2014 (6) TMI 892

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....s consumer electronic products and home appliances, viz., colour TV, plasma TV, car audio, music systems, home theatres, air conditions, washing machines, etc. The assessee deals in the products of Matsushita group alone. The assessee markets the products through retail chains, individual shops and brand shops. 3. The assessee for the assessment year 2008-09 filed its return of income on September 29, 2009, declaring loss of Rs. 7,37,20,126. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued to the assessee on August 11, 2009. During the assessment year under consideration, the assessee had entered into international transactions exceeding Rs. 15 crores with its associated enterprises. The case of the assessee was referred to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP) of the international transactions entered into by the assessee. The Transfer Pricing Officer vide order dated October 31, 2011, made :             (i) A downward adjustment of purchase cost from associated enterprises-Rs. 14,55,37,321 ; and     ....

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....rade discounts. The learned authorised representative further contended that the Transfer Pricing Officer has erred in adding freight and storage charges to the cost of goods sold by treating them as direct expenses incurred in relation to purchase of goods. Referring to rule 10B(1)(b) that explains the resale price method, the learned authorised representative argued that the rule makes it clear that, only expenses incurred in connection with the purchases are required to be reduced from sales. The freight and storage expenses are not towards inward but outward sales and are thus in the nature of selling expenses. The learned authorised representative contended that after reduction of cash discount from freight and storage expenses, the Transfer Pricing Officer determined the gross profit margin (GPM) of the assessee at 11.34 per cent. against 14.69 per cent. worked by the assessee. Further, the Transfer Pricing Officer calculated the gross profit margin of comparables at 18.74 per cent. on the basis of data relevant to the financial year (FY) 2007-08 alone. The assessee has calculated the gross profit margin of comparables as 16.47 per cent. which has not been disputed by the ....

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....as been made in the negative income returned by the assessee, primarily on two grounds :              (i) A downward adjustment of purchase cost from associated enterprises ; and             (ii) An upward adjustment of development and business promotion expenses. The assessee has also assailed the computation of gross profit margins by the Transfer Pricing Officer. 8. The Transfer Pricing Officer while making upward adjustment in the purchase cost has reduced the cash discount given by the assessee to its debtors and outward freight charges from selling price. The cash discounts are offered by the assessee to its debtors for early realisation of payments and are thus in the nature of financial charge. The cash discounts are in the nature of incentives for early payment for the sales made by the assessee. In our considered view, the Transfer Pricing Officer has erred in equating cash discounts with trade discount. The cash discounts in the present case has been offered after the completion of sales and are entirely different in nature from trade discounts. ....

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..../Mds/2011 for the assessment year 2007-08 (supra). We have examined the order of the coordinate Bench of the Tribunal (supra). We find that the coordinate Bench of the Tribunal while examining the issue of brand promotion and marketing expenses in the assessee's own case has also considered the decision of the Special Bench in the case of L. G. Electronics India P. Ltd. [2013] 22 ITR (Trib) 1 (Delhi) [SB]. The co-ordinate Bench after analysing the decision of the Special Bench held as under :                "14. We have heard both parties at length and perused the case file. The strite between the parties is that per assessee, its expenses incurred in advertisement/business promotion do not come within the conceptual framework of 'international transaction' as specified in section 92B of the Act. Its further plea is that since the expenses' payments have not been made to its overseas associated enterprises, the provisions contained in Chapter X of the Act are not exigible in the instant case. The Revenue strongly contests this. In this backdrop, after perusing the Special Bench decision, wherei....