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Income Tax Appellate Tribunal, DELHI BENCH ‘I’: NEW DELHI
Before: SHRI SUDHIR PAREEK & SHRI MANISH AGARWAL
This appeal is filed by the assessee against the final assessment order passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (the Act in short) dated 28.10.2024 for Assessment Year 2021-22.
Brief facts of the case are that the assessee is wholly owned subsidiary of M/s Amway Corporation and is engaged in the business of manufacturing and selling of consumer products under direct selling through Multi-Level Marketing (MLM). Return for the year under appeal was filed on 15.03.2022 declaring total income at Amway India Enterprises Private Limited vs. DCIT Rs.77,89,22,110/-. The case was taken up for scrutiny under CASS in terms of notice issued u/s 143(2) dated 28.06.2022. The AO observed that one of the reason for scrutiny was transfer price risk parameters, therefore, he referred the case of the assessee to the TPO for working out the transfer pricing adjustments. The TPO passed the order u/s 92CA(3) on 18.11.2022 wherein TPO proposed AMP adjustments of Rs.170,31,42,080/- based on intensity test. The TPO has proposed Nil adjustment under BLT approach on protective basis. Thereafter, a draft assessment order was passed by AO on 22.12.2023 where the variations were proposed on account of AMP adjustment of Rs.1,70,31,42,080/- as proposed by TPO and further variation of Rs.3,75,000/- is proposed on account of disallowance of deduction claimed u/s 80G. Against such draft order, the assessee filed objections before the Hon’ble Dispute Resolution Penal (Hon’ble DRP). The Hon’ble DRP vide its impugned order dated 25.09.2024 has supported the order of the TPO and held that the AMP expenditure claimed by the assessee is international transaction and further observed that the assessee is not a mere distributor of the products of the AE, rather it is providing large number of marketing and technical services attached which had resulted into substantial value additions to the products of the AE and accordingly confirmed the action of the TPO in making AMP adjustments. The Hon’ble DRP further uphold the disallowance of donation proposed by the AO in the draft assessment order u/s 80G of the Act. In the result, the objections raised by the assessee were dismissed by the ld. DRP.
The AO after following the directions of the DRP has passed the final assessment order on 28.10.2024 at a total income of Rs. 2,75,65,46,220/- by making addition of Rs.1,70,31,42,080/- being the variation proposed by the TPO on account of AMP adjustments based on intensity test and further disallowed deduction claimed u/s 80G of the Act of Rs. 3,75,000/-.
Aggrieved by the final order, the assessee is in appeal before the tribunal by taking following grounds of appeal: “
1. The Ld. TPO/DRP/AO has erred on facts and in law in. passing the impugned order for the AY 2021-22 u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 ("the Act") dated 28.10.2024 and determining the total income of the appellant at Rs 275,65,46,220/- against the returned income of Rs. 77,89,22,110/-.
2. The Ld. TPO/DRP/AO has erred on facts and in law in making addition on account of "AMP Intensity" amounting to Rs.170,31,42,080/- and disallowance out of 80G deduction 2 claimed amounting to Rs.3,75,000/- and retaining adjustment of Rs. 27,41,07,030/-made u/s 143(1)(a) of the Act without seeking any clarification whatsoever with regard to the correctness of the adjustment made u/s 143(1)(a) of the Act.
3. The Ld. TPO/DRP/AO has erred on facts and in law in passing the impugned perverse order in gross violation of principles of natural justice with premeditated mind of 3 confirming addition/disallowances without even remote semblance of going through and dealing with the detailed submissions made on facts as well as in law on various grounds of objections raised.
4. The Ld. DRP has erred on facts and in law in not following its own order for the AY 2020-21 wherein the Hon'ble DRP held that "It is seen that an identical issue was decided by the DRP 4 during the AY 2016-17 with the following directions...... as material facts have remained more or less similar, the panel hereby directs that the above-mentioned directions shall mutatis mutandis on this objection for the AY 2020-21 as well".
5. The Ld. DRP has erred on facts and in law in not following its own order for the AY 2016-17 and AY 2015-16 even though the business model and all relevant facts and circumstances of the matter were identical.
6. The Ld. DRP has acted perversely in making various baseless and incorrect observations in the impugned order just to superficially and vaguely dismiss various grounds raised by the appellant against the order of the TPO.
