2023 (8) TMI 1061 - AT - Income Tax

Tribunal Partially Allows Appeal; Deletes AMP and Royalty Adjustments; Remits Multiple Issues for Further Review.

Reckitt Benckiser (India) Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle-12 (1), Kolkata.

Reckitt Benckiser (India) Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle-12 (1), Kolkata. - [2024] 109 ITR (Trib) 137 (ITAT [Kolk]) Issues Involved:1. Upward adjustment for advertisement, marketing, and publicity expenses (AMP).2. ALP adjustment on account of payment of royalty.3. ALP adjustment for R&D services.4. Adjustment towards IT support services.5. Upward adjustment on export of raw material and finished goods.6. Adjustment for import purchases of finished goods.7. Adjustment for mark-up of recovery and expenses.8. Adjustment towards allocation of expenses.9. Claim of deduction towards payment of education cess on income tax and on dividend distribution tax (DDT).10. Non-granting of benefit of Double Tax Avoidance Agreement (DTAA) between India-UK and India-Spain.Judgment Summary:1. Upward adjustment for AMP expenses:The Tribunal addressed the issue of upward adjustment made for AMP expenses amounting to Rs. 1,68,01,90,546/-. The AO/TPO considered AMP expenses as an international transaction and applied the Bright Line Test, adding a mark-up of 18.17%. The Tribunal referenced its earlier decisions for AY 2010-11 and 2011-12, where it was held that AMP expenses do not constitute an international transaction. Consequently, the ALP adjustment was deleted.2. ALP adjustment on account of payment of royalty:The Tribunal discussed the ALP adjustment of Rs. 2,65,52,926/- for royalty payments. The AO/TPO had considered royalty embedded in the import price. The Tribunal noted the commercial terms of the license agreement and the consistent practice of royalty payments in previous years, supported by a Special Valuation Branch of Customs order. The adjustment was deleted, applying the principle of consistency and rejecting the notion that royalty was embedded in import prices.3. ALP adjustment for R&D services:The Tribunal remitted the issue back to the TPO for a fresh comparability test, emphasizing the correct functional profile and FAR analysis. The assessee's services were detailed, and the Tribunal instructed the TPO to consider the material on record for accurate benchmarking.4. Adjustment towards IT support services:Similar to the R&D services issue, the Tribunal remitted the matter back to the TPO for a fresh comparability test. The IT support services provided by the assessee were detailed, and the Tribunal directed the TPO to capture the correct functionality and undertake a fresh comparability test.5. Upward adjustment on export of raw material and finished goods:The Tribunal remitted the issue back to the TPO, instructing a revisit of the comparables and consideration of the updated financial data/statement. The Tribunal emphasized the need for correct functional profile and FAR analysis.6. Adjustment for import purchases of finished goods:The Tribunal remitted the matter back to the TPO to re-examine the functional profile of comparables and the assessee. The Tribunal directed the TPO to follow the DRP's criteria and verify product comparability.7. Adjustment for mark-up of recovery and expenses:The Tribunal remitted the issue back to the TPO for adjudication, emphasizing the need to consider the evidence placed on record by the assessee. The Tribunal noted that the expenses were cost-to-cost reimbursements with no element of services rendered.8. Adjustment towards allocation of expenses:The Tribunal remitted the issue back to the TPO, instructing a fresh examination of the details and evidence provided by the assessee. The Tribunal emphasized that the TPO's jurisdiction is limited to determining the ALP and not questioning commercial expediency.9. Claim of deduction towards payment of education cess on income tax and on DDT:The Tribunal noted that the assessee did not press for this ground, and it was dismissed as not pressed.10. Non-granting of benefit of DTAA:The Tribunal remitted the matter back to the AO for fresh consideration, allowing the assessee to make submissions on the factual and legal aspects in support of the claim. The Tribunal referenced the Special Bench decision in DCIT Vs. Total Oil India Pvt. Ltd. but allowed the assessee to distinguish its case.Conclusion:The Tribunal allowed the appeal of the assessee partly for statistical purposes, remitting several issues back to the TPO/AO for fresh consideration and adjudication. The order was pronounced on 20th July 2023.