained that earnest money paid in AY 2017-18 was treated as receivable, and upon refund in AY 2020-21, it was inadvertently written back and offered as income. In AY 2021-22, the assessee was correcting entries by charging it as miscellaneous expenses, which the AO disallowed. The revenue relied on the orders of the authorities below.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
IT(TP)A No.2378/Bang/2024 HP India Sales Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(TP) No.2378/Bang/2024 Assessment Year: 2021-22 Hp India Sales Private Limited No.24, Kothari Arena, Hosur Main road Adugodi, Bangalore South, Bangalore Vs. Karnataka 560 030 DCIT Circle 3(1)(1) PAN NO : AAACC9862F Bangalore APPELLANT RESPONDENT Appellant by : Sri Sharad Rao, Ms. Vaidhehi G. & Dhiraj R., A.Rs Respondent by : Sri Vilas Shinde, D.R. Date of Hearing : 04.06.2025 Date of Pronouncement : 07.07.2025 O R D E R PER PRAKASH CHAND YADAV, JUDICIAL MEMBER: Present appeal of the assessee is arising from the order of ld. AO dated 9.10.2024 having DIN No. ITBA/AST/S/143(3)/ 2024- 25/1069573673(1) and relates to assessment year 2021-22. 2. The assessee has raised following grounds of appeal:
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IT(TP)A No.2378/Bang/2024 HP India Sales Pvt. Ltd., Bangalore Page 6 of 9 3. Brief facts of the case are that the assessee is a company engaged in import of computer peripherals from its Associated Enterprises (AEs) for sale in India and also rendered certain support services. Assessee filed its return of income on 13.7.2022 declaring total income of Rs.6.92 Crores. Thereafter the case of the assessee was selected for scrutiny, observing international transactions, the AO made reference to the TPO, who vide its order dated 17.10.2023 made an adjustment of Rs.100,20,08,556/-. Thereafter, the AO passed draft assessment order on 16.12.2023 making additions as suggested by the TPO. Against the draft assessment order, the assessee filed its objections before the ld. DRP. The ld. DRP vide its order dated 9.9.2024 directed the TPO to verify certain issues and determine the ALP accordingly. Thereafter, the TPO has passed an order on 11.9.2024 in line with the directions of the ld. DRP and recomputed the adjustments made on account of ALP and finally an adjustment of Rs.44,62,25,130/- has been made by the TPO, which is added by the ld. AO while completing the assessment. Besides this, the AO has also disallowed an amount of Rs.66 lakhs on account of writing of earnest money.
Aggrieved with the order of AO, the assessee has come up in appeal and has raised so many grounds as reproduced by us in this order. However, only two issues survive for our decision, one is with regard to Transfer Pricing adjustment and the other one is regarding the taxability of Earnest money, wrongly offered for taxation.
Ground No.1 is general in nature and hence does not require any specific adjudication.
In ground No.2 and other grounds, the assessee has challenged the applicability of bright line test and adjustments made by the TPO with respect to the Advertising, Marketing, Promotion (AMP) expenses.
IT(TP)A No.2378/Bang/2024 HP India Sales Pvt. Ltd., Bangalore Page 7 of 9 7. Ld. Counsel for the assessee argued that the transactions of AMP expenses are not per se an international transaction. He has also relied upon the judgement of Delhi High Court in the case of CIT Ltu Vs. Whirlpool 610 (2014) dated 22.12.2015 for the proposition that AMP transactions are not per se international transactions and hence they cannot be subject to TP adjustments. On merits, the ld. Counsel for the assessee argued that the margin declared by the assessee is good enough i.e. 3.83% and the margin of the comparables taken by the TPO is only 2.33% and the assessee has already considered the impact of these expenses while computing ALP in distribution segment.
Ld. D.R. relied upon the orders of authorities below.
We have heard the rival submissions and perused the material available on record. We observe that it is the contention of the assessee that it has already considered AMP expenses while determining the ALP of the international transactions in distribution segment by applying TNM method at entity level. Therefore, no separate adjustment is called for in this regard. This factual aspect needs verification at the end of TPO. Therefore, we restore this issue to the file of TPO to examine that as to whether the assessee has already considered these expenses while determining the ALP of distribution segment or not. We further direct the TPO that if the assessee has already considered these expenses in distribution segment at entity level, then no further disallowance is called for. So far as the issue whether AMP transaction is an international transaction or not, we are leaving this issue open without going into the legality of this issue.
Next issue is disallowance of earnest money deposit and debited under the head Miscellaneous expenses by the assessee. In this regard, the contention of the ld. Counsel for the assessee is that the ld. DRP has grossly misunderstood the issue and wrongly given
IT(TP)A No.2378/Bang/2024 HP India Sales Pvt. Ltd., Bangalore Page 8 of 9 directions to the TPO instead of AO. It is the submission of the assessee that in assessment year 2017-18, this amount has been paid and regarded as receivable/asset. In assessment year 2020-21, upon the receipt of this refund, assessee has inadvertently written back and offered this amount under the head Miscellaneous income and the assessee has offered this amount as income in assessment year 2020-21. Now in the impugned assessment year i.e. 2021-22, the assessee is making correction of entries, and has charged of this deposit under the head Miscellaneous expenses. However, the ld. AO disallowed the same.
Ld. D.R. relied upon the orders of authorities below.
After considering rival submissions, we are of the view that the ld. DRP has wrongly remitted this issue to the TPO instead of remitting the same to the AO. Since the issue involved is related to the corporate tax, TPO has no role to do anything with respect to this issue. Therefore, we restore this issue to the file of AO for examining afresh and in case the assessee is able to establish the nature of transaction, then the AO will grant relief to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes as indicated above.
Order pronounced in the open court on 7th July, 2025
Sd/- Sd/- (Waseem Ahmed) (Prakash Chand Yadav) Accountant Member Judicial Member
Bangalore, Dated 7th July, 2025. VG/SPS
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Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.
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