AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1012
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....n for granting the right to use brand-name, the assessee-company paid consideration in the form of royalty at the rate of 5% of the sales. Return of income for the assessment year 2010-11 was filed on 5/10/2005 declaring income of Rs. 55,25,65,514/-. After processing the said return of income under the provisions of sec.143(1) of the Act, the case was taken up for scrutiny assessment by issuing notice under section 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer [AO] found that the assessee-company returned the following international transactions in Form 3CEB: Name of the Associated Enterprise Nature of International Transaction Paid/payable Jockey International Inc. Kenosha, USA Royalty@ 5% of entire sales 1,67,829,024 During the previous year relevant to assessment year under consideration, the assessee-company paid royalty of Rs. 6,78,29,024/- to JII towards royalty. The assessee-company sought to justify the consideration paid for international transactions entered with JII to be at arm's length. The assessee-company submitted transfer pricing study and the rate of royalty is 5% which is within the prescribed limit as ....
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....rdance with the provisions of Section 92CA(3) of the Act is determined at Rs. 142,183,477/-. And the resultant adjustment u/s 92CA(3) of the IT Act is Rs. 20,20,07,861/-." 4. Pursuant to the TPO's order, draft assessment order was passed by the AO wherein the following disallowances were proposed: i. Adjustment on account of transfer pricing Rs. 20,20,07,861/- ii. Disallowance under section 14A read with rule 8D(2)(iii) of Rs. 20,51,175/- iii. Disallowance of Rs. 74,08,961/- under the provisions of sec.80JJAA of the Act. 5. Being aggrieved by the draft assessment order, the assessee-company filed objections before the Dispute Resolution Panel [DRP] contesting all the additions. It was contended by the assessee-company before the DRP inter alia that the said transactions do not constitute international transaction as the assessee-company and JII do not constitute Associated Enterprise (AE). It is submitted that the conditions specified u/s 92A(1) of the Act are not existing between the assessee-company and JII. In the absence of relationship of assessee-company between two companies, the transaction does not constitute international transaction within the meaning o....
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....n upheld by the Chennai bench of ITAT in the case of Asendas and by the Bangalore bench in the case of Tally Solutions. In these cases, the Hon Benches of Tribunal had occasion to conclude that the TPO was correct in determining the price or the value of the international t r ans act ion usin g a st and ard and accept abl e method and then sel ect ing the most appropriate method prescribed under the Act for the purpose of comparison of such ALPs. We therefore find no infirmity in the methodology followed by the TPO. The submission of the taxpayer that the TPO has used cost plus method is examined and found that it is only a typographical error. Ground No 4: Clubbing of royalty with the advertising and marketing expenditure. The next objection of the taxpayer is the clubbing of royalty with the advertising and marketing expenditure. The TPO's reasoning in the 'IV order is that payment of royalty is intrinsically linked with the marketing expenses as per the contents of the licence Agreement. There is no dispute that the brand JOCKEY and its logo are the advertising tools for the taxpayer. It is also a fact that the taxpayer, Page Industries Ltd is the exclusive licensee of....
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....o mentioned in paragraph 18 (c), the Licensee acknowledges that brand and image advertisement programs may be developed by or for Jockey. Upon request from Jockey, and upon mutual agreement by both parties, Licensee agrees to pay an amount equal to 40 percent of the Minimum Advertisement Expenditure directly to Jockey to support such brand and image advertising, marketing and promotional activity. Such payments shall be paid by the licensee to Jockey within 30 days after the end of each license quarter. Said amount shall be credited against Licensee's Minimum Advertising Expenditures. In para 18(e) it is mentioned that all artwork and designs involving the Jockey Mark or any reproduction thereof shall, not withstanding their creation or use by the Licensee be and remain the property of Jockey and Jockey shall be entitled to use the same and to license the use of the same to others. The Agreement started on January 1, 2005 and expires on December 31,2009. S per term S8 of the schedule to the agreement the target of minimum sales have been fixed for each year. For instance, for the period January 1, 2009 to December 31, 2009 the target sales of licensed product have been fixed at....
