TaxTMI 
TaxTMI 
2019 (5) TMI 1541
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....e to following issues:- (a) Validity of assessment order passed, i.e., according to the assessee, the assessment order is barred by limitation. (b) Validity of T.P adjustment made in respect of AMP expenses (c) Addition made u/s 40(a)(i) of the Act. In the corporate tax grounds urged by the assessee, the assessee has challenged the levy of interest u/s 234B of the Act. At the time of hearing, the Ld A.R agreed that the same is consequential in nature. The ground relating to levy of penalty u/s 271(1)(c) is premature. 4. With regard to the legal issue relating to validity of the assessment order, the Ld A.R submitted that the impugned assessment order has been passed by the AO beyond the time limit prescribed in sec.153 of the Act. We notice that though the assessing officer has passed the assessment order in terms of sec.144C(13) within one month from the end of the month in which the direction from Ld Dispute Resolution Panel was received. However, it is the contention of Ld A.R that the provisions of sec.144C(13) do not extend the time limit prescribed in sec.153 of the Act and in the instant case, the assessment order though was passed within one....
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.... To adjudicate the addition ground, the relevant statutory provisions have to be seen. Time limit for completion of assessments and reassessments. 153. (1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of- (a) two years from the end of the assessment year in which the income was first assessable ; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or subsection (5) of section 139, whichever is later : Provided that in case the assessment year in which the income was first assessable is the assessment year commencing on or after the 1st day of April, 2004 but before the 1st day of April, 2010, the provisions of clause (a) shall have effect as if for the words "two years", the words "twenty-one months" had been substituted : Provided further that in case the assessment year in which the income was first assessable is the assessment year commencing on or after the 1st day of April, 2005 but before t....
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....n sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Disp....
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....12, w.e.f. 1- 4-2013 : (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Commissioner under subsection (12) of section 144BA. (15) For the purposes of this section,- (a) "Dispute Resolution Panel" means a collegium comprising of three Commissioners of Income-tax constituted by the Board 5 for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company. 6. It is not in dispute that the Assessee is an eligible Assessee and therefore the Assessment in the case of the Assessee is to be completed keeping in mind the statutory provisions of Sec.143(3), 144C and Sec.153 of the Act. 7. In so far as an eligible Assessee is concerned, the third proviso to Sec.153(1) lays down the period of limitation and it lays down a period of 3 years from the end of the relevant Assessment year as the time within which Assessment ....
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.... other hand is that an assessment order passed by the assessing officer pursuant to the directions of the DRP is under section 143(3) read with section 144C(13) of the Act. Such an order cannot be construed as having been passed independently and on a stand-alone basis under section 144C(13) of the Act. The further contention of the Assessee is that the time limit for completion of assessment in terms of section 153(1) of the Act is ordinarily 2 years from the end of the relevant assessment year. The said limit was enhanced to 3 years in case of an assessee wherein reference was made to the TPO (i.e., in the case of eligible assessee). It was submitted that the enhanced time limit of 3 years is provided in the statute in order to take care of the time that would be taken, inter alia, in the TPO passing the order, passing of draft assessment order, objections being filed before the DRP, disposal of objections by DRP and passing of assessment order. It was submitted that the provisions of section 144C do not, give a go bye to the limitation enshrined in section 153 of the Act and provisions of section 153 are not made subject to provisions of section 144C of the Act nor do provisions....
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.... place is time consuming and finality in high demand cases is attained only after a long drawn litigation till Supreme Court. Flow of foreign investment is extremely sensitive to prolonged uncertainty in tax related matter. Therefore, it is proposed to amend the Income-tax Act to provide for an alternate dispute resolution mechanism which will facilitate expeditious resolution of disputes in a fast track basis" 12. It was submitted that if the non-obstante clause in sections 144C(4)/ 144C(13) of the Act is interpreted as allowing the assessing officer additional time over and above the limit provided under section 153(1) third proviso, of the Act, the same would defeat the entire purpose of expediting the dispute resolution process, by enlarging the time available for completion of assessment to almost five years from the end of the relevant previous year (four years from the end of the relevant assessment year). 13. We have considered the submissions of the learned counsel for the Assessee. We however find similar issue has already been considered and decided against the Assessee by the ITAT Delhi Bench in the case of Honda Trading Corporation vs. CIT : (2015) 61....
