2022 (12) TMI 1543 - AT - Income Tax

Assessee wins on AMP transfer pricing adjustment deletion and Section 43B leave encashment deduction allowance

M/s. HP India Sales Private Ltd. Versus The Assistant Commissioner of Income-tax, Circle 3 (1) (1) Bangalore

ITAT Bangalore ruled in favor of the assessee on multiple issues. The tribunal deleted AMP transfer pricing adjustment and mark-up following precedents ... TP Adjustment of AMP expenses - HELD THAT:- We find an identical issue raised were considered by the Tribunal in assessee’s own case for assessment year 2012- 2013 [2023 (3) TMI 656 - ITAT BANGALORE] as followed the dictum laid down in the case of Maruti Suzuki India Ltd. [2015 (12) TMI 634 - DELHI HIGH COURT] and Sony Ericsson Mobile Communications India (P.) Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] and directed the A.O. to delete the AMP TP adjustment and the mark up thereon. Decided in favour of assessee. Deduction to the extent of leave encashment u/s 43B - HELD THAT:- The Bangalore Bench of the Tribunal in the case of M/s. Hewlett Packard (India) Software Operation Pvt. Ltd. [2021 (3) TMI 1379 - ITAT BANGALORE] had categorically held that deduction to the extent of leave encashment, which has been actually paid should be allowed as deduction u/s 43B of the I.T.Act. The Tribunal in assessee’s own case for assessment year 2012-2013 [2023 (3) TMI 656 - ITAT BANGALORE] has also taken a similar view. Thus, we restore the issue raised to the files of the A.O. with the direction to allow deduction u/s 43B(f) of the I.T.Act with regard to leave encashment on actual payment basis. Not allowed appropriate credit for TDS as claimed - The issue raised is restored to the files of the A.O. to examine the matter and grant TDS credit in accordance with law. Issues Involved:1. Transfer Pricing (TP) Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses.2. Corporate Tax Issues: Deduction for Leave Encashment and Credit for Tax Deducted at Source (TDS).Detailed Analysis:1. Transfer Pricing (TP) Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses:The primary issue in this case concerns the TP adjustment of INR 1,25,18,85,488 related to AMP expenses. The assessee, a company engaged in importing computer peripherals from its Associate Enterprises (AEs) for sale in India, faced a TP adjustment made by the Transfer Pricing Officer (TPO) concerning AMP expenses. The TPO accepted the benchmark analysis of other international transactions but made an adjustment for AMP expenses, alleging them to be an international transaction. The Dispute Resolution Panel (DRP) upheld this adjustment.The Tribunal, however, referred to its previous decision in the assessee's own case for the assessment year 2012-2013, where it followed the Delhi High Court's rulings in Maruti Suzuki India Ltd. v. CIT and Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT. The Tribunal emphasized that AMP expenses cannot be considered an international transaction in the absence of any tangible evidence of an arrangement or understanding with the AE. It reiterated that the Revenue's use of the Bright Line Test (BLT) for determining AMP expenses as an international transaction is not legally recognized. The Tribunal concluded that since the TPO had accepted the arm's length price (ALP) of other transactions at the entity level, it was inappropriate to treat AMP expenses separately. Consequently, the Tribunal deleted the TP adjustment related to AMP expenses.2. Corporate Tax Issues:Deduction for Leave Encashment:The assessee sought a deduction of INR 1,55,96,001 for leave encashment payments under Section 43B(f) of the Income Tax Act. The Tribunal, referencing its previous decision and the Supreme Court's ruling in UOI v. Exide Industries Ltd, upheld the constitutional validity of Section 43B(f). It directed the Assessing Officer (A.O.) to verify actual payments made during the relevant assessment year and allow deductions based on actual payments, ensuring no double deduction occurs. The issue was remanded to the A.O. for verification and appropriate deduction.Credit for Tax Deducted at Source (TDS):The assessee claimed that the A.O. did not grant appropriate TDS credit. The Tribunal restored this issue to the A.O. for examination and directed the granting of TDS credit in accordance with the law.Conclusion:The Tribunal partly allowed the appeal, deleting the TP adjustment on AMP expenses and remanding the corporate tax issues for further verification and appropriate action by the A.O. The order was pronounced on December 7, 2022.