TaxTMI 
TaxTMI 
2016 (1) TMI 1280
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.... 2. Briefly stated relevant facts of the case are that the assessee is a related concern to Johnson & Johnson, Inc, USA (J&J US). Assessee has three business segments namely (i) consumable segment; (ii) pharmaceutical segment and (iii) medical devices segment. No adjustments are made by the TPO relating to the claims of pharmaceutical and medical devices segment. Consumable segment is the area of contention during the TP study. Assessee filed the return of income declaring the total income of Rs. 120.59 Crs (rounded of). Consumable segment of the assessee deals with public care, skin care, wound care, oral care products. Assessee maintained segmental details. Assessee reported Rs. 188.51 Crs (rounded of) of expenditure on account of AMP expenses. The ratio of the said expenditure to the net sales worked out to 18.69%. The said AMP expenses include selling expenses amounting to Rs. 28.66 Crs. The publicity expenses attributable to consumables segment is Rs. 159.85 Crs. During the TP proceedings, the TPO held that the said expenditure on account of AMP contributed to the brand development of the parent company ie „J&J US‟. Relying on the Special Bench decision in the case....
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....ts. No adjustment is called for in connection with the AMP expenditure incurred by the assessee, „J&J India‟, since, J&J India has retained entire profits in India. Further, Ld Counsel for the assessee submitted that the „bundled transaction approach‟ is required to be followed and it is not logical to treat the AMP as a separate transaction as the TPO accepted the comparables under TNM Method. Relying on the decision of the Hon‟ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd (ITA No.16/2014), Ld Counsel for the assessee submitted that the „BLT‟ has no statutory mandate and therefore, it cannot be used as most appropriate method. However, referring to the TPO‟s decision to include selling expenses as part of the AMP expenses, Ld Counsel for the assessee submitted that the selling expenses should be excluded while computing the adjustments on account of „excessive AMP expenses‟. Bringing our attention to various paras of the said judgment of the Delhi High Court in the case of Sony Ericsson (supra), Ld Counsel for the assessee demonstrated that issue relating to the AMP expenses can be ....
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....the powers of the AO / TPO in de novo TP adjustment to the entire international transactions. In this regard, it is the submission of the Ld Counsel for the assessee that the scope of the assessment should restricted to the above issue only and not to the other international transactions. He also considered the arguments of the Ld DR for the Revenue that the scope of the judgment relating to the benchmarking of the AMP expenditure should be extended to the explanation given by the Ld Counsel for the assessee. If the assessee‟s explanation for justifying the huge AMP expenditure is going to touch upon all the transactions relating to the input of the raw material of the assessee „J&J USA‟, being inter-connected, the AO should have the power to involve the said transactions as well in benchmarking exercise of the AMP expenditure. On considering the undisputed fact that the assessee obtained concessions from the „J&J USA‟, in lieu of AMP expenditure contributing to the brand development, we are of the opinion that the AO‟s jurisdiction in this regard should revolve around all the assessee‟s explanations justifying the AMP expenditure of the as....
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....he ratio of the jurisdictional High Court judgment in the case of Reliance Utilities (supra). In any case, in principle, we cannot approve the charging of notional interest when the assessee has raised the invoice to receive the amount relatable to the subsidiary company without rejecting the books of accounts of the assessee. Accordingly, this part of the grounds is allowed for statistical purposes. Thus, Ground nos. 41 and 42 are allowed for statistical purposes. 10. Ground no.1 is general in nature. Considering the general nature of the Ground no.1, the same is dismissed. 11. Ground nos.2 and 3 relate to the disallowance of tax on brand usage royalty of Rs. 2.21 Crs. Vide Ground no.2, assessee questioned the TPO / AO‟s decision in disallowing the above mentioned tax deducted on payment of brand usage royalty made to J&J US on the ground that the assessee should not bear the same as per the agreement entered into between the assessee and the J&J US. Without prejudice to the said Ground no.2, assessee raised Ground no.3, wherein it is questioned that even if the tax borne by J&J India on brand usage royalty is to be disallowed, the disallowance should be restricted to ....
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....e for the AYs 2006-07 and 2008-09 vide ITA No. 83/M/2011, dated 5.2.2014 and ITA No.7133/M/2013, dated 19.2.2014 respectively. In this regard, he brought our attention to pages 245 to 290 of the paper book, wherein the copies of the said decisions are placed on record. In this regard, it is the submission of the Ld Counsel for the assessee that the present grounds may also be decided in the same lines considering the identicalness of the issues involved. On hearing both the parties on this issue, we have perused the cited decisions of the Tribunal in assessee‟s own cases (supra) in general and for the AY 2006-07 in particular, wherein the Tribunal held that the taxes are liability of the assessee based on the terms of agreement. Further, the Tribunal observed that the liability of payment of service tax is of recipient of the services and since, assessee is receiver of the services, it is assessee's liability to bear the service tax and hence no disallowance is called for service tax paid by the assessee. Considering the above as well as keeping in view the commonality of the issues involved in the appeals decided by the Tribunal (supra) and that of the ones raised in Ground ....