7. The Ld. TPO/DRP/AO has erred in facts and in law in ignoring the consistently settled issued over various assessment years beginning from AY 2009-10 in the case of the appellant on the AMP issue especially when there was not even an allegation of any change with regard to the relevant facts and circumstances and the business model of the appellant over last several years.
8. The TPO/AO/DRP has erred in fur and in low in rejecting the benchmarking approached adopted by the assessee in its TP documentation prepared under Amway India Enterprises Private Limited vs. DCIT section 920 read with Rate 100 of the Income Tax Rules, 1962 ("Rules") without assigning any cogent reasons and hiss further erred is proposing aforesaid transfer pricing adjustment in gross disregard of the transfer pricing regulations.
The Ld. TPO/AO/DRP has erred on facts and in law in holding AMP expense incurred by the assessee as an international transaction under section 928 of the Income Tax Act, 1961 without proving existence of any actual understanding/arrangement between the assessee and the associated enterprise to invoke the provisions of section 92 of the Act.
10. The Ld. TPO/AO/DRP has erred on facts and in law in treating the transactions with unrelated third parties as international transactions.
The Ld. TPO/AO/DRP has erred on facts and in law in considering commission, selling and distribution expenses within the ambit of AMP expenses carried out on behalf of AE 12. The Ld. TPO/DRP/AO bas erred on facts and in law in making the addition/adjustment of Rs. 170,31,42,080/-on account of alleged "AMP Intensity" which is nothing but disguised bright line approach which has been rejected consistently by higher appellate authorities including the Hon'ble jurisdictional Tribunal and the Hon'ble jurisdictional high court.
13. The Ld. AO/DRP has erred on facts and in law in making the addition of Rs. 3,75,000/- on account of disallowance of deduction claimed also 80G of the Act by wrongly interpreting section 800 of the Act.
14. The Ld. AO has erred on facts and law in initiating penalty proceedings u/s 70A(1) and 270A(8) of the Income Tax Act, 1961.
15. The Ld. AO has erred on facts and law in charging interest w/s 234A, 34B and 234C of the Income Tax Act, 1961.
16. The appellant raves for liberty to add fresh ground(s) of appeal and also to amend, alter, modify any of the ground(s) of appeal.”
Ground of appeal No.1 is general in nature and needs no adjudication.
In Ground of appeal No. 2 assessee has challenged the various additions/disallowance made on account of transfer price adjustment and donation and further challenged the income computed in the order passed u/s 143(1) of the Amway India Enterprises Private Limited vs. DCIT Act where the income was computed at Rs. 105,30,29,140/- as against returned income of Rs. 77,89,22,120/- and no reason was stated by the AO of such adjustment of Rs. 27,41,07,030/-.
6.1 Since separate grounds of appeal are taken for the additions made towards the transfer price adjustment and further for the disallowance made of the deduction claimed u/s 80G of the Act for donation given however, no separate ground of appeal is taken for the adjustment of Rs. 27,41,07,030/- made in the order passed u/s 143(1)(a) of the Act thus, this issue is decided as under.
6.2 From the perusal of the final order, it is seen that in the final computation of income, the AO has taken the income as determined u/s 143(1) and then proceeded to make further addition / disallowance and arrived at the assessed income at Rs. 275,65,46,220/-. Since this adjustment of Rs. 27,41,07,030/- is made in the order passed u/s143(1) of the Act for which separate appeal is to be filed, therefore, we cannot decide this issue in the present appeal. It is pointed out by the ld. AR that separate appeal is filed against the order passed u/s 143(1) of the Act which is pending before the ld. CIT(A) thus we do not adjudicate this issue and accordingly, this ground of appeal is dismissed.
In grounds of appeal No. 3 to 12, the assessee has challenged the inclusion of commission paid to local distributors in AMP expenses for working out the adjustment of Rs. 170,31,42,080/- on account of AMP adjustments and not followed the settled history of the assessee of preceding assessment years.
We have heard the rival submissions and perused the material available on record. At the outset, it is seen that in the immediately preceding assessment year i.e. in AY 2020-21, identical issue was come for our consideration in ITA No.
