2017 (12) TMI 348 - AT - Income Tax

Tribunal orders deletion of transfer pricing adjustments in AMP expenses and intra-group services

The Tribunal partially allowed the appeal, ordering the deletion of additions based on transfer pricing adjustments in both AMP expenses and intra-group ... Transfer pricing adjustment in AMP expenses - Held that:- It is noticed that similar issue cropped up in the assessee’s appeals for preceding years. The Hon'ble jurisdictional High Court in the assessee’s own case for the assessment years 2006-07 to 2010-11 has held that there is no international transaction of AMP expenses and the resultant additions were deleted. DRP contention that the facts and circumstances of the instant year are different inasmuch as the assessee did only ‘distribution’ activity in the year under consideration as against the ‘manufacturing and distribution’ activities done for earlier years does not appear to be correct. It is apparent from the first page of the TPO’s order wherein he has recorded that: ‘the assessee is engaged in manufacturing and trading of soft contact lenses……….’. Similarly, the AO in the impugned order has also recorded in para 2 that the assessee is : ‘engaged in the business of manufacturing lense care solutions and trading of contact lenses and ophthalmic intra ocular lenses and surgical equipments.’ It is, therefore, palpable that the nature of activity carried out by the assessee during the instant year is similar to that done in the earlier years, being that of manufacturing and trading as well. In the absence of any difference in the factual position prevailing in the year under appeal vis-à-vis the earlier years and respectfully following the precedents, we order for the deletion of the addition. Addition on account of transfer pricing adjustment in intra group services - Held that:- Having heard both the sides and perused the relevant material on record, we find that similar issue was raised in the preceding years, albeit, the addition was made directly by the AO as a result of the order of the TPO and there was no enhancement. The assesee challenged it before the appellate authorities. The Hon'ble High court in the assessee’s own case for the preceding five years has decided such issue in favour of the assessee by deleting the additions. Following the view of the Hon'ble High Court, the Tribunal, for the assessment year 2011-12 has directed the deletion of similar addition. As the facts and circumstances of the issue for the year under consideration are mutatis mutandis similar to those of preceding years, respectfully following the precedents, we order for the deletion of addition. Issues:1. Addition of Rs. 33,11,21,660 on account of transfer pricing adjustment in AMP expenses.2. Addition of Rs. 15,15,98,787 on account of transfer pricing adjustment in intra group services.Issue 1: Addition of Rs. 33,11,21,660 on account of transfer pricing adjustment in AMP expenses:The appeal challenged the addition made by the Assessing Officer based on transfer pricing adjustment in advertising, marketing, and promotion (AMP) expenses. The Tribunal noted that similar issues had arisen in previous years, where the High Court ruled in favor of the assessee, leading to the deletion of such additions. The Tribunal observed that the nature of the assessee's activities remained consistent with previous years, involving manufacturing and trading. As there were no substantial differences in the factual position compared to earlier years, the Tribunal ordered the deletion of the addition following precedent.Issue 2: Addition of Rs. 15,15,98,787 on account of transfer pricing adjustment in intra group services:The dispute centered on the addition made by the Assessing Officer for transfer pricing adjustment in intra group services. The Transfer Pricing Officer (TPO) did not propose any adjustment initially, but the Dispute Resolution Panel (DRP) directed the TPO to conduct benchmarking analysis, resulting in the addition. The assessee contended that the DRP exceeded its jurisdiction by directing the addition. However, the Tribunal analyzed the relevant sections of the Income Tax Act and concluded that the DRP had the power to enhance variations proposed in the draft order, even if not raised by the assessee. The Tribunal upheld the deletion of the addition based on precedents and the similarity of circumstances to previous years.In conclusion, the Tribunal partially allowed the appeal, ordering the deletion of both additions based on transfer pricing adjustments. The judgment emphasized adherence to precedents, consistency in factual positions, and the statutory powers of the DRP in enhancing variations proposed in draft orders.