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....ssment order, wherever the matter was referred to TPO. We also find that section 92CA(3A) enables the TPO to pass an order before 60 days prior to the time limit provided for passing the assessment order in 153 or 153B, as the case may be. Therefore, wherever the issue of adjustment of transfer pricing arises for consideration, the TPO is expected to pass his order before 60 days prior to the period of limitation referred in 153 or 153B, as the case may be. 4.1 We further find from section 144C of the Act, that when the Assessing Officer drafted a proposed assessment order and the assessee accepted the variation made by the Assessing Officer in the draft order, then the Assessing Officer has to pass the assessment order within one month from the end of the month in which the acceptance of the assessee is received by the Assessing Officer. This period of limitation provided in section 144C(4) of the Act. Whenever the assessee objects to the proposed assessment order drafted by the Assessing Officer, the DRP should issue directions as provided in section 144C(5) of the Act. Subsection (12) of section 144C prohibits the DRP from issuing any direction after 9 months from the e....
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....thin one month from the end of the month in which such direction is received." 4.4 In view of section 144C(13), notwithstanding anything contained in section 153, the Assessing Officer has to pass order within one month from the end of the month in which the direction of the DRP is received. Therefore, even though the period of limitation provided in 3rd proviso to section 153(1) expired on 31.3.2013. Section 144C(13) gives extension of further period of one month from the date of receipt of direction from the DRP. In view of the above, the date of receipt of direction of DRP by the Assessing Officer becomes crucial......" 8. We notice that various benches of Tribunal are taking the view that the provisions of sec.144C(13) give extension of further period of one month from the end of month in which the direction of DRP was received. In the instant case, there is no dispute that the assessing officer has passed the assessment order within one month from the end of the month in which direction of DRP was received. Accordingly, consistent with the view taken by various benches of Tribunal, we reject the legal ground urged by the assessee. 9. We shall now take up the iss....
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.... as Royalty payments. Further, the assessee was claiming certain treaty benefits. Under these set of facts, the coordinate bench had restored the issue for examining the same afresh. On the other hand, in the instant case, the payments have been made for purchase of software. The assessee is contending that the software were purchased for selling it to its customers and accordingly contended that the decision rendered in the case of Samsung Electronics Co Ltd (supra) is not binding. We are unable to accept the said contentions. Since the payments have been made for purchase of software, we are of the view that the decision rendered by Hon'ble jurisdictional Karnataka High Court in the case of Samsung Electronics Co Ltd (supra) is applicable to the facts of the present case. 13. The Ld A.R has raised an alternative contention that the disallowance u/s 40(a)(i) should be restricted to the portion of payment which is chargeable to tax in India. Since this alternative contention was not raised before the AO, the same requires examination at his end. Accordingly we restore this alternative contention to the file of the AO for examining the same in accordance with law. 14. We shall....
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....ment of Rs. 21392.48 lakhs on account of AMP expenses incurred by the assessee. The Ld DRP also confirmed the same. 17. We heard the parties and perused the record. The Ld A.R contended that the AMP expenses incurred by the assessee do not fall under the definition of "International Transactions" given in sec.92B and 92F of the Act. By placing reliance on the decision rendered by Hon'ble Delhi High Court in the case of Moser Baer (316 ITR 1), the Ld A.R submitted that the TPO has to bring on record some empirical evidence or material on record to show that there existed a mutual arrangement or understanding between the parties or they acted in concert so as to constitute an international transaction. Accordingly he contended that the AO/TPO cannot reach his conclusions on mere presumptions that the parties have acted in concert or they had an understanding or arrangement between them so as to construe existence of a transaction, which can be termed as international transaction. 18. The Ld A.R submitted that the TPO has followed Bright Line Test (BLT) in order to determine the alleged excess expenses incurred by the assessee towards AMP expenses. He submitted that the Hon'ble ....
