TaxTMI 
TaxTMI 
2013 (11) TMI 355
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....and distribution from local parties. For Assessment Year 2005-06, the assessee filed its return of income on 30.10.2005 declaring loss of Rs.1,36,76,127. The return was processed under section 143(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and the case was taken up for scrutiny by issue of notice under section 143(2) on 28.7.2006. In view of the fact that the international transactions reported in Form 3CEB exceeded Rs.5 Crores, the Assessing Officer made a reference under section 92CA of the Act to the Transfer Pricing Officer ('TPO' in short) for determining the Arms' Length Price (ALP) of the international transactions which are as under : S. No. International Transactions Value (Rs.) TPO's Observation/ Conclusion 1. Receipt towards reimbursement of expenses incurred on behalf of NIKE Group. 2,90,53,616 Concluded to be at arm's length. 2. Purchase of Capital Goods. 50,39,925 -do- 3. Payment towards acquisition of business of NIKE India Branch. 10,60,00,000 -do- 4. Payment towards Cross Charges in respect of Export Costs and Contractor charges. 4,79,96,877 Adjustment made to ALP. ....
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....tractor charges. The learned CIT(Appeals) dismissed the assessee's appeals for both Assessment Years 2005-06 and 2006-07 in a combined order dt.15.3.2011 wherein he upheld the decision of the TPO/ Assessing Officer in determining the ALP of the payment of cross charges in respect of export costs and contractor charges. 3.1 Aggrieved by the order of the CIT(Appeals)-IV, Bangalore for Assessment Years 2005-06 and 2006-07 dt.15.3.2011, the assessee is before this Tribunal raising various grounds. For Assessment Year 2005-06 the grounds raised are :- "1. The Hon'ble CIT (Appeals) grossly erred in law and facts of the case in determining the arm's length price ("ALP") of the international transaction of the appellant and proposing a transfer pricing adjustment of Rs.4,79,96,877. 1.1 The Hon'ble CIT (Appeals) ought to held the ALP of (a) Travel, accommodation and conveyance at Rs.6,94,744. (b) Salary payments at Rs.1,65,21,238. (c) Cost of samples (sports goods, accessories, etc) at Rs.1,32,87,690 and (d) Miscellaneous expenses at Rs.1,74,93,205. 1.2 The Hon'ble CIT (Appeals) ought to have considered the fact that the AEs cross charged the salary and other overhea....
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....ed in upholding the decision of the learned Assessing Officer of not referring the matter to the learned TPO for the determination of the arm's length price under section 92CA of the Act by quoting the reason that the matter was not necessary or expedient to make a reference to the learned TPO. 1.2 The Hon'ble CIT (Appeals) erred in upholding the actions of the learned Assessing Officer as the learned Assessing Officer failed to apply his mind and computed the transfer pricing adjustment based on the order passed by the learned TPO in the appellant's own case pertaining to AY 2005-06. In doing so, the learned Assessing Officer erred in not analyzing the facts and circumstances in isolation for A Y 2006-07 and instead relying on the stand adopted by the learned TPO for A Y 2005-06. 1.3 The Hon'ble CIT (Appeals) being a quasi-judicial authority erred in disallowing the reimbursement of expenses made by the appellant to its associated enterprises ("AEs") without assigning any cogent/ germane reasons for accepting/ rejecting the appellant's various submissions and thereby passing a cryptic and a non-speaking order. 1.4 The Hon'ble CIT (Appeals) ought to have considered the fac....
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....dismissed. 3.3 For Assessment Year 2006-07, the assessee has virtually raised similar grounds as raised for Assessment Year 2005-06 in respect of the T P adjustment of Rs.5,77,02,222, except for the ground raised at 1.1 in which it is contended that the learned CIT(Appeals) erred in upholding the decision of the Assessing Officer in not referring the issue of determining the ALP of international transactions to the TPO under section 92CA of the Act. 4.1 Since the ground raised at S.No.1.1 for Assessment Year 2006-07 is a ground not raised in Assessment Year 2005-06, it would only be in the fitness of things to address it first. In this ground, the assessee contends that the learned CIT(Appeals) erred in upholding the decision of the Assessing Officer of not referring the matter to the TPO for determination of ALP of international transactions under section 92CA of the Act, by stating that the Assessing Officer was of the view that it was not necessary or expedient to make such a reference to the TPO. 4.2 Section 92C of the Act is in respect of 'Computation of Arms' Length Price' (ALP). As per section 92C(3) of the Act, the Assessing Officer may determine the ALP of the int....
