TaxTMI 
TaxTMI 
2019 (5) TMI 1598
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....king following observations in para 7: "If we look at the order of Ld.DRP extracted (supra) in the light of above proposition, it will reveal that DRP has not applied its mind. The assessee had filed objections running into several pages and not a single objection has been discussed by the Ld.DRP. Therefore, we set aside the order of Ld.DRP and remit the issue back to the file of Ld.DRP for re-adjudication." 1.2. Post the set aside by this Tribunal, DRP passed the order subsequent to which Ld.AO vide order dated 30/04/14 passed impugned order against which assessee filed appeal on following grounds of appeal: A.Y. 2006-07 (Assessee's appeal) 1. That assessing officer erred on facts and in law in completing the assessment under section 144C read with section 143(3) of the Income-tax Act (the Act) at an income of Rs. 13,39,58,727 as against the returned income of Rs. 4,18,18,258. 2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 9,10,91,932 on account of the alleged difference in the arm's length price of international transactions resulting from the advertisement, marketing and sales promotion ex....
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....the commercial expediency of AMP expenditure incurred by the appellant and assuming that benefit has accrued to AE on account of AMP expenses incurred by the appellant in India. 2.8. The DRP/TPO erred on facts and in law in not appreciating that the advertisement and marketing expenses were incurred by the appellant wholly and exclusively for purposes of its business and not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 2.9. That the DRP/TPO erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and / or distributor performing all functions and bearing all risks, is the sole beneficiary of the AMP expenditure incurred by it, justified the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 2.10. Without prejudice, TPO/DRP erred on facts and in law in not appreciating that even if marketing intangible has been created then the appellant is the economic owner of the benefit of such intangible. 2.11. That the DRP erred on facts and in law by holding that incurring of AMP expenses in India by the appellant is excessive being over and a....
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....ssociated enterprise has also incurred AMP expenditure from which the appellant has derived benefit and a corresponding reimbursement of AMP expenditure should be made by the appellant to the associated enterprise. 2.20. Without prejudice that the DRP/TPO erred on facts and in law in not considering appropriate set of comparables for undertaking benchmarking analysis of the alleged international transaction arising out of AMP expenditure incurred by the appellant. 2.21. Without prejudice that the assessing officer/ DRP erred on facts and in law in considering the following companies as comparable for benchmarking advertisement and publicity expenses, without appreciating that product similarity is essential for benchmarking AMP expenses: Name of company AMP/sales Arintex Global Limited 0.59% Bhartiya Global Marketing Ltd. 4.24% Koffee Break Pictures Ltd. 0.00% Century Knitters India Ltd. 0.00% Pokarna Fashions Ltd. 5.57% Creatnet Services Ltd. 11.29% Mean 3.60% 2.22. Without prejudice that the assessing officer/ DRP erred on facts and in law in not considering the fresh search of comparable companies as per the criteria laid down by the Special Bench o....
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.....CIT(A) has erred on facts and in law in deleting addition of Rs. 15,56,02,591/- made on account of Arm's length price. 2. The Ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 15,70,657/- made on account of disallowance of interest expenditure. 3. The Ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 3,64,952/- made on account of disallowance of extra depreciation on computer peripherals. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during hearing of this appeal." C.O. 85/Del/2013 A.Y. 2007-08 (Assessee's Cross Objection) 1. That the Ld.CIT(A) grossly erred on facts and in law, in confirming the decision of TPO, holding AMP expenditure incurred by the assessee to be an international transaction within the meaning of Section 92B of Income Tax Act. 2. That, the Ld. CIT (A) having held that assessee to be "A high risk distributor/de facto manufacturer", and having rejected the case of TPO and the comparables relied upon by him, ought to have accepted the comparables given by the cross objector assessee holding that the transactions relating to AMP....
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....case, the learned CIT (A)/Assessing Officer / TPO has erred both in law and facts in coming to conclusion that loss of the assessee due to nonreimbursement of the AMP expenditure and the AMP expenditure resulted in increased sale of products manufactured by adidas group. e) Without prejudice to the above, the learned CIT (A)/ AO/TPO erred in computing the AMP expenditure attributable to AE at Rs. 10,46,54,054 instead of taking the AMP expenditure proportionate to purchases from AE to total sales of the assessee. 4. a) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer / TPO has erred both in law and facts in rejecting the Internal CUP given by the assessee to justify the AMP expenditure as being at arm's length. b) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer / TPO has erred both in law and facts in coming to conclusion that the promotion of brand in different market and geographies are not comparable with India for CUP method. c) On the facts and circumstances of the case the learned CIT (A) has erred in coming to conclusion that the CUP is being rejected as the case is covered by the jud....
