2017 (2) TMI 1388 - AT - Income Tax

ITAT Decision: Assessee's Appeal Partly Allowed, Revenue's Dismissed. Transfer Pricing Additions Set Aside.

Swarovski India Private Limited Versus ACIT, Circle-7 (1), New Delhi.

The ITAT partly allowed the appeal of the assessee and dismissed the appeal of the Revenue. Regarding Transfer Pricing Additions, the ITAT set aside the ... TP addition on Import of crystal and crystal components - MAM selection - Held that:- It is noticed that the AO passed the order for the current year by mainly relying on the view taken by him for the A.Y. 2004-05. The ld. CIT(A) has also passed a combined order and there is no separate discussion for the A.Y. 2005-06. The appeal for the A.Y. 2004-05 was argued simultaneously and the submissions made for such earlier year were adopted by both the sides for the instant year as well. We have passed a separate order for the A.Y. 2004-05 in which rejection of the CUP method by the authorities below has been upheld and further direction has been given to the AO/TPO for a fresh determination of the ALP of this transaction, firstly, by considering the application of RPM and if, due to one reason or the other, the same cannot be applied, then, the TNMM. TP addition on AMP Expenses - Held that:- As relying on SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (NOW KNOWN AS SONY INDIA LIMITED) & OTHERS VERSUS COMMISSIONER OF INCOME TAX – III [2015 (3) TMI 580 - DELHI 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 matter is restored to the file of TPO/AO for a 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 would determine the ALP of such an international transaction. Addition in respect of Provision of doubtful debts - AO did not allow deduction for this sum as it was a provision and not an actual write off - Held that:- Amount of provision is not deductible. Actual amount of write off has to be allowed as deduction u/s 36(1)(vii). Reversal of provision should not lead to taxable income. However, deduction allowed in respect of provision for doubtful debts for the A.Y. 2003-04 should be taken into consideration while allowing deduction on actual write off or reversal of provisions to the relevant extent so that no double deduction gets allowed. Disallowance of advertisement and publicity expenses - Held that:- Following the view taken in our order for the A.Y. 2004-05, we hold that the entire amount of advertisement and publicity expenses should be allowed as deduction in the year of incurring itself. It is however, made clear no further deduction for 2/3rd of the total expenditure for the earlier years be granted as the same will lead to double deduction. If such a deduction has already been allowed, then the same should be reversed to that extent. This ground of the Revenue is not allowed. Depreciation on computer peripherals at 60% - Held that:- The Hon’ble Delhi High Court in the case of BSES Yamuna Powers Ltd.(2010 (8) TMI 58 - DELHI HIGH COURT), has held that depreciation on computer peripherals should be allowed at 60%. We, therefore, uphold the view taken by the ld. CIT(A) on this issue. This ground is not allowed. Issues involved:I. Transfer Pricing AdditionsA. TP addition on Import of crystal and crystal componentsB. TP addition on AMP ExpensesII. Non-Transfer Pricing AdditionsDetailed Analysis:I. Transfer Pricing AdditionsA. TP addition on Import of crystal and crystal components:The dispute arose regarding the transfer pricing adjustment on the import of crystal and crystal components. The assessee argued for the application of the Comparable Uncontrolled Price (CUP) method to demonstrate that the international transaction was at arm's length price (ALP). However, the Transfer Pricing Officer (TPO) applied the Transactional Net Margin Method (TNMM) and calculated a transfer pricing adjustment. The CIT(A) upheld the TNMM method as the most appropriate, resulting in the restoration of the transfer pricing adjustment. The ITAT set aside the order and remitted the matter to the TPO for a fresh determination in line with the directions given for the previous assessment year.B. TP addition on AMP Expenses:The issue revolved around the transfer pricing analysis of advertisement, marketing, and promotion (AMP) expenses. The CIT(A) made a transfer pricing adjustment on AMP expenses based on the bright-line test. However, considering recent judicial precedents, the ITAT set aside the order and directed a fresh determination by the TPO/AO to ascertain whether AMP expenses constituted an international transaction. The ITAT emphasized following the judgments of the Delhi High Court on similar matters.II. Non-Transfer Pricing Additions:The first issue under non-transfer pricing additions was the confirmation of the addition for provision of doubtful debts. The ITAT upheld that the provision was not deductible, and only the actual write-off amount could be allowed as a deduction. The second issue involved the deletion of an addition on account of disallowance of advertisement and publicity expenses, where the ITAT held that the entire amount should be allowed as a deduction in the year of incurring itself. The final issue was the allowing of depreciation on computer peripherals at 60%, which was supported by the ITAT based on a judgment of the jurisdictional High Court.In conclusion, the ITAT partly allowed the appeal of the assessee and dismissed the appeal of the Revenue, providing detailed reasoning and directions for each issue addressed in the judgment.