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....Consequently, if the international transactions aggregated to less than Rs.15 Crores, then the Assessing Officer would not be required to make a reference under section 92CA of the Act but to determine the ALP of the international transactions in accordance with the provisions of section 92C of the Act. 4.5 From a plain reading of the above provisions of law, and CBDT circumstances/ Circular on the subject it is clear that both the Assessing Officer and the TPO are mandated to determine the ALP of international transactions under section 92C(3) and 92CA of the Act respectively. The position of law as it stood for Assessment Year 2006-07 on this issue is as under : (i) The Assessing Officer may make a reference to the TPO under section 92CA of the Act if the aggregate of the international transactions is in excess of Rs.15 Crores for and from Assessment Year 2006-07 as per CBDT Circular dt.30.7.2007. In case the aggregate of international transactions are less than Rs.15 Crores, then the Assessing Officer is empowered to determine the ALP of international transactions in accordance with the provisions of section 92C of the Act; (ii) If a reference is made to the TPO under s....
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....rds the expense at S.No.3, the learned Authorised Representative submitted that it represents the cost of Nike Sporting goods provided to the assessee on sample basis for advertisement purposes and these costs were necessarily to be incurred for creating brand awareness to enable people to understood the product before purchase. The learned Authorised Representative submitted that the expenditure listed at S.No.4 are towards courier charges etc. It is the contention of the assessee that all these costs have been incurred by Nike Inc., USA on behalf of the assessee and are being reimbursed to the parent company at cost, without any mark up and are therefore to be treated as pure reimbursement of expenses. 5.2 The TPO was of the view that the assessee is only a distributor of Nike products and is therefore responsible only for the sales of the products in India. It is the duty of Nike Inc., USA which owns the brand to promote the Nike brand. The products get a premium price only because of the promotional activities of the brand. The costs incurred by Nike Inc., USA are towards promotion of the Nike brand in India and as such the costs have to be incurred by the parent company, wh....
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....ttributed solely and totally to the business of distribution undertaken by the assessee. It is the contention of the assessee that these expenses incurred towards cross payment charges in the relevant period amounting to Rs.4,79,96,697 are solely related to the business of the assessee in India. Per contra, revenue's view is that the assessee has failed to establish and demonstrate that these expenses are to be attributed to the business operations of the assessee. 5.5.2 To understand and appreciate the role and business of the assessee and the interplay it has with its parent company, Nike Inc., USA, in respect of its operations, an examination of the Transfer Pricing Study/ Report submitted by the assessee is both informative and useful. In the Transfer Pricing report, under the heading "Brief on the Business", it is mentioned that - "1.2.3 Nike India, a wholly owned subsidiary of NIKE Holdings Inc., is responsible for distribution of footwear, sports apparel and equipment. In addition, NIKE India Provides administrative support in relation to the marketing and brand promotion initiatives of NIKE Group in India. 1.2.4 The development of arm's length price in this analysi....
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...., should bear the expenses related to increasing the product awareness and product acceptability in the market. The submissions made by the assessee before us and before the authorities below have been contradictory to what is stated in the assessee's Transfer Pricing Study and this is not acceptable. Further, as pointed out by the TPO, the assessee has separately booked substantial expenses amounting to approx. Rs.2.42 Crores towards advertising, marketing and sales promotion which is approx. 8% of sales turnover and these have been allowed as expenses incurred towards promotion of product sales. The onus for proving that the expenses incurred by the parent, Nike Inc, USA, are towards the sales of the products and not for the purpose of creating brand awareness is on the assessee, which onus is not discharged by the assessee. Also considering that the assessee itself has admitted that the parent, Nike Inc., USA has brand marketing and promotion initiatives in India, it is but natural to conclude that the expenses incurred by Nike Inc., USA are towards creation of brand awareness, for which the parent has the responsibility. In this view of the matter, the expenses on cost of sampl....
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....ses", the assessee has put forth only a general explanation that these represent couriering expenses, etc. No further details as to the nature of expenses, the purpose for which they were expended etc. has been forthcoming from the assessee. The assessee has also not furnished any evidence to establish that these expenses were indeed incurred for and on behalf of the assessee. In the absence of these details, the claims put forth by the assessee remain unsubstantiated. 5.5.7 Another contention of the assessee is that since the same set of expenses has been held to be at arm's length in the assessee's own case for Assessment Year 2008-09, therefore, they should be treated as arm's length in the year under consideration. We are unable to accept the contention that the transfer pricing adjustment made in the two years under consideration has to be negated only on the ground that such an adjustment was not made in the subsequent year. It is a well settled position in law that the assessment of every year stands on its own legs and the 'principle of res judicata' does not apply to income tax assessment proceedings. The ALP for each year is determined based on the set of facts applica....