TaxTMI 
TaxTMI 
2014 (8) TMI 836
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....r section 143(3) read with section 144C of the Act is bad in law. 2.That on the facts and in circumstances of the case and in law, the Ld. AO erred in assessing the returned income of the appellant of Rs. 5,22,98,469 at Rs. 16,06,44,060 on the directions of Learned Dispute Resolution Panel ("Ld.DRP") under section 144C of the Act. 3. That the Ld. AO/Transfer Pricing Officer ('TPO') grossly erred on facts and in law in making the Transfer Pricing adjustment of Rs. 5,66,19,363 under section 92CA of the Act on alleged ground that the appellant company incurred expenditure on Advertisement, marketing and promotional expenses excessively on the basis of applying the "bright line limit" and in doing so: 3.1 The Ld. TPO/AO erred in holding that AMP expenses incurred by the appellant are covered under the purview of Section 92B of the Act on surmises and conjectures. 3.2 The Ld. TPO/AO erred in concluding that the associated enterprise ('AE'),being the legal owner of the brand, should have compensated the appellant for Advertising, Marketing and Promotion ('AMP') expense as AE derives benefit from such expenses incurred by the appellant and it also results i....
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....ellant by this Hon'ble Tribunal for the Assessment Year 2003- 2004. 6. That the Ld. AO erred in proposing to treat the amount of advance service charges received of Rs. 16,01,663/ -as income for the year under consideration. 6.1. That the Ld. AO erred in not appreciating that as per mercantile system of accounting, the amount of 'service charges- accrued but not due' has not accrued and thus does not represent income for the year under consideration. 7. On The acts and in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) read with section 274 of the Act." 3. Right at the outset Ld.AR addressing the facts of the case submitted that since the assessee is a distributor, as such the assessee's case should be decided following the precedent laid down in the order dated 16.08.2013 in BMW India Pvt. Ltd. in ITA No.-5354/Del/2012 as opposed to the decision of the Special Bench in L.G. Electronics which was principally deciding the case where the assessee was a licensed manufacturer. The Ld. CIT DR on the other hand contended that the Special Bench should prevail over the decision of the Division Benc....
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.... Reference may be made to the decision rendered by the Apex Court in Nahar Industrial Enterprises Ltd. US. Hongkong and Shanghai Banking Corporation (2009) 12 SCR 54 the Hon'ble Court wherein their Lordships held in paras 94 and 95:- "94.......................... It must in this context be noted that Headnotes by the editors of a Reports are not a conclusive guide to the text of the judgement reported. They are made only for the convenience of the readers as a short summary to the text and for easy reference and at times they are misleading. 95. The United States Supreme Court in United States vs. Detroit Timber and Lumber Co., 200U.S.321, 337. "In the first place, the headnote is not the work of the court, nor does it state its decision. ........................................It is simply the work of the reporter, gives his understanding of the decision, and is prepared for the convenience of the profession in the examination of the reports." 3.2. The advancing of arguments that a distributor remuneration model is separate and distinct is accepted in L.G. Electronics case also as would be borne out from parameter one of para 17.4 of L.G. Electronics. Accordingly takin....
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....e this price protection was also offered for the handsets which were not sold. The assessee sought to justify its claim for price protection on the ground that the assessee was operating in a highly competitive and price sensitive market which was dependent on the prices and varieties of handsets launched by its competitors. The price protection policy, as per the arguments was necessitated to ensure that Nokia's distributors do not suffer loss on account of stock lying with them as the distributors, at times, are required to sell the handsets at a price lower than the cost at which the same were purchased from the assessee. Considering the ground in Nokia India Pvt. Ltd. the following conclusion was drawn:- "4.8. "We have heard the rival submission and perused the material available on record. On a consideration of the issues, we are of the view that the evidence filed before the DRP should be sent back to the AO for considering the same. The arguments advanced on behalf of the assessee that the confirmations filed in similar format are the result of guidance given to the distributors/dealers by the assessee to show how the confirmation should be filed. This fact does not neces....
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....should be avoided as the language used in a decision cannot be treated with the same level of rigorous interpretation as is given to the words in a statue. In support of the above, we rely on order dated 30.08.2014 in ITA No.-6410/Del/2012 in Sony Mobile Communication India Pvt. Ltd. as under:- 6.5. "While considering the language used in a judgement/decision, it is necessary to be borne in mind that it is to be interpreted plainly and unambiguously and artificial construction is to be avoided. The importance of reading the entire judgement/decision can never be over-emphasized especially if there is a doubt cast by any of the parties about the precedent laid down in the judgement. The approach to refer to a stray sentence or a casual remark has frequently been frowned upon by Courts and a word or a sentence by itself cannot be treated as a binding precedent. A case is a precedent for what it actually decides and nothing more. It is equally well-settled that for considering the applicability of rules of interpretation to the words used in the judgements and decisions vis-à-vis the Acts of Parliament, the words used by the Judges are not to be read as if they are words use....
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....the above the parties were directed to address the issues on the basis of facts available on record keeping in mind that there is no divergence of views on the principles to be applied while deciding the issues, as the principles laid down in L.G. Electronics (Special Bench) have been applied in BMW India Pvt. Ltd. 3.5. The relevant facts of the case are that the assessee in the year under consideration filed a return on 27.10.2007 declaring an income of Rs. 5,22,98,469/- which was processed u/s 143(1). Subsequently after issuance of notice u/s 143(2) & 142(1) the assessment order dated Nil/Oct/2011 was passed u/s 143(3) r.w.s. 144C of the Income Tax Act. 4. Aggrieved by this the assessee is in appeal before the Tribunal. The facts relatable to Ground No-2 & 3 raised by the assessee are that the assessee company incorporated in 1995 is a wholly owned subsidiary of Bose Corporation USA. The assessee at the relevant point of time has been engaged in the business of reselling of high end Bose audio products. The business of the assessee as per the profile of the company is divided into two major business lines namely: (i) Retail sales division (retail customers); (ii) Prof....
