TaxTMI 
TaxTMI 
2019 (1) TMI 1061
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....f the Dispute Resolution Panel (hereinafter referred to as 'DRP') under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ('Act'), is bad in law, violative of principles of natural justice and void ab-initio. 1.1 That the assessing officer erred on facts and in law in determining income of the appellant at Rs. 4,455,589,972 against returned total income of Rs. 1,941,316,860. Transfer Pricing Matters: 2. That the assessing officer erred on facts and in law in making addition of Rs. 243,85,14,991 on account of alleged difference in the arm's length price of international transactions resulting from the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) of the Act. 2.1. That the assessing officer erred on facts and in law in holding that the (i) associated enterprise is the beneficiary of the efforts of the appellant and (ii) the assessee is creating a marketing intangible in favour of the associated enterprise. 2.2. That the DRP erred on facts and in law in holding that the appellant....
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....ts and in law in not appreciating that adjustment on account of allegedly excess AMP expenses is unwarranted in the case of the appellant, a full risk bearing manufacturer/distributor. 2.10. That the DRP/TPO erred on facts and in law in re-characterizing the appellant, a full risk bearing manufacturer/distributor, as a limited risk service provider entitled to cost plus remuneration for its marketing efforts. 2.11. Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that since the AMP expenses incurred by the appellant ought to have been benchmarked by aggregating the same with other closely linked transactions undertaken by the appellant 2.12. Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that since the operating profit margins of the appellant were higher than margins of the comparable companies, the appellant was adequately compensated for the allegedly excess AMP expenses incurred by the appellant. 2.13. That the DRP/TPO erred on facts and in law in holding that the entity in control of the intangible asset is treated as the owner, not appreciating that the appellant, by performi....
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....he economic owner of such intangible. 2.22. The DRP/TPO erred on facts and in law in applying Bright Line Test (BLT) for computing adjustment on account of expenditure on advertisement and brand promotion expenses, without appreciating that BLT is beyond the provisions of Chapter X and has no mandate under the Act. 2.23. Without prejudice that the DRP/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM and aggregating the AMP expenses with other closely linked transactions undertaken by the appellant. 2.24. That the DRP/TPO erred on facts and in law in not excluding the Rebate Discount/Pricing adjustment of Rs. 204,55,83,442 from the quantum of AMP expenditure, allegedly holding that " the question being investigated is 'marketing intangible' and not just 'brand promotion' alone in the instant case. 2.25. That the DRP/TPO erred on facts and in law in holding that commission on sales or sales discount etc. help the company to create loyalty among distributors not appreciating that such expenses are incurred only for effecting the sales ....
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....making disallowance of Rs. 2,43,85,14,991/- being expenses incurred on advertisement and publicity on an alternative basis holding that such expenses were not wholly and exclusively incurred for the purpose of the business of the assessee. 8. That the Assessing Officer/DRP erred on facts and in law in making an addition of Rs. 8,87,611/- allegedly being undisclosed income, on the basis of difference in the TDS claimed by the appellant and amount of TDS reported in the individual transaction statement/AIR information. 9. That the Assessing Officer/DRP erred on facts and in law in making an addition of Rs. 3,60,76,000 invoking the provisions of section 40(a)(ia) of the Act, allegedly on account of shortfall in tax deducted at source on the basis of the individual transaction statement /AIR information. 10. That the Assessing Officer/DRP erred on facts and in law in making disallowance of Rs. 3,25,50,000/- being provision for expenses of package tour holding the same to be contingent in nature. 11. That the Assessing Officer erred on facts and in law in levying interest under section 234B, Section 234C and Section 234D of the Act. 12. That ....
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.... 27,09,46,110 Reimbursement that assessee received should have received 2,43,85,14,991 Reimbursement actually received Nil Adjustment to assessee's income 2,43,85,14,991 3. Aggrieved by adjustment made, assessee raised objections before the DRP. DRP in their direction dated 18/12/14 directed Ld.TPO/AO to examine nature of salary and remuneration amounting to Rs. 9,97,38,593/-, spent by assessee. Ld.TPO upon verification did not make any changes in addition proposed in draft order. Thereafter, upon receipt of such intimation from Ld.TPO, Ld.AO passed final assessment order by determining the total income of assessee at Rs. 4,45,55,89,972/-, as against returned income of Rs. 1,94,13,16,860/-. 4. Aggrieved by order of Ld. AO, assessee is in appeal before us now. 5. At the outset, Ld. Counsel submitted that Ground No. 1 raised by assessee is general in nature, and therefore do not require any adjudication. Accordingly the same is dismissed. 6. Ground No. 2 to 2.29 has been raised against adjustment made by Ld.AO on account of alleged excessive AMP expenses amounting to Rs. 243.85 crores. It has been submitted by Ld. Coun....