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....ve grounds, On the facts and in the circumstances of the case, the learned CIT(A)/Assessing Officer / TPO has erred both in law and facts in not allowing depreciation on amounts of Rs. 7,23,41,946 held to be expenditure incurred for developing intangibles. 10) On the facts and in the circumstances of the case, the learned CIT (A) has erred in not excluding the expenditure of the appellant towards Market Research of Rs. 47 Lacs and sample expenses which are in nature of selling expenses to the tune of Rs. 309.39 Lacs (Total Rs. 356.39 Lacs) out of AMP Expenditure. 11) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer / TPO has determined Arms Length on mark up on AMP , a transaction not referred to him by the AO and therefore the adjustment made is without jurisdiction. 12) a) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer has erred in making addition on notional basis mark-up of 15% on expenditure incurred for developing the intangible of Rs. 7,23,41,946 amounting to Rs. 1,08,51,292. b) On the facts and in the circumstances of the case, the learned CIT (A)/TPO/Assessing Officer erred in not all....
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....43% which was higher than average AMP expenses incurred by comparables, thereby making an adjustment of difference which resulted in creation of marketing intangibles on account of promotion and development of brand "Adidas" legally owned by Associated Enterprise. 3.3. Ld.TPO thus held AMP expenditure to be an international transaction within the meaning of section 90 2B (1) of the Income Tax Act, 1961 (the Act). 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 have 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.Counsel that said issue now stands squarely covered in case of Whirlpool India Ltd. Vs. DCIT reported in (2014) 42 taxmann.com 553, which is upheld by Hon'ble Delhi High Court reported in (2015) 64 taxmann.com 324 . At this juncture, Ld.Sr.DR submitted that against order of Hon'ble Delhi High Court, revenue preferred appeal before Hon'ble Supreme ....
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....TAT 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 Bright Line Test, whereby Ld.TPO proposed an adjustment of 243.8 crores. 7.4. Ld.Sr.DR preferred adjournment application on the ground that issue involved in present appeal is in respect of AMP adjustment. He submitted that consistent stand has been taken by revenue before this Tribunal to request for adjournment in all appeals, where AMP adjustment has been disputed by either parties on ground that Hon'ble Supreme Court is seized with the matter. 7.5. During course ....
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.... as under: " 5.2. ........ A closer examination of the facts of the case has revealed that assessee's case is in fact no different from other cases wherein the Indian entity licenses the brand directly from its overseas AE. In assessee's case, a domestic AE (Adidas India private limited) has been interposed merely as a planning device and with no economic substance. ........... 5.3. The assessee was asked to furnish the audited financial statement of its immediate holding company in India with Adidas India private limited. On perusal of the same, it is quite clear that the holding company is just a shell company that does nothing else apart from holding investment in the assessee. ........" 8.1.1. If we appreciate implication by Ld.TPO, then since holding company has been opined by Ld.TPO to be shell company, in same breath, assessee would also amount to be shell company being its holding company. It is observed that Ld.TPO loosely used phrase 'lifting of corporate Veil', without understanding attributes that needs to be established by way of cogent materials/evidences to prove, a benefit of revenue having accrued to assessee. 8.1.2. We don't deny that there would be incident....
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.... is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee." Accordingly Grounds 2 to 2.24 stand allowed for statistical purposes. 9. Ground No. 3-3.3 have been raised by assessee against Transfer Pricing adjustment with relation to export of goods. 10. Ld.Counsel submitted that assessee had to minimise excess stock and had to sell off outdated stock without dilutes being its stand in the domestic market. As assessee could not sell the same by offering additional discount and clearing through discount shop, assessee exported the goods to AE Adidas Solomon Sourcing Ltd, Hong Kong. Ld.Counsel submitted that assessee used CUP method for benchmarking the transaction and produced copies of invoices of the products further sold by AE to Bonnie Blair. Ld.Counsel submitted that AE made gross profit of 23% on the transaction. 10.1. He submitted that it is policy of group to minimise excess stock and to sell off outdated stock at reasonable margins by following any of the following process:  One is t....
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....ods to following AEs amounting to Rs. 45,64,209/-: (a) Adidas Solomon Sourcing Ltd.: Rs. 44,05,621/-; (b) Adidas New Zealand : Rs. 67,760/-; (c) Adidas Latin America: Rs. 90,828/- In paper book at page 321 vide submission dated 21/02/2014 assessee submitted that, in order to capture the imagination of the buyer, every season, assessee deals in more than 100 new styles of products and it is likely that all styles and products are not popular and well accepted by customers. It has been submitted that, under such circumstances generally 10-20% of styles are not liked by the customers, which are classified as slow moving or obsolete. 13.2. From the records placed before us, it is observed that assessee had imported finished goods amounting to Rs. 13,76,26,854/- out of which, goods worth Rs. 45,64,209/- has been exported back due to its slow moving nature. The percentage of goods exported is approximately 3.3%. In our opinion as the percentage of goods that was returned back as slow moving is within the permissible limits of less than 10%. Even otherwise the gross margin earned by assessee from imported goods is in excess of 40% vis-à-vis the margin earned by assessee fro....