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....Ys 2002-03; 2006-07 and 2008-09. Considering the commonality of the issues as well as respectfully following the earlier decisions of the ITAT on the same issue, we of the opinion that the royalty payments have to be considered in the light of the above cited agreements (Exhibits 1 to 4) between the assessee and J&J US. Accordingly, we allowed the Ground nos. 6, 7 and 8 in favour of the assessee. 14. Ground no.9 relates to restricting of technical know-how royalty on manufactured goods to 1% of net sales, resulting in disallowance of Rs. 25.26 Crs out of Rs. 35.90 Crs. In principle, the issue involved in the present ground relates to the issues raised in ground nos. 6 to 8 above. While adjudicating the Ground nos.6 to 8 in the above paragraphs of this order, we held that the royalty payments have to be decided in the light of the agreement between the assessee and the J&J US. It is also held that the TPO is not authorized to disallow the expenditure by taking into account the information available on website of SIA, which provides the information about the ALP approved by the RBI. Further, an identical issue was also decided by the Tribunal and deleted the disallowance in assess....
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....based on the terms of the agreement. Further, the Tribunal has also observed that liability of payment of service tax is of recipient of the services and since, the assessee is the receiver of the services, it is the liability of the assessee to bear the service tax and hence no disallowance is called for service tax paid by the assessee. He also mentioned that relying on the said decision of the Tribunal for the AY 2006- 07, similar issue raised in the assessee‟s own case for the AY 2008-09 was also decided in favour of the assessee. It is the prayer of the assessee that considering the commonality of the issues involved in the appeals decided by the Tribunal (supra) as well as in the instant Grounds, the disallowance of service tax paid on brand royalty should be deleted. We have heard both the parties and perused the cited decisions of the Tribunal (supra) as well as the relevant material placed before us. On perusal of the cited decisions as well as considering the commonality of the issues, we, respectfully following the said Tribunal‟s decisions (supra) on the identical issues for the AYs 2006-07 and 2008-09, we delete the disallowance made on account of service t....
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.... and 30 are allowed. 18. Ground no.31 relates to the disallowance of Rs. 3.89 Crs on account of proportionate MODVAT credit attributable to closing stock. Brief facts in this regard are that the assessee consistently follows the practice of accounting for opening stock, purchases and closing stocks exclusive of excise duty which is as per the accounting standards prescribed by Institute of Chartered Accountants of India (ICAI). However, the sales are exclusive of excise duty. During the assessment proceedings, after considering the submissions of the assessee, AO made an addition of Rs. 3.89 Crs towards MODVAT credit attributable to closing stock. DRP confirmed the said addition and accordingly AO made the addition in the assessment. Before us, Ld Counsel for the assessee briefed the facts in this regard and brought our attention to various decisions of the Tribunal in assessee‟s own cases for the AYs 1997-98 to 1999-2000 [ITA Nos.145/M/01 and others]; AY 2001- 02 and 2002-03 [ ITA Nos.2772/M/2004 and 9106/M/04]; AY 2002-03 [ ITA Nos. 4070/M/07]; AY 2006-07 [ ITA No.83/M/2011] and for AY 2008-09 in ITA No.7133/M/2012, copies of which are placed in paper book, and mentioned....
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....matter to the file of the AO with identical directions. AO is also directed to exclude the excess provision for cash discount for AY 2008-09 while computing income for the year under consideration. Accordingly, Ground nos.32 and 33 are allowed for statistical purposes. 20. Ground nos.34 and 35 relate to the disallowance of depreciation on testing equipment of Rs. 2.62 Crs. Brief facts in this regard are that in the assessment, AO disallowed the depreciation claimed on testing equipment u/s 32 of the Act amounting to Rs. 2,62,49,180/- on the ground that the said fixed assets are not used by the appellant for the purpose of their business as they are located at different pathological laboratories, hospitals etc across the count. DRP confirmed the said disallowance and accordingly, the AO disallowed the said depreciation on the testing equipment in the assessment order. In this regard, at the outset, Ld Counsel for the assessee submitted that similar disallowance was deleted by the Tribunal in assessee‟s own case for the AY 2001-02 in ITA No.9437/M/04 (pages 199 to 216 of the paper book-I are relevant in this regard) and read out the relevant paras. After hearing both the par....