2020 (8) TMI 130 - AT - Income Tax

Tribunal orders deletion of AMP adjustment, verifies tax credits, rejects Bright Line Test.

The Tribunal allowed the appeal for statistical purposes, directing the deletion of the AMP adjustment and recomputation of depreciation. The Tribunal ... TP Adjustment - existence of international transaction of the AMP - HELD THAT:- In view of the binding precedent, following the decision of the Tribunal, we hereby direct to delete adjustment made on account of AMP transactions. The corresponding grounds raised are accordingly allowed. Disallowance on capital asset treated as a stock-in-trade - HELD THAT:- We allow the ground of the appeal and direct the AO to recompute the depreciation and allow the necessary relief to the assessee. The ground No.6 of the appeal is accordingly allowed for statistical purposes. Credit of the advance fringe benefit tax and TDS - HELD THAT:- Allowing of the credit of the taxes paid by the assessee is matter of the verification by the Assessing Officer and therefore, accordingly we direct the Learned AO for verification of the taxes paid and allow the credit in accordance with the law. This ground of the appeal is also allowed for statistical purposes. Issues Involved:1. Validity of orders passed by AO/DRP/TPO.2. Addition under Chapter X for AMP expenses.3. Jurisdiction of TPO regarding AMP expenses.4. Selection of comparable set for benchmarking AMP transactions.5. Applicability of a markup on AMP expenses.6. Adjustment on AMP transactions when main transactions are at ALP.7. Disallowance of depreciation on capital assets converted to stock-in-trade.8. Levy of interest under sections 234B & 234C.9. Non-granting of credits for Advance Fringe Benefit Tax and TDS.Issue-wise Detailed Analysis:1. Validity of Orders Passed by AO/DRP/TPO:The assessee challenged the validity of the orders passed by the AO, DRP, and TPO, claiming they were 'bad in law and void ab initio.' However, the judgment did not provide a specific ruling on this point, focusing instead on substantive issues.2. Addition under Chapter X for AMP Expenses:The TPO made an adjustment of Rs. 15,42,32,773/- for AMP expenses, which was upheld by the DRP. The Tribunal noted that in a previous assessment year (2008-09), similar AMP adjustments were deleted, rejecting the Bright Line Test (BLT) approach. The Tribunal followed the precedent set by the Delhi High Court, which held that mere use of a brand name or logo does not automatically imply an international transaction. The Tribunal directed the deletion of the AMP adjustment.3. Jurisdiction of TPO Regarding AMP Expenses:The TPO's jurisdiction to propose adjustments for AMP expenses was contested. The Tribunal held that there was no tangible evidence to show an arrangement or understanding between the assessee and its AE that required AMP expenses to be incurred for the AE's benefit. The Tribunal referenced multiple High Court decisions, including Maruti Suzuki and Whirlpool, which rejected the BLT and emphasized the need for concrete evidence to establish an international transaction.4. Selection of Comparable Set for Benchmarking AMP Transactions:The assessee argued that the TPO/DRP erred in selecting an inappropriate comparable set for benchmarking AMP transactions. The Tribunal did not specifically address this issue in detail, as the primary focus was on the validity of the AMP adjustment itself, which was ultimately deleted.5. Applicability of a Markup on AMP Expenses:The TPO applied a 12.5% markup on the alleged excessive AMP expenses. The Tribunal, following the High Court's rejection of the BLT and the lack of evidence for an international transaction, directed the deletion of the entire AMP adjustment, rendering the markup issue moot.6. Adjustment on AMP Transactions When Main Transactions Are at ALP:The assessee argued that once the main international transactions were accepted to be at arm's length, no further adjustment for AMP transactions was warranted. The Tribunal, relying on precedents, held that without evidence of an international transaction, no AMP adjustment was justified.7. Disallowance of Depreciation on Capital Assets Converted to Stock-in-Trade:The AO disallowed Rs. 33,34,814/- in depreciation on capital assets converted to stock-in-trade. The Tribunal noted that the issue was covered in favor of the assessee by a previous Tribunal decision for AY 2007-08, which allowed depreciation on such assets. The Tribunal directed the AO to recompute depreciation and allow the necessary relief.8. Levy of Interest Under Sections 234B & 234C:The assessee contested the levy of interest under sections 234B and 234C. The Tribunal did not specifically address this issue, as it is consequential and dependent on the final tax liability determined after other adjustments.9. Non-Granting of Credits for Advance Fringe Benefit Tax and TDS:The assessee claimed credits for Advance Fringe Benefit Tax of Rs. 20,00,000/- and TDS certificates of Rs. 56,49,994/-. The Tribunal directed the AO to verify the taxes paid and allow the credits in accordance with the law.Conclusion:The Tribunal allowed the appeal of the assessee for statistical purposes, directing the deletion of the AMP adjustment and recomputation of depreciation, while also instructing the AO to verify and grant tax credits.