Tribunal grants relief by deleting AMP and Sundry Creditors adjustments, dismisses interest and penalty grounds

The Tribunal partially allowed the appeal, directing the deletion of the Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses and the Disallowance Related to Sundry Creditors. The grounds regarding interest under Sections 234A, 234B, and 234C were dismissed as consequential, and the ground concerning penalty under Section 271(1)(c) was dismissed as premature. This decision provided substantial relief to the assessee.

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Issues Involved:
1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses.
2. Disallowance related to sundry creditors.

Detailed Analysis:

1. Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses:

The central issue revolves around the AMP adjustment of Rs. 68,74,84,700/-. The assessee contested this adjustment, arguing that it was incorrect given the settled position in its favor in previous years. The assessee highlighted that no adjustments were made for AMP expenses from AY 2009-10 to 2015-16 despite having the same business model and circumstances. The TPO, however, rejected the Transactional Net Margin Method (TNMM) adopted by the assessee, favoring the Cost Plus Method (CPM) instead, arguing that AMP expenses promoted the brand of the foreign AE and developed marketing intangibles for the AE in India.

The TPO’s reliance on the DRP’s confirmation for AY 2015-16 was factually incorrect, as no adjustment was made on account of AMP expenses after the DRP’s order. The Tribunal found merit in the assessee’s argument, emphasizing the rule of consistency and the identical nature of the business model and circumstances over the years. The Tribunal directed the AO/TPO to delete the AMP adjustment, citing the absence of such adjustments in previous years and the same business model.

2. Disallowance Related to Sundry Creditors:

The second issue pertained to the addition of Rs. 26,72,67,895/- on account of sundry creditors. During the assessment proceedings, the AO noted a significant increase in sundry creditors and asked the assessee to furnish detailed explanations. The assessee provided partial details, explaining the increase due to royalty payable to the AE and other payables. The AO, unsatisfied with the explanation for the remaining amount, invoked Section 68 of the Income-tax Act, 1961, adding the unexplained amount to the total income.

The DRP upheld the AO’s action, despite the assessee’s detailed submissions and repeated reminders to the AO for a remand report. The Tribunal found the AO’s action unjustified, noting the inadequate time given for the assessee’s response and the lack of further opportunity for rebuttal. The Tribunal emphasized that Section 68 could not be applied to sundry creditors and highlighted the consistent nature of the assessee’s business model. The Tribunal directed the AO to delete the addition, citing the detailed submissions made by the assessee and the absence of such disallowances in subsequent assessment years.

Conclusion:

The Tribunal allowed the appeal partly, directing the deletion of both the AMP adjustment and the addition on account of sundry creditors. The grounds relating to interest under Sections 234A, 234B, and 234C were dismissed as consequential, and the ground relating to penalty under Section 271(1)(c) was dismissed as premature. The appeal was thus partly allowed, providing significant relief to the assessee.

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