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.... the Department that said amount has been written off in accounts of assessee. However merely because it was not claimed in return of income, will not vitiate right of assessee to claim it during pendency of assessment proceedings. Ld.TPO is directed to allow the claim of assessee as per law. 18.2. We therefore are inclined to set aside this issue to Ld.A>O. Accordingly this ground raised by assessee stands allowed for statistical purposes. 19. Ground No. 5 raised by assessee is consequential in nature and therefore do not require any adjudication. 20. Accordingly appeal filed by assessee for assessment year 2006-07 stands allowed for statistical purposes. 21. Assessment year 2007-08. ITA No. 2770/Del/2012 ( Revenue's appeal) 22. Ground No. 1 raised by revenue is in respect of deleting sum of Rs. 15,56,02,591/-on account of AMP expenses by Ld.CIT(A). 23. We have already set aside this issue to Ld.AO with certain direction while deciding the same issue in assessee's appeal for Assessment Year 2006-07. Both parties agree that facts and circumstances of the case for year under consideration is similar and there is no change in the nature of expenses incurred by assessee. 23.1.....
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.... company. It is observed that Ld.TPO loosely used phrase 'lifting of corporate Veil', without understanding attributes that needs to be established by way of cogent materials/evidences to prove, a benefit of revenue having accrued to assessee. 8.1.2. We don't deny that there would be incidental benefit to foreign AE, being, Adidas-Saloman AG, which is ultimate parent of assessee. However, expenditure towards advertisement and marketing incurred by assessee in India is mainly for its own benefit to market products manufactured by it in India. Main purpose of incurring of such huge AMP expenses has largely benefited assessee in India, with an incidental benefit arising to foreign AE. Unless Ld.TPO can establish direct benefit accruing to foreign AE, it is very difficult to accept existence of international transaction, under present facts of the case. We rely upon decision of Hon'ble Delhi High Court in case of Sony Ericson Mobile Communication India Pvt.Ltd (supra) in support of aforestated observations. 8.2. Further it has been submitted by both sides that facts and circumstances in present appeal are no manner different with that of Maruti Suzuki Inida Ltd. Reported in 381 ITR....
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....missions advanced by both sides and perused records placed before us. 27. It is observed that identical issue had been decided in A.Y. 2004-05 (supra) as under: "8. We have heard both the parties and have carefully perused the orders of the authorities below. We have also gone through various documents and papers placed in the Paper Book filed by the assessee. We have also deliberated upon the position of law explained in this regard by both the parties. 9. From the orders of the authorities below and materials on record, it is clear that no amount was actually paid by the assessee to its holding company. The amount remaining outstanding against the holding company is on account of advertisement and brand promotion expenses which have been incurred by the assessee but debited to the account of the holding company. It is also not in dispute that the assessee company is an hundred per cent subsidiary of its holding company. The holding company and the assessee company had entered into a Technical Assistance Agreement whereby the holding company was to provide exclusive, non-transferable, non-assignable right to manufacture, distribute and sell the licensed products in India, Nep....
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.... outstanding, otherwise the same would have been adjusted against the royalty payable, by the assessee company to the holding company. Further, no actual amount has been paid by the assessee to the holding company during the year under consideration. There was outstanding opening balance of Rs. 1,87,36,555/- at the opening of the year, which has been reduced to Rs. 1,81,06,555/- at the end of the year, which goes to show that no further amount has actually been given by the assessee to its holding company. In the course of hearing, it has been pointed out by the learned counsel for the assessee that the identical addition made by the Assessing Officer in the assessment year 2003-04 has been deleted by the CIT(A) vide order dated 22.10.2010 by applying the principle laid down by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT (2007) 288 ITR 1 9 (SC) and in that respect, the learned counsel for the assessee relied upon the aforesaid decision of the Hon'ble Supreme Court. In the case of S.A. Builders (supra), the Hon'ble Supreme Court has observed that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency a....
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....view of Ld. CIT (A). Accordingly this ground raised by revenue stands dismissed. 29. In the result appeal filed by Revenue for A.Y. 2007-08 stands partly allowed for statistical purposes. 30. Cross Objection No.85/Del/15(Assessee) AY 2007-08 In the Cross Objection filed by assessee in support of only issue raised is in respect of AMP expenditure in support of view by Ld.CIT(A). 31. Both parties admit that facts and circumstances of this issue is similar to that of A.Ys considered hereinabove. Respectfully following the same, we are of considered opinion that no AMP adjustment deserves to be made. However, keeping in view the request made by Ld.CIT, DR the issue is set aside to Ld.TPO to pass fresh order after considering decision of Hon'ble Supreme Court. Needless to say that proper opportunity must be given to assessee. 32. In the result the Cross Objection filed by assessee stands partly allowed for statistical purposes. 33. ITA No.29/Del/2014 A.Y. 2008-09 (Assessee's appeal) The only issue raised by assessee in this appeal is in respect of adjustment on account of AMP expenses amounting to Rs. 8,31,93,238/-. Ld.Counsel has filed their submissions dated 19.3.2019 in resp....