Tribunal remands transfer pricing issues, upholds ad expenses, allows forex loss deduction. Notional interest on salary advance to be verified.

The appeal filed by the assessee was partly allowed. The Tribunal remanded specific transfer pricing matters back for de novo consideration due to improper aggregation and benchmarking methods. The Tribunal upheld the capitalization of certain advertisement and sales promotion expenditures. It allowed the deduction for foreign exchange loss as claimed by the assessee and directed the AO to verify the disallowed notional interest on a salary advance. Other corporate tax matters were dismissed as not pressed. Consequential grounds did not require adjudication.

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Issues Involved:
1. Assessment of Total Income
2. Validity of Final Assessment Order
3. Transfer Pricing Matters
4. Advertisement and Sales Promotion Expenditure
5. Foreign Exchange Loss Disallowance
6. Disallowance of Notional Interest on Salary Advance
7. Other Corporate Tax Matters
8. Consequential Grounds
9. Grounds Not Pressed

Issue-wise Detailed Analysis:

1. Assessment of Total Income:
The learned AO assessed the total income at Rs. 59,21,92,914 against the returned income of Rs. 54,48,429 by the appellant.

2. Validity of Final Assessment Order:
The appellant argued that the final assessment order issued under section 143(3) dated 28 January 2016, pursuant to DRP directions under section 144C, is time-barred and invalid in law. However, this ground was not pressed.

3. Transfer Pricing Matters:
- Entity Level Benchmarking (Grounds 4, 6, 7, 8, 9, 10, 11):
The learned TPO aggregated all transactions under TNMM at the entity level, rejecting the RPM method applied by the assessee for benchmarking the import of finished goods for resale. The Tribunal noted that transactions between the assessee and AE were aggregated without basis and benchmarking was considered at the entity level without segregating non-AE transactions, which is a requirement under section 92B of the Act. The issue was remanded back to the Ld.AO/TPO for de novo consideration, directing the TPO to apply the appropriate method as per section 92 r.w. Rule 10A of the Act.

- Intra Group Services (Grounds 9, 10, 11):
The assessee benchmarked intra-group services separately, which the TPO aggregated at the entity level. The Tribunal directed the TPO to reconsider the transactions and apply the appropriate method, allowing the assessee to file requisite details to establish the need to analyze the transaction independently.

4. Advertisement and Sales Promotion Expenditure (Grounds 13, 14):
The AO treated certain advertisement and sales promotion expenditures as capital in nature. The Tribunal upheld the AO's view, noting that the expenditures were in the nature of advertising/marketing tools resulting in brand-building, which creates an enduring benefit of brand loyalty over a long period. The Tribunal directed the AO to capitalize the expenditure and provide appropriate depreciation.

5. Foreign Exchange Loss Disallowance (Grounds 15, 16):
The assessee restated outstanding trade receivables and payables as per Accounting Standard-11, resulting in a foreign exchange loss. The Tribunal, following the Supreme Court's decision in CIT(A) Vs. Woodward Governor, held that the loss suffered in respect of a revenue liability due to exchange rate fluctuation is an allowable expenditure under section 37(1). The Tribunal directed the AO to allow the deduction as claimed by the assessee.

6. Disallowance of Notional Interest on Salary Advance (Grounds 18, 19):
The AO disallowed notional interest on a salary advance given to an employee, considering it lacked business expediency. The Tribunal directed the AO to verify the assessee's submission that the salary advance was taxed as a perquisite in the employee's hands and consider it in accordance with the law.

7. Other Corporate Tax Matters:
- Grounds 5, 12, 17, 20, 21, 22:
These grounds were not pressed by the appellant and were dismissed as not pressed.

8. Consequential Grounds (Grounds 23, 24):
These grounds were consequential in nature and did not require adjudication.

9. Grounds Not Pressed:
The appellant did not press Grounds 5, 12, 17, 20, 21, 22, and these were dismissed as not pressed.

Conclusion:
The appeal filed by the assessee was partly allowed, with specific issues remanded back for de novo consideration and others upheld or dismissed as per the detailed analysis above. The order was pronounced in open court on 30th May 2022.

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