Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES : I-1 : NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI KULDIP SINGH
ORDER PER S.V. MEHROTRA, VP: This appeal filed by the assessee is directed against the final assessment order passed by the AO u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) on 24.01.2017 in relation to the assessment year 2009-10.
Brief facts of the case are that the assessee is a private limited company engaged in manufacturing of variety of confectionary products from its factories in Tamil Nadu, Haryana and Uttarakhand. The assessee e-filed its return of income on 29th September, 2009 showing the total income of Rs.13,19,79,440/-. Draft assessment order u/s 144C was passed on 6th March, 2013, proposing transfer pricing adjustment of Rs.163,04,12,982/- to the income of the assessee. The assessee filed objections before the ld. DRP-III, Delhi, which vide its order dated 18.12.2013, confirmed the additions as proposed in the draft order. Accordingly, the assessee’s total income was determined u/s 143(3) read with section 144C at Rs.176,23,92,422/-. The assessee preferred appeal before the Tribunal against the assessment order dated 7th January, 2014 and the Tribunal, vide its order dated 15th April, 2014 (ITA No.6559/Del/2014), set aside the matter to the file of Assessing Officer/TPO to decide the issue of determination of the arm’s length price (ALP) of AMP expenses in conformity with the decision fo the Special Bench in the case of L.G. Electronics. Accordingly, the Assessing Officer made reference u/s 92CA(1), vide letter dated 5th February, 2015 to TPO for determination of the ALP for the international transaction of AMP undertaken by the assessee during the financial year 2008-09. The ld. TPO, vide his order dated 28th January, 2016, recomputed the transfer pricing adjustment in regard to AMP expenses at Rs.123,62,94,959/-. The assessee filed its objections against the proposed draft assessment order with the DRP and the DRP, vide its order dated 28th November, 2016, confirmed the TP adjustment made by the ld. TPO using the brightline tool as this was in conformity with the decision of LG Electornics and the TP adjustment made by the TPO using the Cost Plus Method was deleted as that was not in conformity with the decision in LG Electronics. The ld. TPO had also benchmarked the AMP expenses on a protective basis resulting in an adjustment of Rs.205,31,96,324/- on brightline method. Accordingly, the Assessing Officer passed the assessment order on 24th January, 2017 determining the total income at Rs.266,44,84,900/-, after making an addition of 3 Rs.205,31,96,324/- on account of determination of ALP of AMP expenses. The Assessing Officer also denied the deduction u/s 80IC in view of the direction contained in the order of ld. Principal CIT, passed u/s 263 of the Act, dated 14.12.2016 u/s 143(3) read with section 263. Being aggrieved, the assessee is in appeal before us and has taken the following grounds of appeal:-
“Without prejudice to the appeal filed by the appellant before Punjab & Haryana High Court in relation to the assessment year under consideration, the appellant submits the following grounds of appeal which are mutually exclusive of and without prejudice to each other.
1. That Assessing Officer ("Ld. AO") / Transfer Pricing Officer ("Ld. TPO")/ Dispute Resolution Panel ("Ld. DRP") erred in assessing the income of the Appellant at INR 2,66,44,84,9001- as against returned income of INR 13,19,79,440.
3. That the impugned orders passed by AO pursuant to DRP directions making an addition of INR 2,05,31,96,324/- to the total income of the Appellant on account of adjustment in relation to Advertising, Marketing & Promotion Expenses (,AMP') using Bright Line Test ('BL T) are contrary to catena of decisions of Hon'ble High courts/ Tribunal and is bad in law.
3. That on the pretext of following remand directions of Hon'ble Tribunal dated 15.04.2014, DRP/ TPO/ AO have grossly erred in making adjustment on account of AMP afresh and raising impugned demand in total disregard to overriding findings of the Hon'ble Delhi High Court in the cases of Maruti Suzuki India Ltd, Whirlpool of India Ltd etc., as also decision of Special Bench in case of LG Electronics, as impugned demand applies portions of such decision also selectively.
4. That Id. DRP/ TPO/ AO have grossly erred in applying Bright Line Test ('BLT’) for computing adjustment on account of AMP in total disregarding decisions of Hon'ble Delhi High Court in Sony Ericsson Mobile Communications India Pvt. Ltd, Maruti Suzuki India Ltd which have held the same to be invalid in law.
5. Without prejudice to the above, DRP/ TPO/ AO have grossly erred in not even applying decision of Special Bench in case of LG Electronics in entirety, as there is no whisper on 14 factors relating to comparables, direct selling expenses have not been excluded and Gross profit margin has been used to mark-up for computing the adjustment thus completely disregarding directions of Hon'ble Tribunal dated 15.04.2014 while remanding the matter to decide afresh.
6. That DRP/ TPO/ AO have erred in treating expenses incurred by Appellant towards AMP as an 'international transaction', disregarding guidelines of Hon'ble Delhi High Court in the cases of Maruti Suzuki India Ltd., Whirlpool of India Ltd., Bausch & Lomb Eye Care India Pvt. Ltd and Honda Siel Power Products Ltd., which dealt with similar facts in case of manufacturers.
7. That DRP/ TPO/ AO completely failed to establish existence of an 'understanding' or an 'arrangement' or 'action in concert' between Appellant and its AEs with regard to AMP spend by Appellant in India, without application of Bright Line Test.
8. That DRP/ TPO/ AO failed to appreciate that once Appellant has satisfied arm's length basis using Transactional Net Margin Method ('TNMM") i.e., operating margin of Appellant is more than operating margin of comparable companies, no further adjustment for AMP expenditure is warranted in law.
