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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’ : NEW DELHI
Before: SHRI R.S. SYAL & MS. SUCHITRA KAMBLE
O R D E R PER R.S. SYAL, VP: These two appeals filed by the assessee relate to the Assessment Years 2010-11 and 2011-12. Since common issues by this consolidated order for the sake of convenience.
ASSESSMENT YEAR 2010-11
The first issue raised by the assessee in its appeal is against the addition of Rs.3,55,87,494 made by the AO on account of transfer pricing adjustment of Advertising, marketing and promotion expenses (AMP expenses).
The ld. AR submitted that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm’s length price of this transaction or making any addition thereon. He relied on the judgments of the Hon’ble Delhi High Court in Maruti Suzuki India Ltd. & Another vs. CIT (2015) 129 DTR 25 (Del) and CIT vs. Whirlpool of India Ltd. (2015) 94 CCH 156 DEL-HC to contend that the AMP expenses could not be considered as an international transaction. In the light of these judgments and some other Tribunal orders, it was submitted that there was no international transaction of AMP expenses on the basis of principles laid down in these judgments and, hence, the entire transfer pricing adjustment, be set aside.
Before taking up the issue, it is relevant to summarily mention that the ld. AR argued the issue of AMP expenses on similar lines as has been argued in different cases, including the case of Reebok India Company vs. DCIT (ITA No. 954/Del/2016 for the AY. 2011-12), which was argued by the ld. AR himself and Nikon India Pvt. Ltd. vs. DCIT (2016) 47 CCH 0458 DelTrib contending that the incurring of AMP expenses is not an international transaction. The tribunal vide its order dated 20.3.2017 in Reebok (supra) and 15.7.2016 in the case of Nikon (supra) has not accepted such contention at its level and remitted the matter to the file of AO/TPO for a fresh determination.
The ld. DR, similar to Reebok (supra) and Nikon’s case (supra), also relied on the judgment of the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del) in which AMP expenses have been held to be an international transaction and the matter of determination of its ALP has been restored. It was contended that ratio of the judgment by the Hon’ble High Court in the case of Sony Ericson Mobile Communications (supra). He also relied on a later judgment of the Hon’ble jurisdictional High Court in Yum Restaurants (India) P. Ltd. vs. ITO (2016) 380 ITR 637 (Del) and still another judgment dated 28.1.2016 of the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expense is an international transaction has been restored for a fresh determination. It was argued, similar to Reebok and Nikon’s case (supra), that the judgment in the case of Yum Restaurants and Sony Ericson (for the AY 2010-11) delivered in January, 2016 is later in point of time to the earlier judgments in the case of Maruti Suzuki and Whirlpool, etc., and, hence, the matter should be restored for a fresh determination. Similar to Reebok and Nikon’s cases (supra), it was submitted that there is no blanket rule of the AMP expenses as a non-international transaction. He further stated that the Hon’ble High Court in Whirlpool (supra) has made certain observations, which should transaction of AMP expenses exists. It was argued that the Tribunal in several cases has restored this issue to the file of TPO to be decided afresh in the light of the judgment of the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del) and others. He also relied on still another judgment dated 28.1.2016 of the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expenses is an international transaction, has been restored for a fresh determination. Similar to Reebok and Nikon’s cases (supra), he still further referred to three later 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). The ld. Ltd. vs. CIT (2015) 374 ITR 118 (Del) has held AMP expenses to be an international transaction. It was argued the matter should be restored for a fresh determination.
We have heard the rival submissions and perused the relevant material on record. It is a matter of record that the Hon’ble High Court in Sony Ericsson (supra) has held AMP expenses as an international transaction. It can be seen that in some later decisions, view taken is at variance. Equally, the tribunal is also not consistent in its stand. When the TPO in the instant case held AMP expenses to be an international transaction, he did not have any occasion to consider the ratio laid down in several judgments of the Hon’ble jurisdictional High Court, which is now available for consideration. Respectfully following the predominant view taken in several Tribunal orders of co-ordinate benches, we are of the considered opinion that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of TPO/AO for a fresh international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter will 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. Similar view has been recently taken by the Delhi tribunal in its order dated March, 2017 in the case of Louis Vuitton India Retail P. Ltd. vs. DCIT (ITA No.775/Mum/2015).
The only other issue raised in this appeal is against the addition amounting to Rs.16,72,848/- on account of difference in the closing stock valuation as per section 145A of the Act on accounting of non-inclusion of Special Additional Duty (SAD).
The facts apropos this ground are that the assessee valued its stock on `exclusion method of valuation', that is, without including the effect of any tax, duty or cess etc. The AO invoked ought to have been included in the valuation of closing stock.
That is how, he redrafted the assessee’s trading account by including VAT/SAD etc. in the value of closing stock. This resulted into an addition amounting to Rs.16,72,848/-. The assessee is aggrieved against the inclusion of SAD in the value of closing stock only.
Having heard both sides and perused the relevant material on record it is observed that the assessment year under consideration is 2010-2011. Section 145A, which was inserted by the Finance (No.2) Act, 1998 with effect from 1.4.1999, has been made applicable from the assessment year 1998-1999. It provides that the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty, cess etc. paid or incurred by the assessee to bring the goods to the place of its location as on the date of applicable to the year under consideration, the amount of tax, duty, cess etc. is liable to be included in the value of purchases, sales, opening and closing stock. It is not appropriate to include the figure of SAD only in the figure of closing stock without modifying the figures of purchases, sales and opening stock. The Hon’ble Delhi High Court in CIT Vs. Mahavir Alluminium (2008)
297 ITR 77 (Del.) and the Hon’ble Bombay High Court in CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. (2009) 318 ITR 116 (Bom.) have held to this extent. As the AO has not adjusted all the relevant figures with the amount of tax, duty, cess etc., we set aside the impugned order and restore the matter to the file of A.O. for deciding it afresh in accordance with the afore-noted judgements and the provisions of section 145A. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this regard.
In the result, the appeal is allowed for statistical purposes.
ASSESSMENT YEAR 2011-12 transfer pricing addition of Rs.1,83,92,706/- on account of AMP expenses and addition of Rs.84,73,680/- under section 145A.
We have heard the rival submissions and perused the relevant material on record. Both the sides are in agreement that the facts and circumstances of both the grounds for the instant year are mutatis mutandis similar to those of the preceding year.
Following the view taken hereinabove, we set aside the impugned order on both the scores and remit them to the file of AO to be decided afresh in accordance with the observations made above in deciding the appeal for the immediately preceding year.
Needless to say, the assessee will be allowed a reasonable opportunity of hearing.
In the result, the appeal is allowed for statistical purposes. Order pronounced in open court on this 6th day of April, 2017.