Tribunal Partially Grants Appeal, Directs Reassessment of Transfer Pricing Issues

L.G Electronics India Pvt. Ltd. Versus The A.C.I.T Circle -3 Noida

L.G Electronics India Pvt. Ltd. Versus The A.C.I.T Circle -3 Noida - TMI Issues Involved:
1. Transfer Pricing Adjustment for Advertisement, Marketing, and Sales Promotion (AMP) Expenses.
2. Transfer Pricing Adjustment for Royalty Payments.
3. Transfer Pricing Adjustment for Allocation of Asia Regional Head Quarters Expenses.
4. Transfer Pricing Adjustment for Export Commission.
5. Transfer Pricing Adjustment for Service Warranty Charges.
6. Treatment of Sales Tax Subsidy as Taxable Revenue Receipt.
7. Disallowance of Royalty Payment as Capital Expenditure.
8. Deduction under Section 80JJAA.
9. Charging of Interest under Sections 234B, 234C, and 234D.
10. Errors in Granting Tax Credits for Advance Tax, Self-Assessment Tax, and TDS.

Detailed Analysis:

1. Transfer Pricing Adjustment for AMP Expenses
- The Tribunal held that the Transfer Pricing Officer (TPO) had incorrectly applied the bright line test (BLT) to benchmark AMP expenses. The Delhi High Court in Sony Ericsson Mobile Communications India Pvt Ltd vs CIT had discarded the BLT. The Tribunal emphasized that the existence of an international transaction must be established de hors the BLT. The Tribunal found no tangible evidence from the Revenue to prove that the AMP expenses were for the brand building of the Associated Enterprise (AE). Consequently, the adjustment of Rs. 5,37,59,29,670/- was deleted.

2. Transfer Pricing Adjustment for Royalty Payments
- The Tribunal directed the TPO to determine the Arm’s Length Price (ALP) for royalty payments at 4.05% instead of the 3.5% previously determined. This was based on the Tribunal’s decision in the assessee’s own case for the assessment year 2008-09, where it was held that the royalty rate should be adjusted considering the perpetual nature of the license.

3. Transfer Pricing Adjustment for Allocation of Asia Regional Head Quarters Expenses
- The Tribunal found that the services provided by the Regional Head Quarters (RHQ) were beneficial and not duplicative or shareholder services. The ALP determined by the assessee’s third-party consultant was accepted. The adjustment of Rs. 23,14,22,194/- was deleted, following the Tribunal’s decision in the assessee’s own case for the assessment year 2008-09.

4. Transfer Pricing Adjustment for Export Commission
- The Tribunal restored the matter to the Assessing Officer (AO) to verify additional evidence provided by the assessee. This was in line with the Tribunal’s decision for the assessment year 2008-09, where similar additional evidence was considered.

5. Transfer Pricing Adjustment for Service Warranty Charges
- The Tribunal held that the assessee was not acting as a service provider to the AE but was seeking reimbursement for actual costs incurred. The TPO’s adjustment of Rs. 20,01,35,879/- was deleted. The Tribunal emphasized that pass-through costs should not include a markup and referred to the Delhi High Court’s decisions in Johnson Matthey India Private Limited and Li & Fung India Pvt. Ltd.

6. Treatment of Sales Tax Subsidy as Taxable Revenue Receipt
- The Tribunal followed its earlier decision and held that the sales tax subsidy received by the assessee was a trading receipt and not a capital receipt. The addition of Rs. 48,52,89,709/- was upheld.

7. Disallowance of Royalty Payment as Capital Expenditure
- The Tribunal directed the AO to treat the royalty payment of Rs. 97,71,71,875/- as revenue expenditure, following its decision in the assessee’s own case for the assessment year 2008-09.

8. Deduction under Section 80JJAA
- The Tribunal allowed the deduction under Section 80JJAA, stating that the amendment introduced by the Finance Act, 2018, which allows the benefit for new employees employed for less than the minimum period in the first year but meeting the criteria in the subsequent year, should be applied retrospectively.

9. Charging of Interest under Sections 234B, 234C, and 234D
- The Tribunal held that the levy of interest is mandatory and consequential. The AO was directed to charge interest as per the provisions of the law, with interest under Section 234C to be charged on the returned income.

10. Errors in Granting Tax Credits for Advance Tax, Self-Assessment Tax, and TDS
- The Tribunal directed the AO to verify and correct the tax credits for advance tax, self-assessment tax, and TDS after verifying the tax challans and TDS certificates.

Conclusion:
The appeal was partly allowed, with significant deletions of adjustments made by the TPO and directions for the AO to verify and correct certain aspects. The Tribunal’s decisions were largely based on precedents from the assessee’s own previous cases and relevant High Court judgments.