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Income Tax Appellate Tribunal, DELHI BENCH ‘I’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld.
CIT (Appeals)-6, Delhi dated 28.12.2018 pertaining to the assessment year 2014-15.
The grounds of appeal
taken by the assessee read as under :- “1. That on facts and in law the orders passed by the Assessing Officer [hereinafter referred as the "AO"] 1 Dispute Resolution Panel [hereinafter referred as the "DRP"] / Transfer Pricing Officer [hereinafter referred as the "TPO"] are bad in law and void ab-initio. ./2022
2. That on facts and in law the TPO/DRP erred in not appreciating that in absence of a "transaction" as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing marketing intangible, the TPO had no jurisdiction to propose an adjustment on account AMP expenses.
3. That the Transfer Pricing adjustment of Rs 23,03,65,898/- on account of Advertisement, Marketing and Sales Promotion (AMP) expenses being the aggregate of:
(i) Protective Adjustment Rs 11,18,03,968/- (ii) Substantive Adjustment Rs 11,85,61,930/- is bad in law, illegal and uncalled for both on facts and in law.
3.1 That on facts and in law the TPO 1 DRP erred in ignoring and not following the orders of Hon'ble ITAT and High Court in the appellants own case for the AYs 2007-08, 2008-09 and 2009-10 to 2015-16 duly placed on record.
3.2 That on facts and in law the TPO 1 DRP erred in disproving the benchmarking analysis adopted by the appellant without following the methodology and approach recognised under section 92C(3) of the Act.
4. That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding/observing that:
(i) Appellant had incurred AMP expenditure of Rs.9,56,91,630/- on promotion of proprietary marks and for development of marketing intangible for the benefit of AE.
(ii) AMP expenditure of Rs.9,56,91,630/- incurred by the assessee is an "International Transaction" u/s 92B of the Act.
(iii) Expenditure of Rs.8,26,57,188/- incurred by the assessee on payment of incentives to subscribers is in the nature of AMP.
(iv) By incurring excess 1 extraordinary AMP expense the appellant had rendered intra group services to its AE.
(v) AE is directly benefited by any expenditure incurred by assessee on AMP
(vi) AE directs the AMP strategy and the expenditure incurred by appellant in India.
(vii) Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the Distribution Agreement.
(ix) Appellant has failed to show that for excessive AMP expenditure it was compensated by the AE through a set-off.
(x) Margins earned by the appellant (applying TNMM) is not significantly more than the margins of the comparable companies.
5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transactions of AMP were "closely linked" with the main activity carried on by the appellant and hence it cannot be segregated and bench marked on a stand-alone basis.
5.1 That on facts and in law the AOITPO/DRP erred in holding that there is no suitable comparable available for benchmarking the alleged "international transaction" of incurring excessive AMP expense by applying the aggregated approach.
5.2 That on facts and in law the DRP erred in holding that appellant has not been able to substantiate benchmarking of alleged AMP "transaction" following an aggregate approach.
That on facts and in law the AOITPO/DRP erred in making 1 upholding Protective TP Adjustment on account of AMP expenses invoking "Bright Line Method".
7. That on facts and in law the AOITPO/DRP erred in making 1 upholding Substantive TP Adjustment on account of AMP expenses invoking "Cost Plus Method".
8. That without prejudice, while benchmarking alleged AMP as a separate "transaction" the TPO has erred in applying a mark-up of 23.90% while computing adjustment on a substantive basis, and
That on facts and in law the AO/DRP erred in making/upholding disallowance of Rs.3,52,66,624/- u/s 14A of the Act.
9.1 That on facts and in law the AOIDRP erred in not appreciating that provisions of section 14A are not applicable as no exempt income was earned by the appellant during the year under consideration.
That on facts and in law while computing final assessable total income of Rs.106,19,78,110/- the AO has erred in making following errors which tantamount to "mistakes apparent from record":-
(a) Making disallowance on account of Provision for Gratuity of Rs 93,42,368/- overlooking the facts that the said amount had already been added back in Return of Income (ROI).
(b) Not excluding rental income of Rs 8,82,0001- from the Schedule BP (when the said income was already included in Schedule HP). (c) Making a disallowance on account of delay on deposit of PF of Rs 6,81,568/- and ESI of Rs 15,042/- without appreciating that PF/ESI were deposited by the appellant before due date of filling of ROI. (d) Erroneously charging interest u/s 115P when there was no delay in deposit of Dividend Distribution Tax. (e) Erroneously starting computation of total income with a figure of Rs.79,63,45,588/- when the correct total income determined by CPC Bangalore in intimation u/s 143(1) dated 30- 03-2019 was Rs.78,80,79,580/-. (f) Inadvertently allowing deductions under Chapter VI at a figure of Rs.4,50,000/- when the correct amount ought to be Rs.87,16,000/-. 10.1 That on facts and in law the AO has erred in not disposing off petitions u/s 154 dated 22nd February 2022 and 21st June 2019.”
Brief facts of the case are that assessee is engaged in the business of providing data processing and related services to its AE's. Assessee is responsible for providing software access to the subscribers of Amadeus Products and Computer Database within the Indian sub-continent. The territory of India includes India, Bangladesh and Nepal. The main activity of the assessee is to provide connectivity to host system by creation/modification/upgradation of computer programmes online.