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....n India and also responsible for identifying customers in India. The assessee is required to keep its AE updated on the general market data available with it. This information includes competitive analysis, market driver requests for new products etc. Further, the key marketing decisions are taken by the assessee in consultation with its AE. The Ld D.R, accordingly submitted that these activities would show the existence of international transaction on account of AMP. 20. We heard rival contentions on this issue and perused the record. The Hon'ble Delhi High Court has held in the case of Maruti Suzuki Ltd (supra) that the revenue needs to establish the existence of international transaction before undertaking benchmarking of AMP expenses. In the instant case, we notice that the TPO has entertained the belief on the basis of presumptions that the assessee's AMP expenses have promoted the brand value of its AE, i.e., no material has been brought on record to show the existence of International transaction. Before us, the Ld A.R placed his reliance on various case laws. We notice that the decision rendered by Delhi bench of ITAT in the case of L.G. Electronics India P Ltd vs. ACIT ....
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....on can be only made by choosing comparable of domestic cases not using any foreign brand, is contrary to the Rules. It amounts to writing and prescribing a mandatory procedure or test which is not stipulated in the Act or the Rules. This is beyond what the statute in Chapter X postulates. Rules also do not so stipulate." 11. Respectfully following the judgment of the Hon'ble High Court of Delhi [supra], we hold that BLT has no mandate under the Act and accordingly, the same cannot be resorted to for the purpose of ascertaining if there exists an international transaction of brand promotion services between the assessee and the AE. 12. In our considered opinion, while dealing with the issue of bench marking of AMP expenses, the Revenue needs to establish the existence of international transaction before undertaking bench marking of AMP expenses and such transaction cannot be inferred merely on the basis of BLT. For this proposition, we draw support from the judgment of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd 381 ITR 117. 13. In this case, the Hon'ble High Court held that existence of an international transaction need....
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....be construed to be a nonresident AE of MSIL. While it does have a number of 'transactions' with MSIL on the issue of licensing of IPRs, supply of raw materials, etc. the question remains whether it has any 'transaction' concerning the AMP expenditure. That brings us to clauses (b) and (c). They cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of MSIL is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spend excessively on AMP in order to promote the brand of SMC. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This might be only an illustrative list, but significantly it does not l....
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....h incurring of AMP expenses for development of brand owned by the AE. In our considered opinion, in the absence of such demonstration, there is no question of undertaking any benchmarking of AMP expenses. The relevant findings of the Hon'ble High Court in the case of Whirlpool of India Ltd [supra] read as under: "32. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. XXX 34. The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP ....
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....n since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP." 16. The case of the Revenue is that Indian subsidiary incurred certain expenses for the promotion of brands in India and for development of the Indian market and the creation of marketing intangibles in India which remain the functions of the parent company which is the entrepreneur. The brands are owned by the parent company. The Indian subsidiary only acts on behalf of the parent company. The Revenue alleges that eventual beneficiary of the acts of the Indian subsidiary is the parent company. Any benefit that may accrue to the Indian subsidiary is at best incidental to the entire exercise. This action of the Indian subsidiary amounts to rendering of a service to its foreign AE for which arm's length compensation was payable by foreign AE to its Indian subsidiary. 17. It is the say of the ld. DR that the functions carried out by the assessee are in the nature of development, enhancement, maintenance, protection and exploitation of the relevant intangibles and thus, the assessee deserves compensation. 18.....
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....ndent international transaction and not to regard and treat the said activity as a function performed by the respondent-assessee, who was engaged in marketing and distribution. Further, while segregating / debundling and treating advertisement and sales promotion as an independent and separate international transaction, the assessing officer did not apportion the operating profit/ income as declared and accepted in respect of the international transactions." 21. In our understanding of the facts and law, mere agreement or arrangement for allowing use of their brand name by the AE on products does not lead to an inference that there is an "action in concert" or the parties were acting together to incur higher expenditure on AMP in order to render a service of brand building. Such inference would be in the realm of assumption/surmise. In our considered opinion, for assumption of jurisdiction u/s 92 of the Act, the condition precedent is an international transaction has to exist in the first place. The TPO is not permitted to embark upon the bench marking analysis of allocating AMP expenses as attributed to the AE without there being an 'agreement' or 'arrangement....