Amway India Enterprises Private Limited vs. DCIT 4181/Del/2024 wherein vide order dt. 23.04.2025, after considering the submission made under identical circumstances, the additions made towards AMP adjustments of identical nature were deleted by making following observations in paras 11 to 15 of the order: 11. We have heard the rival submissions and perused the material available on record. In the instant case, from the perusal of the chart given by the assessee, it is seen that in preceding assessment years except in one year i.e. AY 2015-16 either no adjustment was made on account of AMP expense or while making the adjustment on account of AMP expense the commission paid to distributors was not considered as part of the AMP expenses. It is for the first time, the TPO and Hon’ble DRP has uphold the inclusion of commission paid to the local distributors as part of AMP expenses for making adjustments. The Hon’ble DRP while deleting the proposed adjustment by TPO in AMP adjustments in AY 2015- 16 where such commission paid to distributors on the sales achieved by them was excluded for the purpose of AMP adjustment by observing in para 2.3.9.1 as under: “2.3.9.1 In this view of the matter, on consideration of the submissions of the assessee and observations of the TPO himself/herself in preceding assessment years, we are of the considered view that assessee being engaged in the direct sale model of business wherein commission and incentive/retail margin is paid to the distributors, only linked to sales, in the business model of the assessee, and similar cases, commission and incentives paid to distributors can at no stretch of imagination be considered as advertisement, marketing and promotion expenses. If that be so, in any business of distribution or trading the expenses incurred for creating distributors/dealers, and for enhancing distributor/dealer base or for incentivizing the distributor/dealers for increasing sales in the form of payment of commission/incentives or for rewarding good distributor/dealers would constitute AMP expenses. In view of this conclusion of ours, the TPO's conclusion in this year that the commission agents are actually the marketing agents who are responsible for selling as well as popularizing the products of the brand "AMWAY", and that commission "are earned through firstly, increasing sales and secondly, through introducing new commission agents" and that "since a portion of this commission is in fact for introduction of new commission agents, it can be seen that a part of this commission is actually delinked from direct sales and contributing instead to brand awareness and market penetration only is not appropriate in the business model of the assessee, and therefore such conclusion of the TPO cannot be approved. As such, in our considered view the expenses on account of commission paid for creating distributors/dealers, and for enhancing distributor/dealer base or for incentivizing the distributor/dealers for increasing sales, and expenses for Amway India Enterprises Private Limited vs. DCIT similar purposes booked under 'seminars', 'literature, postage and others', 'distributor training', cannot be considered as AMP expenses which could be benchmarked as an international transaction.”
It is further seen that the assessee in the business of selling of consumer products through MLM where persons were appointed as direct sellers who create a chain below them where they further appoint direct sellers and all the individuals coming in such chain were benefited by way of commission on the sales achieved through them. This is a unique kind of marketing technique where payment of commission is fully dependent upon the sales achieved and has nothing to do with the product building exercise.
13. With regard to the application of bright line test (though no addition is made), the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd. Vs. CIT 381 ITR 117 (Delhi) and further the Hon’ble Delhi High Court in the case of CIT (LTU) v. Whirlpool of India Ltd., 381 ITR 154 held that bright line test is not a valid method for determination of existence of international transaction or determination of arm’s length price. Therefore, in the instant case, even otherwise though no addition has been made of bright line test on protective basis, however, by following the judgements of Hon’ble Jurisdictional High Court in above cases, we hold that bright line test cannot be applied.
In the case of the assessee itself in Assessment Year 2016-17, the TP Adjustment were made on account of AMP expenses (though commission was not included in the same) where the Co-ordinate Bench of the ITAT, Delhi in vide order dated 30.03.2022 by following the rule of consistency has deleted the TP Adjustment made by AO by observing in para 18 of the order as under: “18. From the various details furnished by the assessee in the paper book, we find no adjustment on account of AMP was made for AY 2009-10 although the assessee had same business model and the facts and circumstances of the matter are the same. The copy of the order of the TPO for AY 2009-10 is placed at page 530 of the paper book. Similarly, the perusal of the TPO order for AY 2010-11, copy of which is placed at paper book page 528, shows that no such addition on account of AMP expenses has been made. Similar is the case for AY 2011-12 and 2012-13 and the orders of the TPO are placed at pages 524 to 527 of the paper book. Similarly, perusal of the paper book page 532 shows that for AY 2013-14, an adjustment of Rs.512,47,66,707/- was proposed in the show cause notice dated 21.10.2016 on account of AMP adjustment, but, after considering the reply of the assessee and the facts and circumstances of the matter which are identical to the facts and circumstances for the year under consideration, no addition was made in the order passed by the TPO, copy of which is placed at pages 536 to 556 of the paper book. Similarly, for AY 2014-15 also no adjustment was made after considering Amway India Enterprises Private Limited vs. DCIT the submissions of the assessee. We find from the various details furnished by the assessee including the TPO appeal effect order for AY 2015-16, copy of which is placed at page 497 of the paper book, that adjustment of Rs.216,39,19,833/- was made on protective basis and adjustment of Rs.226,12,38,588/- was made on substantive basis by the TPO, copy of which is placed at page 279 of the paper book. We find, after the various submissions made by the assessee, the DRP considered the entire facts and circumstances of the matter in exhaustive details and deleted both substantive and protective addition. Copy of the DRP order is placed at page 431 of the paper book. The TPO has already passed the order giving effect to the order of the DRP and, in the final order passed by the TPO, no adjustment on account of AMP has been made, the details of which have already been reproduced in the preceding paragraph. Therefore, in view of the rule of consistency from AY 2009-10 to 2015-16 and considering the fact that the assessee had the same business model and the facts and circumstances of the matter for the impugned assessment year are the same, we set aside the order of the AO/TPO/DRP and direct the AO/TPO to delete the addition.”
