2019 (1) TMI 848 - AT - Income Tax

Tribunal partially allows appeal, sets aside orders on AMP expenses & IPA subsidy. Stay application dismissed.

Pepsico India Holdings Pvt. Ltd. Versus The DCIT, Central Circle-7, New Delhi

Pepsico India Holdings Pvt. Ltd. Versus The DCIT, Central Circle-7, New Delhi - TMI Issues Involved:1. Transfer Pricing Adjustment on AMP Expenses.2. Addition on account of Industrial Promotional Assistance (IPA) subsidy.3. Levy of interest under sections 234B and 234C.4. Initiation of penalty proceedings under section 271(1)(c).Detailed Analysis:1. Transfer Pricing Adjustment on AMP Expenses:The assessee challenged the Transfer Pricing Adjustment amounting to INR 3,34,06,17,000/- on account of Advertisement, Marketing, and Promotion (AMP) Expenses. The AO/TPO/DRP erred in assuming jurisdiction under Section 92CA of the Act for transactions not qualifying as 'international transactions' under Section 92B read with Section 92F(v). They failed to establish any 'arrangement' directing AMP expenditure by the appellant. The DRP's decision followed the orders of earlier assessment years (2010-2011, 2011-2012, and 2013-2014), which were overturned by the ITAT, holding that AMP adjustment made by the TPO/AO cannot be sustained. The Tribunal emphasized that no international transaction existed merely due to incurring higher AMP expenses and rejected the application of the Bright Line Test (BLT) for computing the ALP of AMP expenses. The Tribunal concluded that the AMP expenses were incurred for the assessee’s business benefit in India, without any binding obligation from the AE, and thus, no adjustment was warranted.2. Addition on account of Industrial Promotional Assistance (IPA) subsidy:The AO/DRP added INR 8,07,52,389/- as revenue, treating the IPA subsidy received from the Government of West Bengal under the West Bengal Incentive Scheme, 2004, as revenue in nature. The assessee argued that the subsidy was capital in nature, intended to promote industrialization by setting up or expanding units in West Bengal. The Tribunal, referencing the Supreme Court's decision in CIT vs. Ponni Sugar and Commercial Ltd., held that the purpose of the subsidy determines its nature. The subsidy, aimed at promoting new or expanded industrial units, was capital in nature, despite being quantified based on sales tax reimbursement. The Tribunal thus ruled in favor of the assessee, treating the subsidy as capital and not taxable as revenue.3. Levy of interest under sections 234B and 234C:The assessee contested the levy of interest under sections 234B and 234C, which the Tribunal noted as consequential in nature and requiring no separate adjudication.4. Initiation of penalty proceedings under section 271(1)(c):The assessee challenged the initiation of penalty proceedings under section 271(1)(c), which the Tribunal deemed premature and rejected.Conclusion:The appeal of the assessee was partly allowed, with the Tribunal setting aside the orders of the authorities below and deleting the additions related to AMP expenses and IPA subsidy. The stay application was dismissed as infructuous.