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....the assessee has a dual function of manufacturer and distributor. In any case, given its distribution function, the assessee is covered by the judgement of Hon'ble Delhi High Court in M/s Sony Ericsson. c) The benefits to the AE from AMP function continue to be the same as in the case of distributor like increase in sale of raw material, components and spare parts, increase in dividend, and increase in copyright and patent payments apart from creation/enhancement of Brand value. Therefore, the argument advanced by the assessee would not have any bearing on the existence of 'international transaction' just because it is engaged in manufacture has not merit. 25. Considering the aforesaid contention of the Revenue, we are of the considered view that the Hon'ble High Court in the case of Maruti Suzuki India Ltd [supra] held that the findings of the Hon'ble High Court with regard to existence of international transaction was only with respect to the case of three limited risk distributors namely, Sony Ericsson, Canon and Reebok etc., wherein the existence of international transaction was admitted and not in dispute. The Court accordingly held that s....
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....some cases, a distributor may bear extraordinary marketing expenditures beyond what an independent distributor with similar rights might incur for the benefit of its own distribution activities. An independent distributor in such a case might obtain an additional return from the owner of the trademark, perhaps through a decrease in the purchase price of the product or a reduction in royalty rate." 28. The Hon'ble High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd (supra) has further held that no transfer pricing adjustment in respect of AMP expenses can be made where the assessee (Indian entity) has economic ownership of the brand/logo/trademark in question, in the case of long term right of use of the same. This principle also squarely covers the present case. The assessee has a long term agreement for the use of the trademark 'LG' in India. This clearly evidences the fact that the economic benefit arising out of the alleged promotion of the AE's logo is being enjoyed by the assessee. There is a clear opportunity and reasonable anticipation for the assessee to benefit from the marketing activities undertaken by it. This is clearly ....
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.... Re-organisation, sale and transfer of a brand as a result of merger and acquisition or sale is not directly a subject matter of these appeals. As noted above, in a given case where the Indian AE claims economic ownership of the brand and is deprived or transfers the said economic ownership, consequences would flow and it may require transfer pricing assessment." (emphasis supplied) 29. As held by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications (supra), if the Indian entity is the economic owner of the brand and is incurring AMP expenses for the purpose of promotion of such brand, benefit is only received by the Indian entity. It was submitted that the economic ownership of the brand rests with the assessee and accordingly, the assessee cannot be expected to seek compensation for the expenditure incurred on the asset economically owned by it. No Transfer Pricing adjustment on account of AMP expenses would be warranted. The aforesaid test is fully satisfied in the case of the assessee and the Transfer Pricing adjustment on account of AMP expenses made by the TPO is liable to be deleted. 30. The assessee being a full-fledged man....
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....tion that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible." 33. Considering the aforementioned findings of the Hon'ble Jurisdictional High Court of Delhi In the case in hand, the operating profit margin of the assessee is at 5.01% in the manufacturing segment and 4.52% in the distribution segment and the same is higher than that of the comparable companies at 4.04% in the manufacturing segment and 4.46% in the distribution segment. TNMM has undisputedly been satisfied. Since the operating margins of the assessee are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted. 34. Considering the facts of the case in hand in totality, we are of the view that the....
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....most of the software-from its group company, i.e., Acer Malaysia and custom duty is paid on such imports. There is no agreement between Acer India and the suppliers or vendors stipulating such terms and conditions. Acer India does not have any exclusive license agreement with any of the software suppliers. Acer India mainly adopts distributor channels or partners to sell its products for onward sale to end-customers. However, the software is purchased on the basis of specific requests from the end-users. Facts as recorded in the decision The taxpayer was engaged in the development of computer software and exports such software developed to its head office located in South Korea. The assesse had entered into a software license agreement with the non-resident supplier. The taxpayer obtained a non- exclusive license to use the licensed software. The taxpayer obtained certain rights to the software as expressly stated in the agreement. As per the terms of the agreement, the taxpayer was restricted to use sub- distributors for further distribution of the softw....