2020 (5) TMI 484 - AT - Income Tax

Tribunal dismisses Revenue appeals, partly allows assessee appeals. Decision on 15.05.2020.

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals for statistical purposes. The decision was rendered on 15.05.2020. ... TP Adjustment - AMP purposes - existence of international transaction - HELD THAT:- TPO in the instant case has held that the AMP expenditure incurred by the assessee is international transaction. In the manufacturing segment, he computed an upward adjustment by disallowing 50% of the expenditure incurred on products which were sold within the domestic market as well as international market the details of which are already reproduced in the preceding paragraph. We find the Tribunal, following the above order [2019 (7) TMI 1620 - ITAT DELHI] has again deleted the addition on account of AMP expenditure. Since the issue stands decided in favour of the assessee by the decision of the Tribunal in assessee’s own case for the preceding assessment years i.e., A.Y. 2007-08 and 2008-09, therefore, we are of the considered opinion that no addition on account of AMP expenditure is warranted. Disallowance u/s 37(1) being 20% of the brand expenses - HELD THAT:- We find, the ld.CIT(A) deleted the addition by following the order of his predecessor for A.Y.s 2004-05 and 2005- 06 and the decision of the Hon’ble Delhi High Court in the case of Seagram Manufacturing (P) Ltd. (Now merged with the assesseee) [2015 (10) TMI 491 - DELHI HIGH COURT]. We do not find any infirmity in the order of the CIT(A) on this issue. We find identical issue had come up before the Tribunal in assessee’s own case for A.Y. 2007-08. Issues Involved:1. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotional (AMP) Expenses.2. Disallowance of Provision for Transit Breakage.3. Disallowance of Brand Building Expenses.4. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax from Reimbursement of Trade Scheme to Promoters.5. Levy of Interest under Section 234B.6. Initiation of Penalty Proceedings under Section 271(1)(c).Detailed Analysis:1. Transfer Pricing Adjustment on Account of AMP Expenses:The primary issue was whether the AMP expenditure incurred by the assessee constituted an international transaction. The TPO had proposed an upward adjustment of Rs. 57,83,00,000/- in the manufacturing segment and Rs. 5,03,33,013/- in the distribution segment. The CIT(A) deleted the adjustment in the manufacturing segment, noting the absence of any directive from the parent company to incur such expenses and the lack of evidence towards an understanding, arrangement, or action in concert. The CIT(A) upheld the existence of an international transaction in the distribution segment but rejected the TPO's methodology of using the Bright Line Test (BLT) for benchmarking. The Tribunal, following precedents, held that the existence of an international transaction must be established with tangible evidence and not inferred merely based on AMP expenditure. The Tribunal concluded that no addition on account of AMP expenditure was warranted.2. Disallowance of Provision for Transit Breakage:The AO had made an addition of Rs. 6,32,58,960/- on account of provision for transit breakage. The CIT(A) directed the AO to allow the actual transit breakage for the impugned assessment year, following the decision of the Hon’ble Delhi High Court in the case of Seagram Manufacturing Pvt. Ltd. The Tribunal upheld this direction.3. Disallowance of Brand Building Expenses:The AO had disallowed 20% of the brand building expenses amounting to Rs. 50,38,72,290/- under Section 37(1), treating it as capital expenditure. The CIT(A) deleted the addition, following the Tribunal’s order in the assessee’s own case for earlier years and the decision of the Hon’ble Delhi High Court. The Tribunal upheld the CIT(A)’s order, noting that the issue had been consistently decided in favor of the assessee in previous years.4. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax from Reimbursement of Trade Scheme to Promoters:The AO had disallowed Rs. 63,24,54,323/- under Section 40(a)(ia) for non-deduction of tax under Section 194H. The CIT(A) upheld the disallowance. The Tribunal, following its earlier decision in the assessee’s own case, restored the issue to the AO for verification of whether the payments were in the nature of reimbursements and allowed the additional evidence filed by the assessee for verification.5. Levy of Interest under Section 234B:The Tribunal held that the levy of interest under Section 234B is mandatory and consequential in nature. Therefore, the ground raised by the assessee was dismissed.6. Initiation of Penalty Proceedings under Section 271(1)(c):The Tribunal noted that the initiation of penalty proceedings under Section 271(1)(c) was premature and accordingly dismissed this ground raised by the assessee.Conclusion:The Tribunal dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the assessee for statistical purposes. The decision was pronounced in the open court on 15.05.2020.