THE COMMISSIONER OF INCOME TAX-LTU vs. WHIRLPOOL OF INDIA LTD.

PDF · subscribers
ITA/394/2019HC DelhiDLHC01019164201922 April 2019Author: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE PRATEEK JALAN3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court, in its order, dismissed the appeal filed by the Revenue. For the first issue concerning AMP expenses and ALP determination, the court noted that the ITAT had restored the matter to the AO, subject to the final decision of the Supreme Court. For the second issue, the High Court followed its previous judgment in Commissioner of Income Tax v. Whirlpool of India Ltd. (2016) 381 ITR 154 (Del). In that judgment, the Court had held that there was no international transaction involving AMP expenses between the assessee and its AE, and therefore, the question of determining the ALP did not arise. The Court also stated that in the absence of a machinery provision, it would be hazardous for a TPO to proceed with ALP determination for such expenses. Consequently, the High Court answered the question regarding international transactions involving AMP expenses in the negative, in favour of the assessee. The impugned order of the ITAT and the corresponding orders of the DRP and TPO were set aside in the previous judgment. The present High Court order clarifies that parties will be bound by the Supreme Court's final decision on both questions.

What were the facts?

The appeal by the Commissioner of Income Tax-LTU (Revenue) challenges the order of the Income Tax Appellate Tribunal (ITAT) concerning Whirlpool of India Ltd. (Assessee) for assessment year(s) not explicitly stated. The dispute centers on two main issues: the treatment of advertisement, marketing, and promotion (AMP) expenses for Arm's Length Price (ALP) determination, and the deletion of amounts taxed by the Assessing Officer (AO) under Section 37 of the Income Tax Act, 1961, which were also subject to ALP determination by the Transfer Pricing Officer (TPO). The ITAT had restored the first issue to the AO, making it subject to the Supreme Court's decision in a related matter. For the second issue, the ITAT followed a previous High Court judgment concerning the same assessee.

What were the issues?

1. Whether the advertisement, marketing, and promotion (AMP) expenses constitute an international transaction for the purpose of determining Arm's Length Price (ALP) under Section 92B of the Income Tax Act, 1961, read with Section 92F(v). Assessee's Contention: The High Court, in a previous judgment concerning the same assessee, held that there was no international transaction involving AMP expenses between the assessee and its associated enterprise (AE). The court also noted that in the absence of a machinery provision, it would be hazardous for a TPO to determine the ALP of such a transaction, especially since the Benefit Limitation Test (BLT) was negatived as a valid method by the court. Revenue's Contention: The Revenue sought to urge that AMP expenses should be considered for ALP determination. The judgment does not explicitly record separate arguments for the Revenue on this specific issue in the present appeal, but rather refers to the Revenue's appeal against the ITAT's previous order.

Which sections of the Income-tax Act were involved?

Section 260A,Section 37,Section 92B,Section 92F

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
$~59 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 394/2019 THE COMMISSIONER OF INCOME TAX-LTU .... Appellant Through : Mr. Ruchir Bhatia, Sr. Standing Counsel with Mr. Puneet Rai, Adv. versus WHIRLPOOL OF INDIA LTD. ..... Respondent Through : Mr. Ajay Vohra, Sr. Adv. with Mr. Neeraj Jain and Mr. Aniket D. Agrawal, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE PRATEEK JALAN

O R D E R %

22.04.

2019

Two questions are sought to be urged by the Revenue in its appeal under Section 260A of the Income Tax Act – Firstly, with respect to the advertisement, marketing and promotion (AMP) expenses for determination of Arm’s Length Price (ALP) under the Act and secondly, the direction to delete certain amounts brought to tax by the Assessing Officer (AO) under Section 37 given that these were also the subject matter of ALP determination by the Transfer Pricing Officer.

The ITAT in its impugned order has restored the first question to the A.O. by recording the fact that the additions were set aside but made subject to the final decision of the Supreme Court in the Revenue’s appeal against the judgment of this court for previous year. As far as the second question is concerned, the ITAT followed the reasoning in the previous judgment i.e. The Commissioner of Income Tax v. Whirlpool of India Ltd., (2016) 381 ITR 154 (Del).

The court had then on similar questions concluded as follows :

"

47.

For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT lias been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP.

48.

Question (i) in the Assessee's appeal viz., "Was there an international transaction between WOIL and its AE involving the AMP expenses within tile meaning of Section 92B of the Act read with Section 92F(v) of the Act?" is answered in the negative, i.e., in favour of the Assessee and against the Revenue. Consequently Question (ii) in the Assessee's appeal is not required to be answered. Further, the only question framed in the Revenue’s Appeal viz., “Whether the ITAT erred in deleting the addition of Rs.1,80,73,10,769 made by the AO/TPO on account of AMP expenses under Section 37 of the Act?” is answered in the negative, i.e. in favour of the Assessee and against the Revenue.

49.

The impugned order of the ITAT and the corresponding orders of the DRP and the TPO, on the above

issues are hereby set aside. The appeal of the Assessee, ITA No. 228 of 2015 is allowed and the appeal of the Revenue, ITA No. 610 of 2014 is dismissed in the above terms, but in the circumstances with no orders as to costs. "

In view of the above, the reasoning of the ITAT cannot be faulted with. As in the case of the impugned order, this court clarifies that the parties shall be bound by the final decision of the Supreme Court on both the questions.

This appeal is accordingly dismissed in the above terms.

S. RAVINDRA BHAT, J

PRATEEK JALAN, J APRIL 22, 2019 aj

More judgments on Section 37

All 4,334 judgments and leading authorities on Section 37 →

Recent GST High Court judgments

Search GST case law →