9. That in the facts and circumstances of the case DRP/ TPO/ AO erred in failing to appreciate that AMP was benchmarked as function by Appellant being closely linked to overall business activities and it would be unjustified to segregate the same, without prejudice impugned order completely misinterpreted the decisions of Hon'ble Courts / Tribunal.
10. That Ld. AO erred in including issues arising from separate proceedings u/s 263, which are distinct and different proceedings, resulting in duplicative and unlawful demand.
11. That on facts of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 271 of the Act. Appellant craves leave to add, alter, modify, substitute or withdraw any of the above ground and to submit such further grounds at or before the hearing of the appeal, so as to enable decision in accordance with law.”
At the outset, the ld. counsel for the assessee submitted that both the issues are covered by the decision of the Tribunal in the assessee’s own case for assessment year 2011-12 vide wherein the Tribunal has remanded both the issues to the file of Assessing Officer as follows:-
“8. We have heard both the sides and perused all the records. The issues involved in these particular appeals are three folds. Ground No. 2 to 13 is related to AMP adjustment of Rs.146.19 crores, Ground No. 14 to 25 is related to denial of deduction u/s 80IC of Rs.102.31 crores and Ground Nos. 26 & 27 are related to disallowance of depreciation to the extent of capital subsidy Rs.13.12 lakhs. The assessee is engaged in manufacturing of various confectionary products and is a subsidiary of PVM, Italy. The assessee has three factories at Tamil Nadu, Haryana and Uttrakhand. The AMP expenditure of Rs.194.02 crores which included Rs.91.54 crores of selling and distribution expenses and Rs.102 crores is marked up by gross profit margin in manufacturing and selling business at 42.66% resulting in disputed Transfer Pricing Adjustment of Rs.146.19 crores. The Ld. AR during the hearing clearly stated that the TPO was not dealt with the judgment in case of Sony Ericson 374 ITR 118 & Maruti Suzuki 381 ITR 117 passed by the Hon'ble High Court. Before the DRP these two decisions were placed by the assessee but DRP has not taken into consideration of Maruti Suzuki and held that existence of international transaction of AMP solely on basis of Sony Ericson and other decisions referred therein. The TPO presumed existence of international transaction of AMP by adopting bright line test by relying special bench’s decision in case of LG Electronics. The TPO further held that A.E was benefitted from increased business as all purchases from A.E accounted for 3% of turnover of Rs.1311 crores amounts to international transaction and is only to the tune of 6.09%. When the decision in case of Maruti Suzuki was presented before the DRP, the DRP should have taken cognizance of these decisions while determining the issue of AMP adjustment. But the DRP chose not to comment on the said decision. While holding AMP expenses as an international transaction, the TPO did not have the benefit of the judicial precedents now available for consideration, in some of which the transaction of AMP expenses has been held as an international transaction, in others as not an international transactions, while still in some others, the matter has been restored for fresh consideration in the light of the judgment in Sony Ericsson Mobile Communications (India) Pvt. Ltd. Vs. CIT (2015) 374 ITR 118 (Del), in which the AMP expenses as an international transaction has been accepted. In another judgment dated 28.1.2016 of the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for A.Y. 2010-11), the question as to whether AMP expenses is an international transaction, has been restored for a fresh determination. There are three recent judgments of the Hon’ble Delhi High Court, viz., Rayban Sun Optics India Ltd. Vs. CIT (dt. 14.9.2016), Pr. CIT Vs. Toshiba India Pvt. Ltd. (dt. 16.8.2016) and Pr. CIT vs. Bose Corporation (India) Pvt. Ltd. (dt. 23.8.2016) in all of which similar issue has been restored for fresh determination in the light of the earlier judgment in Sony Ericsson Mobile Communications India Pvt. Ltd. (supra). Respectfully following the predominant view of the Hon’ble High Court, we are of the considered opinion that it would be in the fitness of things if the impugned order is set aside and the 7 matter is restored to file of TPO/AO for fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter would end there and then, calling for no transfer pricing addition. If on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments of the Hon’ble High Court, after allowing a reasonable opportunity of being heard to the assessee. 8.1 To sum up, we set aside the impugned order on the issue of transfer pricing additions towards AMP expenses and remit the matter to the file of AO/TPO for a fresh determination of their ALP in consonance with our above observations and directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Thus, Ground No. 2 to 13 are partly allowed for statistical purposes. 8.2. As relates to benefit of deduction under Section 80IC the same was claimed only for the unit situated in Rudrapur (Uttrakhand). There is net loss in the units of Manessar (Haryana) & Chennai (Tamilnadu) and there is a net profit in Rudrapur Unit. The TPO has only disallowed this claim as the assessee was not involved in manufacture of any item covered by Schedule XIV, where as the assessee has referred Schedule XIII and submitted that it is not considered by the TPO. After verifying Schedule XIII & XIV it is pertinent to note that the assessee’s location at Rudrapur is coming under the scope of 80IC but the address was not properly verified by the TPO. Therefore, this needs to be verified. We therefore, remit this issue back to the file of the TPO to examine the same as relates to the applicability of the Schedule XIII. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Therefore, Ground No. 14 to 25 is partly allowed for statistical purpose.”
Respectfully following the decision of the Tribunal in the assessee’s own case, the assessee’s appeal is allowed for statistical purposes in terms of the directions contained in the aforementioned order of the Tribunal. 8
In the result, the appeal of the assessee is allowed for statistical purposes.