In view of the fact that the commission paid was not AMP expenses and further looking to the past history of the assessee and by following the principle of the consistency and by respectfully following the aforesaid judgements of various Courts on this principle, we hold that AMP expenses including the amount of commission paid to distributors at Rs. 439.08 crores are not international transaction. Accordingly, we set aside the order of TPO/AO/DRP and delete the addition made at Rs.131,72,21,192/- made by TPO/AO toward AMP adjustment. The Ground of appeal
No.1 of the assessee is allowed.
9. Admittedly, the facts and the circumstances are identical and the AO/TPO has also made the similar observations as were made in the preceding assessment year. Before us, the ld. AR also placed a chart as Annexure-A alongwith the written submission wherein a comparison of observations by TPO in its order for AY 2020- 21 and AY 2021-22 is made. The same is reproduced as under: Annexure-A Comparison of TPO order for AY 2020-21 & 2021-22 is as below; Page/Page No. AY 2020-21 Para/Page No. AY 2021-22 1-3 Capture basic facts about 1-3 Captures basic facts TP Study about TP Study 3-12 Quotes from show-cause 3-12 Quotes from copy paste notice dated 22.07.2023 show cause notice dated Amway India Enterprises Private Limited vs. DCIT wherein alleged AE related 09.10.2023 wherein AMP of Rs.503.68 crores alleged AE related AMP including commission of of Rs.628.82 crores Rs.439.08 crores were taken including commission of as base figure for AMP Rs.587.48 crores were adjustment. taken as base figure for AMP adjustment. 12-14 AMP is an international 12-14 AMP is an international transaction in this case transaction in this case 15-16 Quoted section 92B and held Copy Paste quoted AMP expenditure including section 92B and held commission is International AMP expenditure Transaction; including commission is International “It is evident from the above Transaction; extracted provision that arrangement between two "It is evident from the AEs for allocation or above extracted provision apportionment of or any that arrangement contribution to, any cost or between two AES for expense incurred or to be allocation or any incurred in connection with apportionment of or a benefit, service or facility contribution to, any cost provided or to be provided to or expense incurred or to any one or more of such be incurred in connection enterprises is an with a benefit, service or international transaction. In facility provided or to be this case, admittedly, the provided to any one or taxpayer has incurred the more of such enterprises cost of AMP for the benefits is an international of its AC as discussed in the transaction. In this case, order; accordingly, AMP & admittedly, the taxpayer Commission expenditure of has incurred the cost of Rs.503,68,00,000/- is AMP for the benefits of its international transaction u/s AE as discussed in the 92B(1) read with clause (v) order; accordingly, AMP of section 92F. & Commission expenditure of Rs.628,82,00,000/- is international transaction u/s 92B(1) read with clause (v) of section 92F.
Amway India Enterprises Private Limited vs. DCIT 16 6.14 The assessee has used 6.14 The assessee has TNMM to benchmark its used TNMM to international transactions. benchmark its The undersigned is in international The concurrence with the transactions. undersigned assessee on the most is in concurrence with the appropriate method. assessee on the most appropriate method. 6.15 However, given the AMP function of the 6.15 However, given the assessee, which may be AMP function of the absent in other assessee, which may be comparables, there needs to absent in other be an AMP intensity comparables, there needs adjustment. to be an AMP intensity adjustment made to the 6.16 It is to be noted that the margins of the intensity adjustment finds comparable companies. approval in the law as well as judicial decisions. 6.16 It is to be noted that the intensity adjustment finds approval in the law as well as judicial decisions. 17-19 TPO unilaterally calculated TPO unilaterally the operating margins and calculated the operating chose the final comparables. margins and chose the final comparables. 19-36 TPO unilaterally calculated TPO unilaterally adjusted weightage average calculated adjusted OP/OR for each selected weightage average comparabels by what he OP/OR for each selected called to be AMP Intensity comparables by what he approach which has no basis called to be AMP in Transfer Pricing Intensity approach which Regulation has no basis in Transfer Pricing Regulation. 37-38 TPO unilaterally worked out 30-31 TPO unilaterally worked the Median and made the out the Median and made adjustment of the adjustment of Rs.1.31,72,21,192/- Rs.170,31,42,080/-.
