TaxTMI 
TaxTMI 
2019 (5) TMI 1598
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.... of DRP/AO, vide order dated 14.12.2012 in ITA No.2889/Del/2010 by making 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 len....
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....ng marketing intangibles whose ultimate benefit inured to the associated enterprise. 2.7. That TPO / DRP erred on facts and in law by questioning 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 ....
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....cluding selling and distribution expenses amounting to Rs. 12,00,57,999 while computing the alleged AMP adjustment of the appellant. 2.19. Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that the associated 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% Pok....
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....me of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal." For A.Y. 2007-08, Assessee as well as Revenue are in appeal before us, which arises out of order dated 30/03/12 passed by Ld. CIT (A)- 20 on following grounds of appeal: ITA 2770/Del/2012 A.Y. 2007-08 Revenue's appeal) 1. The Ld.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....
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....)/Assessing Officer / TPO has erred both in law and facts in coming to conclusion that the appellant is a distributor and marketer of the AE. c) 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 appellant was a limited risk distributor and is selling the products manufactured by AE. d) 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 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 ....
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....s made by assessee on account of waiver/reduction of Interest and Royalty by AE from the adjustment made by the TPO/AO. b) On the facts and in the circumstances of the case, the learned CIT (A)/TPO/Assessing Officer erred in coming to conclusion that only expenditures actually debited in P &L Account can be basis for savings. c) On the facts and in the circumstances of the case, the learned CIT (A)/TPO/Assessing Officer erred in coming to conclusion that no setting off is permitted under Indian TP Regulations. 9). Without prejudice the above 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 circumstance....
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....) and, therefore, requires compensation along with mark-up for brand promotion services, for applying Bright Line Test. Ld.TPO compared AMP expenditure incurred by assessee with an average AMP expenditure of following comparables: Sl.No. Name of the Company AMP/Sales Ratio (%) 1. Arintex Global Ltd. 0.59 2. Bharitya Global Marketing Ltd. 4.24 3. Brandhouse Retails Ltd. 2.01 4. Century Knitters (India) Ltd. 0 5. Keygien Global Ltd. 3.29 6. Pokama Fashions Ltd. 5.57 Arithmetic Mean 2.62 3.2. Ld. TPO thus was of opinion that AMP expenses of sales in case of assessee was at 8.43% 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 t....
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....r any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP. 48. Question (i) in 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, ....
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....a P Ltd. (supra). 8.1. On perusal of TP order, at page 6, it is observed that Ld.TPO made an effort to analyse whether AMP expenditure is an international transaction or not. It is very interesting to note that Ld.TPO observes that assessee has been licensed the brand "Adidas" by its domestic AE (Adidas India Pvt. Ltd). He also reproduces relevant extract from the agreement, wherein it is recorded that Adidas India Pvt. Limited is the exclusive owner of trademark "Adidas" and enjoys all proprietary rights related thereto. It is observed that relevant clauses reproduced in Transfer Pricing order is an extract from the trademark agreement dated 14/02/1997. Further in para 5.2 at page 7 of TPO order Ld.TPO records 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 i....
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....MP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court 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. ....
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....oving stock which is in consonance with company policy as has been explained by Ld.Counsel in his argument. Nothing on record has been placed before us by Ld.Sr.DR or by authorities below pointing out any fault or error in the company policy of disposing off seconded goods. Moreover assessee has discretion to decide how its business needs to be conducted. It is observed that Ld.TPO proposed adjustment as in his opinion assessee could have directly sold these goods to third parties. Ld.A.O. was of the opinion assessee sold the goods through AE and part of the profits has been shifted to the A.E. 13.1. It is observed that assessee bench marked the transaction of sale to AEs by using internal CUP. From records placed before us it is observed that assessee sold finished goods 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 an....
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....d does not incline on the power of appellate authority. Instead placing reliance upon the decision of Hon'ble Supreme Court in case of TRF Ltd vs CIT reported in 323 ITR 397, Ld.Counsel submitted that it is not necessary for assessee to establish that the debt in fact had become irrecoverable and it was enough if bad debts is written off as irrecoverable in the accounts of assessee. 16. Ld.CIT, DR placed reliance upon the order of authorities below. 17. We have perused submissions advanced by both sides in the light of records placed before us. 18. In our considered opinion there are plethora of decisions by various Courts and Hon'ble Supreme Court wherein it has been held that a legitimate claim of assessee should be allowed even if it is raised during assessment proceedings. 18.1. There is no dispute with 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. Accord....
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....oser 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 incidental benefit....
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....erprises at 'nil' rate of interest from borrowed funds, on which, assessee paid interest. Ld. Counsel submitted that there was no loan that was given by assessee to its AE. Instead sum of Rs. 2,08,31,000/-, was recoverable from AE as on 31/03/07. It has been submitted that this amount is coming as due since 2000-01 and no addition of this amount was made during A.Y. 2000-01 to 2003-04. Ld.Counsel submitted that for first time for A.Y. 2004-05 Ld.AO made a disallowance by treating it as paid for non business purpose. 25.1. Ld.Counsel in the written submissions placed reliance upon order dated 07/01/2011 by this Tribunal in assessee's own case in ITA No.1889/Del/2010 for A.Y. 2004-05, wherein the sole issue for consideration was regarding disallowance out of the interest payment made by assessee during relevant year. 25.2. Ld.CIT,DR placed reliance on orders of authorities below. 26. We have perused submissions 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 ha....
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....tisement expenditure even if debited by the assessee to its own profit and loss account could have been allowed as admissible expenditure in the hands of the assessee within the meaning of sec. 37 of the Act as so allowed in the assessment year 1997-98. In the present assessment year under consideration the part of the advertisement expenditure was agreed to 8 be borne by holding company. The assessee had incurred expenditure on advertisement and debited the same to the account of holding company. The act to incur expenditure on advertisement to promote the brand name is undoubtedly based on business interest and commercial expediency. Further, the assessee has been benefited by not paying the royalty @ 5% of the sales during the year under consideration which was required to be paid by the assessee as per Technical Assistance Agreement dated 14.02.1997 and therefore, the amount debited to the account of the holding company remained 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. The....
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....sallowance was made. 27.2. Assessee has submitted that during year under consideration a sum of Rs. 2,08,31,000/- was shown recoverable as opening balance as on 01/04/2006 from AE. 27.3. It is observed that Ld.AO blindly made addition without appreciating the fact that interest was not charged due to commercial expediency. 27.4. Respectfully applying ratio laid down by Hon'ble Supreme Court in case of S.A.Builders vs. CIT (supra) we do not find any infirmity in the view taken by Ld.CIT(A) and the same is upheld. Accordingly this ground raised by revenue stands allowed. 28. Ground No.3 is in respect of deleting Rs. 3,64,952/- disallowance of extra depreciation on computer peripherals. 28.1. Both the sides admit to the fact that the issue now stands squarely covered by the decision of Hon'ble Delhi High Court in case of CIT vs BSESE Yamuna Power Ltd reported in 358 ITR 47. In lieu of the above submissions, we are inclined to uphold the 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(A....