TaxTMI 
TaxTMI 
2019 (8) TMI 351
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....sessment year 2011-12, grounds of which are reproduced as under: 1. On the facts, in law and in the peculiar circumstances of the present case, the Learned Dispute Resolution Panel ('Ld. DRP') has grossly erred in making certain observations by exceeding its powers as detailed under section 144C(8) of the Act, by directing certain new additions on issues which neither arose out of the assessment proceedings, nor were in relation to the proposed variations as made by the Ld. AO at the draft order stage and hence, for this reason alone, it is prayed that such additions so made, may be ordered to be deleted. Transfer Pricing Grounds 2. On the facts, in law, and in the circumstances of the case, the Panel erred in sustaining the basis of addition of INR 8,87,80,971/- on account of import of finished goods proposed by the Ld. TPO. 2.1. On the facts, in law, and in the circumstances of the case, the Ld. AO/TPO and the Panel erred in selecting the Transactional Net Margin Method ('TNMM') as the most appropriate method ('MAM') as against the Comparable Uncontrolled Price ('CUP') method, which is direct and most reliable under the specific facts of th....
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....terizing it as a distributor of finished goods and not as manufacturer. 7. Without prejudice to the above, on the facts, in law, and in the circumstances of the case, the Ld. AO/TPO and the Panel erred in imputing mark-up of 32.25% on the alleged excessive AMP expenses which represents the Gross profit on sales earned by the applicant from its manufacturing and distribution activities. 8. That on the Ld. Panel gravely erred in directing the Ld. AO/ TPO to apply a mark-up of 32.25% which is excessive, arbitrary and devoid of economic and commercial realities of business. Corporate Tax Grounds 9. On the facts and circumstances of the case and in law, the Panel erred in directing to disallow fee for 'buying agency services under Section 40(a)(i) of the Income-tax Act, 1961 ('the Act') paid by the Appellant to adidas International Trading B. V. by holding the same to fall within the definition of "Fees for technical services" under section 9(l)(vii) of the Act and Article 12(5) of the India- Nether lands Double Taxation Avoidance Agreement ("the DTAA"). 9.1 On the facts and circumstances of the case and in law, the Panel gravely erred in enhancing the income of the Ap....
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....as selected for scrutiny and the Assessing Officer referred the matter for benchmarking of the International transaction to the learned Transfer Pricing Officer (TPO). Learned TPO, however, rejected the CUP method for benchmarking adopted by the assessee. According to the learned TPO the assessee was also engaged in providing Advertising, Marketing and sales Promotion (AMP) for the brand of the AE and thus, international transaction of the AMP existed in the case of the assessee. The learned TPO benchmarked both the International transaction of import of the finished goods and AMP expenses on aggregated basis applying Transactional Net Margin Method (TNMM) accepting five companies engaged in promotion of the brand owned by AEs or by themselves as comparable companies and made an adjustment of Rs. 8,87,80,971/- to the purchase of the finished goods. 3.1 Pursuant to the order of the learned TPO, the Assessing Officer issued draft assessment order confirming the adjustment proposed by the learned TPO. In the draft assessment order, the learned Assessing Officer also proposed disallowance of buying commission expenses in terms of section 40(a)(i) for nondeduction of the tax at source.....
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....5.2 The learned DR could not controvert the above submission of the learned counsel of the assessee. 5.3 We have heard the submission of the parties on the issue in dispute in the light of the order of the lower authorities. We find that the learned DRP directed the Ld. AO/TPO on the choice of comparables for TNMM analysis of distribution function as under: "DRP's findings The TPO has discussed the issue in regard to selection of comparables on page 4 & 12 on the order. The Comparables that were selected by the TPO were from the ones that were suggested by the assessee to benchmark its distribution function. As the functions/segment' that was being benchmarked was primarily the distribution function therefore, the-TPO held the comparables proposed by the assessee as valid comparables. The TPO out of 30 comparables of the assessee selected 5 comparables, on the basis that * The assessee is engaged in promotion of brand name which is not owned by it but is owned by its AEs which leads to creation of marketing intangibles for its AEs; * The TPO selected 5 companies out of 10 comparables which neither own a brand nor were they incurring AMP expensed for brands owned by....