Amway India Enterprises Private Limited vs. DCIT 9.1 From the perusal of the above chart we find that the assessee has successfully demonstrated that the TPO in both the years have made similar observations for making AMP adjustments. This further established that the facts in both the assessment years are identical. Thus, by following the principle of consistency, the addition made in the present year towards the AMP adjustment of Rs. 170,31,42,080/- is hereby deleted. The grounds of appeal Nos. 3 to 12 are thus allowed.
Next ground of appeal No. 13 is in relation to the disallowance of deduction of Rs. 3,75,000/- claimed u/s 80G of the Act.
11. Heard the parties and perused the material available on records. At the outset it is seen that identical issue was come before us in assessee’s own case in immediately preceding assessment year wherein after considering the facts, under identical circumstances we allowed the deductions claimed u/s 80G of the Act to the assessee. The relevant observations as contained in paras 19-21 of the order in are reproduced as under: 19. We have heard the rival submissions. The dispute is whether the same can be allowed as deduction u/s 80G when it is part of CSR expenses. Section 80G(1) provides that in computing the total income of the assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) provide a list where deduction is allowed to the assessee for making donations. Section 80G falls in Chapter VIA of the Act, which comes after the computation of gross total income under various heads of income which interalia includes the disallowance of CSR expenses as per Explanation 2 of section 37(1). Thus, both section 37(1) and section 80G has different field to play. Further according to section 80G(2)(a)(iiihk) and section 80G(2)(a)(iiihl), any contributions made towards Swacha Bharat Kosh and Clean Ganga Fund, is not allowable as deduction under section 80G if the same is claimed as CSR expenses. However, section 80G(2)(a) provides deduction for ‘any sums paid by the assessee in the previous year as donations’, thus except the donations paid to the Swachh Bharat Kosh and Clean Ganga Fund, all other donation made to the eligible institutions / funds as per section80G(2) are eligible for deduction u/s 80G of Amway India Enterprises Private Limited vs. DCIT the Act. The coordinate bench of ITAT Bangalore in case of First American (India) Pvt. Ltd v. ACIT in vide its order dt. 29.04.2020 has allowed the deduction under Section 80G by making following observations: “15. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", whereas monies spent under section 80G are claimed while computing "Total Taxable income" in the hands of assessee. The point of claim under these provisions are different.
Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession".
For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments (keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfilment of necessary conditions therein.
We therefore do not agree with arguments advanced by Ld. Sr. DR.
In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature.
On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We Amway India Enterprises Private Limited vs. DCIT also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.” 20. The coordinate bench of Tribunal, Delhi bench in following case has also expressed the same view: - - Honda Motorcycle and Scooter India Pvt Ltd vs ACIT in (ITAT, Delhi ) - Teradata India Pvt Ltd vs. DCIT in ITA 1248/Del/2022 (ITAT, Delhi) 21. As per the above discussion and also by respectfully following the aforesaid judgements of various benches of Tribunal, we are of the considered view that Explanation 2 inserted in Section 37 to deny the deduction for CSR expenses incurred by companies as normal business expenditure and the same applies only to the extent of computing business income under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction under any other provision or Chapter, to say donations made by a charitable trust registered under Section 80G and if the same denied merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature. Accordingly, we allow the deduction of Rs. 37.50 lacs as claimed by the assessee u/s 80G of the Act. This ground of appeal
of the assessee is allowed.
12. As observed above, there is no change in the facts and the allegations made by the AO for making disallowance as were made in the immediately preceding assessment year, thus by following the observations made in AY 2020-21 as reproduced above, we hereby direct the AO to allow the deduction u/s 80G of the Act of Rs. 3,75,000/- towards the donation paid. Thus, this ground of appeal of the assessee is allowed.
As a result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 20.11.2025.