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....income; installation income and service income) were determined and mark-up was applied to the same. Based on the above, the TPO enhanced the income of the assessee by Rs. 56,619,363/- on account of AMP expenditure vide his order dated October 15, 2010." 5.1. On the other hand the following contentions of the assessee were not accepted:- "The details of the AMP expenses of Rs. 58,780,494 were submitted of which actual advertising and promotion expenses were Rs. 58,393,183 and the ratio of AMP over Sales was 9.42%. These AMP expenses were undertaken by the Assessee on its own accord as an independent, sole and exclusive distributor of Bose products and solutions in Indian undertaking all the risks like normal distributor managing its own market. The advertising and marketing decisions and functions were performed by Bose India itself. It was undertaken with third parties and had not bearing on the international transactions which are subject to TP Regulations hence are outside the purview of the TP Regulations. The assessee has been consistently earning high gross margins in line with its characterization of an independent distributor responsible for it....
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....tely selected. 6. We have heard the rival submissions and perused the material available on record. On a consideration thereof taking note of the fact that the assessee is a distributor whose remuneration model necessarily is different from a licensed manufacturer as has been held in BMW India Pvt. Ltd. which differentiation has been taken note of in parameter 1 of para 17.4 also by the Special Bench we direct the TPO to examine the claim of the assessee de novo on facts in the light of the decisions relied upon. 6.1. Further in view of the ratio of the Special Bench order in L.G. Electronics, we dismiss the ground/arguments raised by the assessee challenging the issue of jurisdiction of the TPO and uphold the same. We further hold the transaction to be an international transaction. Similarly the applicability of the bright line as a methodology for calculating the AMP is also decided in Revenue's favour and the action is upheld and the issue is covered against the assessee. However as far as calculation of "bright line" is concerned we direct the TPO to correctly calculate the "bright line" keeping in mind that a fresh search of comparables be done following the directions o....
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.... was placed on order dated 04.02.2010 in ITA No-4554 & 4555/Del/2009 in 2001-02 & 2005-06 assessment years (copy of pages 518 to 522) wherein following the order dated 17.04.2009 in ITA No.-2009/Del/2009 pertaining to 2003-04 assessment years similar issue was decided in assessee's favour. Attention was also invited to order dated 01.10.2012 in ITA No-83/Del/2011 alongwith C.O-35 No-35/del/2011 wherein following the orders of the Tribunal, Ground No-1 raised by the Revenue were dismissed in para 5. 8.1. The Ld. AR also submitted that the Hon'ble High Court had dismissed the appeals of the Revenue against the order of the Tribunal in 2001-02 & 2005-06 assessment years, copies filed in the Paper Book. Ld. DR places reliance upon the assessment order. 8.2. On a consideration of the rival submissions and material available on record, we are of the view that the issue is no longer res-integra. In the absence of any distinguishable facts, circumstance or position of law brought to our notice by the Revenue respectfully following the orders of the Tribunal which have also been upheld by the Hon'ble High Court, Ground No.-4 of the assessee is allowed. 9. The facts relatable to Gro....
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....rder. A perusal of the same shows that the assessee was required to explain vide order sheet entry why service charges accrued but due shown at Rs. 16,01,163/- be not taken as income taken of the assessee. It is seen that disregarding the submissions made on behalf of the assessee following the order of the DRP which held that since the issue of similar additions made in 2006-07 assessment year was pending before the ITAT, the addition was confirmed. The Ld. AR placed reliance upon the aforesaid order in its own case pertaining to 2006-07 assessment year specific para 17 thereof so as to point out that the departmental ground has been dismissed. 10.1. Ld. CIT DR places reliance on the assessment order. 10.2. It is seen that the Co-ordinate Bench in 2006-07 A.Year decided the issue in the following manner:- 17. "We have heard both the parties and gone through the facts of the case. Indisputably, the assessee provided annual maintenance service to its customers in respect of their products for a time span of one year or six months and the service charges were received in advance. Since the time span for such service sometimes fell in between two financial years, accordingly,....
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....reimbursement for "allegedly excessive" Advertising, Marketing and Promotion CAMP') expenses incurred by the Company and in doing so have grossly erred in: 3.1 disregarding the correct characterisation of the appellant's business i.e. being a normal risk bearing distributor undertaking all the risks relating to its business of distribution and instead, wrongly characterizing the appellant as a limited/ no risk distributor; 3.2 disregarding the nature of AMP expenses incurred by the appellant and incorrectly holding that such expenses results in developing marketing intangibles for the AEs; 3.3 misinterpreting/ placing incorrect reliance on the international guidance from OECD, US TP Regulations and Australian Tax Office C'ATO') and making several erroneous/ factually incorrect and contradictory statements/ observations in the TP order, which are not relevant to the instant case, only in order to justify an otherwise inappropriate and unwarranted TP adjustment; 3.4 incorrectly holding the AMP expenses incurred by the assessee to be "excessive" on the basis of a "bright line limit" arrived at by, erroneously rejecting companies similar in FAR profile to the a....