2017 (5) TMI 1352 - AT - Income Tax

Tribunal sets aside assessment order, remands for fresh determination.

Perfetti Van Melle India Pvt. Ltd. Versus DCIT, Circle-3, Gurgaon.

Perfetti Van Melle India Pvt. Ltd. Versus DCIT, Circle-3, Gurgaon. - TMI Issues:1. Assessment of income by the AO and TPO2. Adjustment in relation to Advertising, Marketing & Promotion Expenses (AMP) using Bright Line Test3. Application of Bright Line Test for computing AMP adjustment4. Failure to apply Special Bench decision in entirety5. Treatment of AMP expenses as an 'international transaction'6. Failure to establish existence of understanding or arrangement for AMP spend7. Failure to consider TNMM for AMP expenditure adjustment8. Incorrect inclusion of issues from separate proceedings9. Initiation of penalty proceedings under section 271Analysis:1. The appeal was against the final assessment order passed by the AO u/s 143(3) read with section 144C for the assessment year 2009-10. The assessee, a private limited company engaged in manufacturing confectionary products, filed objections against the proposed transfer pricing adjustment. The Tribunal had previously set aside the matter to the file of the Assessing Officer/TPO to decide the arm's length price of AMP expenses in line with the LG Electronics case. The TPO recomputed the transfer pricing adjustment, leading to the final assessment order by the AO determining the total income at a higher amount.2. The grounds of appeal raised by the assessee included challenges to the assessment of income by the AO and TPO, particularly regarding the adjustment made on account of AMP expenses using the Bright Line Test. The appellant argued that the adjustment was contrary to legal decisions and bad in law. The application of the Bright Line Test for computing the AMP adjustment was also contested, citing decisions of the Delhi High Court that deemed it invalid.3. The failure to apply the Special Bench decision in its entirety was highlighted by the appellant, pointing out that certain factors were not considered, direct selling expenses were not excluded, and the gross profit margin was used incorrectly for computing the adjustment. The appellant argued that the authorities erred in not following the directions of the Tribunal while remanding the matter for a fresh determination.4. The treatment of AMP expenses as an 'international transaction' was disputed by the appellant, citing guidelines from various court cases that dealt with similar facts in the context of manufacturers. The appellant contended that there was a lack of evidence to establish an understanding or arrangement between the appellant and its associated enterprises regarding AMP spend in India.5. The failure to consider the Transactional Net Margin Method (TNMM) for AMP expenditure adjustment was raised as an issue by the appellant. It was argued that once the arm's length basis was satisfied using TNMM, no further adjustment for AMP expenditure was warranted in law. The appellant claimed that the authorities misinterpreted the decisions of the courts and tribunals in this regard.6. The appellant also challenged the inclusion of issues from separate proceedings under section 263, arguing that it resulted in duplicative and unlawful demands. Additionally, the initiation of penalty proceedings under section 271 was contested by the appellant on the grounds of factual and legal inaccuracies.7. The Tribunal, following its decision in the assessee's own case for a different assessment year, allowed the appeal for statistical purposes based on the directions given in that case. The appeal was allowed, and the assessment order was set aside, remanding the matter back to the TPO/AO for fresh determination in accordance with the Tribunal's observations and directions.