2018 (4) TMI 503 - AT - Income Tax

Tribunal decision: adjustments deleted, lease rentals allowed, fresh adjudication on depreciation, TDS credit, and Arm's Length Price reconsideration.

M/s Philips India Ltd. (formerly Philips Electronics India Ltd.) Versus ACIT, Circle-12 (2), Kolkata

The Tribunal partly allowed the appeal, deleting adjustments for Management Support Services and Advertisement and Marketing Promotion expenses, allowing ... Determination of Arm’s Length Price (ALP) for Management Support Services - assessee benchmarked the Intra Group Services transactions by using the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM)- Held that:- There is no change in the facts and circumstances during the year under appeal with regard to MSSA when compared to that in the earlier years and hence respectfully following the judicial precedents relied upon hereinabove, we hold that the determination of ALP for Management Support Services at Rs NIL is unwarranted and accordingly the upward adjustment made by the ld TPO in the sum of ₹ 300,40,09,360/- is deleted. - Decided in favour of assessee Expenses towards advertisement and marketing (AMP) in each of its business segments - Held that:- We find that since the assessee is a manufacturer cum distributor as accepted by the lower authorities, the decision rendered in Maruti Suzuki [2015 (12) TMI 634 - DELHI HIGH COURT] would be applicable to the assessee’s case, since the contention of the ld DR that assessee is only distributor, is not emanating from the records of the lower authorities. Respectfully following the same, the upward adjustment made by the ld TPO and upheld by the ld DRP is hereby directed to be deleted. Comparable selection criteria - Held that:- The assessee is a limited risk software service provider, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Lease rental paid for motor car taken on finance lease - Held that:- We find that the issue under dispute is covered by the decision of the Hon’ble Supreme Court in the case of ICDS Ltd [2013 (1) TMI 344 - SUPREME COURT ] in favour of the assessee Depreciation on moulds - @ 30% OR 15% - Held that:- As AR stated that the moulds were owned by the assessee and used for the purpose of its business. Further, the moulds were exclusively used in the plastic factory by the job workers / co-makers to whom moulds were given by the assessee to be used in the plastic factory, under its control and supervision and prayed that depreciation @ 30% would be eligible on the said moulds. We find that this issue has been considered by this tribunal in assessee’s own case for the Asst Year 2011-12 [2017 (12) TMI 1117 - ITAT KOLKATA] we restore this matter to the file of the ld AO for fresh adjudication in accordance with law. Deduction u/s 80G - Held that:- Claim was duly granted by the ld AO in the final order passed by him u/s 143(3) read with section 144C(5) of the Act on 25.10.2017. Hence the assessee cannot be aggrieved in this regard. Short credit of tds - AO granted credit for tax deducted at source of ₹ 6,60,46,860/- as against the claim by the assessee to the tune of ₹ 7,08,61,424/- Held that:- Since the issue involves only verification of certificates / Form 26AS, as the case may be, we hereby direct the ld AO to kindly verify the necessary evidences in this regard and grant TDS credit, if eligible, to the assessee. Issues Involved:1. Determination of Arm’s Length Price (ALP) for Management Support Services.2. Determination of ALP for Advertisement and Marketing Promotion (AMP) Expenses.3. Determination of ALP for Software Segment.4. Disallowance of Lease Rentals.5. Depreciation on Moulds.6. Non-Grant of Deduction u/s 80G.7. Short Credit of Tax Deducted at Source.8. Levy of Interest u/s 234B and 234D.9. Initiation of Penalty u/s 271(1)(c).Issue-wise Detailed Analysis:1. Determination of Arm’s Length Price (ALP) for Management Support Services:The assessee, part of the Royal Philips Organisation, engaged in international transactions with its associated enterprises (AEs) and benchmarked these transactions using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) applied the Comparable Uncontrolled Price (CUP) Method and determined the ALP for Management Support Services (MSSA) to be NIL, leading to an upward adjustment of Rs. 300,40,09,360/-. The Dispute Resolution Panel (DRP) upheld the TPO's adjustment, stating that the services did not meet the benefit test. However, the Tribunal, following its earlier decisions in the assessee's own case for previous assessment years, held that the determination of ALP for MSSA at NIL was unwarranted and deleted the adjustment.2. Determination of ALP for Advertisement and Marketing Promotion (AMP) Expenses:The TPO treated the AMP expenses as an international transaction and applied the Bright Line Test (BLT) to determine an upward adjustment of Rs. 1,55,30,056/-. The DRP upheld the TPO's view but directed the TPO to exclude government-owned entities from the comparables. The Tribunal, following its earlier decisions and the Delhi High Court's ruling in Maruti Suzuki India Ltd, held that AMP expenses could not be construed as an international transaction and deleted the adjustment.3. Determination of ALP for Software Segment:The TPO selected comparables and determined an upward adjustment of Rs. 44,18,68,242/-. The DRP directed the TPO to exclude certain comparables if segmental data was unavailable. The Tribunal, after excluding E-Infochips Bangalore Ltd and Thirdware Solutions Ltd from the comparables and directing the TPO to provide working capital adjustments for the remaining comparables, remanded the matter back to the TPO for fresh adjudication.4. Disallowance of Lease Rentals:The AO disallowed lease rentals paid for motor cars taken on finance lease, treating them as capital expenditure. The DRP upheld the AO's view. The Tribunal, following the Supreme Court's decision in ICDS Ltd vs CIT, allowed the deduction of lease rentals.5. Depreciation on Moulds:The AO disallowed excess depreciation claimed at 30% on moulds, allowing only 15%. The DRP upheld the AO's decision. The Tribunal, following its earlier decision in the assessee's own case, restored the matter to the AO for fresh adjudication, allowing the assessee to produce necessary documents.6. Non-Grant of Deduction u/s 80G:The AO granted the deduction u/s 80G in the final order, and hence, this ground was dismissed by the Tribunal as the assessee could not be aggrieved.7. Short Credit of Tax Deducted at Source:The AO granted TDS credit of Rs. 6,60,46,860/- against the claim of Rs. 7,08,61,424/-. The Tribunal directed the AO to verify the necessary evidences and grant the eligible TDS credit.8. Levy of Interest u/s 234B and 234D:The Tribunal noted that the levy of interest u/s 234B and 234D is consequential in nature and does not require specific adjudication.9. Initiation of Penalty u/s 271(1)(c):The Tribunal stated that the initiation of penalty u/s 271(1)(c) would be decided afresh by the AO while giving effect to this order.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, providing relief on several grounds, including the deletion of adjustments for MSSA and AMP expenses, allowing lease rentals, and directing fresh adjudication on depreciation for moulds and TDS credit.