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....ion of Chennai Bench of ITAT rendered in the case of Ascendas (India) Private Limited, to support the adoption of the Bright Line method for arriving at the value of the AMP expense reasonably expected to be spent by comparable companies. In the case of Ascendas, the Hon Tribunal has upheld the use of a method (the discounted cash flow method) not prescribed in the Act but widely followed internationally to ascertain the value of an asset. The methodology used to arrive at the market value of the asset is different from the methodology used for benchmarking the international transaction prescribed in section 92C(1) of the Act. 7.6 Having arrived at the Arm's length margin or the allowable AMP expenditure vis-a-vis the comparables, the TPO has used the CUP method as the most appropriate method for the purpose of comparison. As stated earlier, the mention of cost plus method is only a typographical error. We therefore, uphold the use of the CUP method as the most appropriate method adopted by the TPO. 5.2 The DRP also confirmed the disallowance under the provisions of sec.80JJA by holding the disallowance is as per the manner laid down by the Rules. The disallowance of Rs. ....
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....he fag end of the limitation period. 2. The assessing officers has erred in: a) making a reference for the determination of the Arm's Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so; and b) making reference to the TPO without disposing the jurisdictional issue as to whether there exists an associated enterprises ("AE") relationship between the Appellant and Jockey International Inc.("Jockey Inc.") 3. The lower authorities have erred in: a) not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X' and therefore addition under Chapter X is bad in law. b) passing the order without demonstrating that the Appellant had motive of tax evasion. Grounds relating to treatment as Associated enterprise 4. The lower authorities have erred in: a) considering Jockey Inc.as AE, without demonstrating that the conditions laid down in 92(A)(2) of the Act are ....
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....fication from the TPO.In either case, it has not been justified how CUP Method is the most appropriate method in the facts and circumstances of the case. Grounds relating to computation of ALP 9. Assuming without admittingthat CUP method is the most appropriate method, the lower authorities has erred in: a) passing the order bereft of proper understanding of the industry, business, economic and commercial realities in the case of the Appellant; b) unilaterally adopting comparables selected by the Appellant under TNMM as comparable under CUP Method without demonstrating how they remain comparable under the CUP Method also; c) not appreciating that during the year under consideration the Appellant incurred additional AMP expenses for new events, campaign and launches of new product, which had a substantial impact on the revenue of succeeding years and thereby it was incumbent to adopt multi-year average; and d) considering only advertisement expenses in the case of comparables whereas considering marketing and sales promotionsexpenses in the case of Appellant for computing the AMP ratio. 10. The lower authorities have erred: a) no....
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....s. 295,531 on delayed payment of dividend distribution tax ("DDT") to the tax payable in the Order passed without appreciating that the proceeding under section 143(3) is for assessing total income and tax thereon and not for determining shortfall, if any in payment of dividend distribution tax. b) not detailing the basis of determining shortfall in payment of dividend distribution tax. c) Levying a sum of Rs. 295,531 as interest for delayed payment of DDT. On the facts and circumstances of the case, interest under section 115P is not leviable. The appellant denies its liability to pay interest under section 115P. Even otherwise, the interest levied is excessive. d) Levying a sum of Rs. 4,49,95,680/- as interest under section 234B. On the facts and circumstances of the case, interest under section 234B is not leviable. The appellant denies its liability to pay interest under section 234B. Even otherwise, the interest levied is excessive. e) Levying a sum of Rs. 7,62,976/- as interest under section 234C. The interest levied is excessive; and f) Not considering self assessment tax paid amounting to Rs. 23,425,000 for computation of interes....
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....ated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,- (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total....
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....ersons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. 11. It is the case of the AO that the assessee-company and JII are AEs as they fall within the parameters of clause (g) of subsec.( 2) of sec.92A of the Act. It is not the case of the AO that the present case falls within parameters of sub-section (1) of sec.92A of the Act. In this background, we are called upon to adjudicate whether both the entities are AEs within the meaning of sec.92A of the Act. The definition of the term 'AE' is divided into two subsections (1) and (2). Sub-sec.(1) contains(means) definition of AE is .para meters of management control or capital of that enterprise. Sub-sec.(2) contains a deeming provision and also enumerates circumstances when the enterprise can be deemed to be AE. The opening words of sub-sec.(2) are amended by Finance Act, 2002 w.e.f. 1/4/2002 . The amendment was explained as follows by the Memorandum of Finance Bill 2002: "It is proposed to amend sub-sec.(2) of the said section to clarify that the mere fact of participation of one enterprise in the management or control or capital of the ....