Assessee has a Data Processing Centre, which provides the above services to the associated enterprise. Undisputedly, the main Data Processing and Subsidiary Distribution Activities of the assessee have TPO.
Apropos issue of AMP Adjustment : As noted above, TPO has accepted the benchmarking of declared international transactions, however, he is of the opinion that there was a transaction between assessee and its AE for promotion of Amadeus Brand in India for which assessee incurred excessive advertisement, marketing and promotion expense. TPO has held that this expenditure was on a higher side. He was of the opinion that the advertisement, marketing and promotion expenditure incurred by the assessee had resulted in creation of marketing intangibles for which it should have been suitably compensated by the associated enterprise to the extent of excessive advertisement, marketing and promotion expenditure incurred vis-a-vis comparable companies.
Details of AMP expenses noted by TPO are as under :-
Particulars Amount (Rs.) Advertisement & Promotion 1,30,34,442 Incentives Paid 8,26,57,188 Total 9,56,91,630 After holding that there exist a transaction for AMP Brand Promotion, TPO proposed an adjustment to total income as under :-
(i) Protective Adjustment applying Bright Line Test (BLT) as under :-
./2022 Particulars Amount (Rs.) Value of Gross Sales 138,95,55,834 AMP/Sales of the Comparable 0.39% Amount that represents Bright Line 54,54,368 Expenditure on AMP by assessee 9,56,91,630 Expenditure in excess of Bright Line 9,02,37,262 Markup (23.90%) 2,15,66,706 Adjustment 11,18,03,968
(ii) Since issue relating to applicability of BLT Method has been decided against the Revenue by Hon’ble Delhi High Court in case of Sony Mobile reported in 374 ITR 18 (Del), the TPO has also made a Substantive Adjustment applying Cost Plus
Method as under :-
Particulars Amount (Rs.) Total Expenditure on AMP by the 9,56,91,630 taxpayer Markup (23.90%) 2,28,70,300 Adjustment 11,85,61,930
Apropos issue of jurisdictional raised in Grounds No.2, 3.1 & 4(ii):
In this regard, ld. Counsel of the assessee has made following submissions :-
“ There is no "International Transaction" between assessee and its AE for Brand Promotion. It is submitted that the TPO has alleged that there exists an "international transaction" between assessee and its AE for brand promotion. In order to draw such conclusions, TPO has extensively relied upon extracts of Distributorship Agreement dated 01.10.2004 between assessee and its AE. He further relies upon extracts of Loyalty Agreements ./2022 executed by the assessee with Travel Agents in India. It is submitted that DRP has upheld the conclusions recorded by TPO on existence of an "international transaction" . It is submitted that the Jurisdictional Issue has been decided in favour of the assessee by Hon'ble ITAT in earlier years and decision of ITAT has also been upheld by the Hon'ble Delhi High Court Issue as to whether there exists a "transaction" for brand promotion in the instant case is now settled by appellate orders passed in case of assessee for earlier assessment years. Reference in this regard is invited to the decision of ITAT in for AY 2009-10 reported in 52 ITR(T) 83(Del). ITAT after considering the facts of the case has held that in absence of a "transaction" for brand promotion between assessee and its AE, no TP adjustment for alleged AMP expenses can be made. ITAT in AY 2009-10 has held as under :-
"Considering the material facts like the absence of an agreement, arrangement or understanding between the appellant and ifs associated enterprise for sharing the advertisement, marketing and promotion expenses or for incurring the advertisement, marketing and promotion expenses for the sole benefit of the associated enterprise, payments made by the appellant under the head "advertisement, marketing and promotion" to the domestic parties cannot be termed as an "international transaction" specifically when the learned Transfer Pricing Officer has not been able to prove that the expenses incurred were not for the business carried out by the appellant in India."
Ld. Counsel of the assessee submitted that since the jurisdictional issue was decided in favor of assessee by the ITAT, ITAT held that other grounds of appeal have become infructuous.
10 has been upheld by Hon'ble High Court vide order dated 26.04.2017 in ITA No.154/2017. The above decisions have thereafter also been followed by ITAT in subsequent years.
Ld. DR did not dispute the above submissions of ld. Counsel of the assessee.
Upon hearing both the parties and perusing the records, we find that the issue is covered in favour of the assessee by the aforesaid ITAT order and Hon’ble High Court order. Hence, we respectfully follow the same and decide the issue in favour of the assessee. Since the jurisdictional issue has been decided in favour of the assessee, other grounds of appeal have become infructuous.
9. Apropos Ground No.9 : This issue relates to disallwoacne of Rs.3,52,66,624/- under section 14A of the Act when assessee has earned no exempt income. Upon hearing both the sides and perusing the records, we find that this issue is squarely covered in favour of the assessee by the deision of Hon’ble jurisdictional High Court in the case of Cheminvest Ltd. vs. CIT - (2015) 378 ITR 33 (Delhi) and CIT vs. Holcim India (P) Ltd. in ITA No.486/2014. Accordingly, this issue is decided in favour of the assessee. justice, this issue needs to be remitted to the file of AO to decide as per law. We order accordingly. 9. In the result, assessee’s appeal stands partly allowed as above. Order pronounced in the open court on this 24th day of August, 2022.