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....n the Assessee's appeal viz., "Was there an international transaction between WOIL and its AE involving the AMP expenses within the meaning of Section 92B of the Act read with Section 92F(v) of the Act?" is answered in the negative, i.e., in favour of the Assessee and against the Revenue. Consequently Question (ii) in the Assessee's appeal is not required to be answered. Further, the only question framed in the Revenue's Appeal viz., "Whether the ITAT erred in deleting the addition of Rs. 180,73,10,769 made by the AO/TPO on account of AMP expenses under Section 37 of the Act?" is answered in the negative, i.e. in favour of the Assessee and against the Revenue. 49. The impugned order of the ITAT and the corresponding orders of the DRP and the TPO, on the above issues are hereby set aside. The appeal of the Assessee, ITA No. 228 of 2015 is allowed and the appeal of the Revenue, ITA No. 610 of 2014 is dismissed in the above terms, but in the circumstances with no orders as to costs." 7.3. On perusal of orders passed by Ld.TPO/AO/DRP for year under consideration, it is observed that AMP expenditure has been considered to be international transaction by applying ....
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....raised by revenue in assessee's own case along with other cases, has not been listed before Hon'ble Supreme Court. We are therefore inclined to follow view taken by this Tribunal in assessee's own case which has been upheld by Hon'ble High Court for Assessment Year 2008-09. We therefore, reject prayer advanced by Ld.Sr.DR for adjournment. It is observed that similar view has been taken by this Tribunal in assessee's own case for assessment year 2009-10 in ITA No.1254/del/2014 vide order dated 26/11/18. 8.2. However, we appreciate the concern raised by Ld.Sr.DR that decision of Hon'ble Supreme Court will be binding upon assessee as well as revenue. We are therefore, inclined to set aside this issue to Ld.AO/TPO to pass fresh order considering decision of Hon'ble Supreme Court. Needless to say that proper opportunity shall be granted to assessee of being heard. Accordingly Grounds 2 to 2.29 stand allowed for statistical purposes. 9. Amongst corporate grounds raised by assessee, Ld.Counsel submitted that Ground Nos. 3, 4, 5, 6, 8, 9 has been raised due to mismatch in 26 A-S. He submitted that at the time of assessment, all details regarding claim raised in these grounds were ....
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.... dealers. 11.1. Ld.Counsel submitted that dealers are given tour packages. It has been submitted that vision for tool packages were made on accrual basis to account for achievement of sales targets and necessary to and resultant expenses these were accounted for in subsequent financial years. 11.2. Ld.AO disallowed it by holding that expenses are of contingent in nature which depends upon happening of certain event and therefore not allowable for year under consideration. Is it is also submitted by Ld.Sr.DR that provision made towards expenses were not actual expenses incurred which has been crystallised during year under consideration and therefore same is not allowable. 11.3. We have perused submissions advanced by both sides in light of records placed before us. No doubt, unless expenditure is actually incurred, or it is accrued during relevant year, it would not be allowed as deduction. Liability has to be in praesenti. However at the same time, in present scenario where assessee's employees or dealers achieved sales target, assessee offered foreign tours, expenses of which were accounted for in subsequent year, which is consistent with Accounting Standards and thes....
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....year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other." 11.5. The aforesaid observations of Hon'ble Bombay High Court has been reiterated by Hon'ble Delhi High Court in the case of CIT v. Shri Ram Pistons & Rings Ltd. Reported in [2008] 174 Taxman 147, as under : "Finally, we may only mention what has been articulated by the Bombay High Court in Commissioner of Income Tax, Delhi, Ajmer, Rajasthan and Madhya Pradesh v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 as follows : In the reference that is before us there is no doubt that the Assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment year 1983-84 with w....
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....ile clarifying the position of law in this regard held that, section 35 (2 AB) clearly provides that, any expenditure incurred by a party on its R & D facility except, insofar as it relates to land and building liable to be allowed to be claimed as deduction. 14.2. Ld.Counsel submitted that Hon'ble Delhi High Court further held that for availing benefit under section 35 (2AB), what is relevant is not date of recognition or cut-off date mentioned in Certificate of DISR or even date of approval, but existence of recognition. He further submitted that Hon'ble Delhi High Court thus opined through this decision that, if an R&D centre is not recognised, it is not entitled to deduction under section 35 (2 AB) of the Act. He placed reliance upon decision of Hon'ble Gujarat High Court in case of CIT vs Claris Lifesciences Ltd., reported in 326 ITR 251, which has been referred to and relied upon by Hon'ble Delhi High Court while deciding the case of Maruti Suzuki India Ltd (supra). 14.3. Considering legality of issue involved that has been clarified by Hon'ble Delhi High Court, we deem it fit and proper to admit additional ground so raised by assessee. 14.4. While arguing upon issue....