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....: "DRP's Findings The assessee has pointed out error in the competition of OP/Sale % by the Transfer Pricing Officer and has submitted rectified margin for five comparables. The Transfer Pricing Officer had rejected the above calculation of operating margins from the annual report on the premise that the assessee earlier submitted the operating margin calculations using Prowess/Capitaline database. The assessee submits that the annual report is a vital document which is considered to be the most reliable source of qualitative as quantitative information about a company. This view has been upheld in various judicial pronouncements. There are major difference in the competition of the OP/Sales % by the assessee and that by the TPO. The TPO is directed to re-compute the OP/Sale % and rectify any omission or mistake in the calculation as ideally there should not be any difference in the two computations." 5.5 We find that while giving effect to the order of the learned DRP, the learned TPO in letter dated 28/01/2016 has recomputed only AMP adjustment and adjustment in respect of International transaction of import of finished goods was retained at Rs. 8,87,80,971/-. The relevant p....
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.... cannot be continued. The impugned order to the extent of addition of Rs. 8,87,80,971/- made in respect of adjustment to International transaction of import of finished goods is set aside and matter is remitted back to the learned AO/TPO to comply with the direction of the learned DRP on the issue of adjustment to the International transaction of import of finished goods. The grounds No. 2 to 2.3 of the appeal are accordingly allowed for statistical purposes. 6. In grounds No. 3 to 8 of the appeal, the assessee has raised the issue of AMP adjustment of Rs. 38,97,45,132/- made in the case of the assessee. 6.1 Before us, both the parties agreed that issue in dispute is covered by the direction of the Tribunal in assessment year 2006- 07 in ITA No. 3727/Del/2014 and this may be decided accordingly. 6.2 We have heard the submission of the parties and perused the relevant material on record. The issue whether incurring of expenditure on advertisement, marketing and sales promotion by the assessee, amounts to International transaction and determination of its arms length price, has been decided by the Tribunal in assessment year 2006-07 The relevant finding of the Tribunal is reproduc....
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....igh 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." 6.3 We note that the Tribunal in assessment year 2010-11 in ITA No.1431/Del/2015 has also restored the matter to the Assessing Officer to decide in view of the finding in assessment year 2006-07. 6.4 Respectfully following the finding of the Tribunal(supra), the issue in dispute of determination of AMP adjustment is restored to the file of the Assessing Officer for deciding in accordance with the direction given by the Tribunal in assessment year 2006-07. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The grounds of the appeal from 3 to 8 are accordingly allowed for statistical purposes. 7. The grounds No. 9 to 9.3 of the appeal relates to disallowance under section 40(a)(i) of the Act in respect of buying agency services. According to the lower autho....
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....t issue in dispute is squarely covered by the decision of the Tribunal Delhi bench in the case of a Adidas Sourcing Ltd versus ADIT (2012) 150 TTJ 801, wherein it is held that buying commission paid does not fall within the ambit of the fee for technical services. 7.2 The learned DR, on the other hand, relied on the order of the lower authorities. 7.3 We have heard the rival submission of the parties on the issue in dispute. The identical issue of buying commission in the case of sister concern of the assessee has been decided by the Tribunal (supra) as commission and not fee for technical services. The relevant finding of the Tribunal is reproduced as under: "5. We have heard the rival contentions and perused the submissions made by the parties in detail. The main issue for consideration is whether the consideration received by the assessee from AIMPL under the Buying Agency Services Agreement ('BAS') could be characterized as 'fees for technical services' under section 9( 1)(vii) of the Act and accordingly by taxed under the provisions of section 1 15A of the Act. Explanation 2 to section 9(1 )(vii) defines 'fees for technical services' as under: Explanation 2.-For....
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....to the decision of the Mumbai bench of the ITAT in the case of Linde AG vs TTO (62 ITD 330) wherein it is observed that: "In the definition for 'fees for technical services' the consideration has to be for rendering technical, managerial or consultancy service. By making purchase for the Indian concern no consultancy services is provided as no advice is given to them. It is a simple procurement of equipments by the assessee for them. It is also not a technical service in the sense of technical education is concerned with leaching applied sciences and special training in applied sciences, technical procedures and skills required for practice of trade or profession, especially those involving the use of machinery or scientific equipment. If the information is given for the use of the machinery or scientific equipment it would partake the character of fees for technical serviices hut when it is only for the procurement of the scientific equipments it would be a simple service of commercial and industrial nature. It, therefore, cannot he termed as a technical service for which the procurement fees charged by the assessee cannot he a consideration for technical services. The third cat....
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....nd of the appeal from 9 to 9.3 are accordingly allowed. 8. In ground No. 10 the assessee requested for allowing brought forward losses in accordance with section 72 of the Act. 8.1 We have heard the submission of the parties on this issue and we direct the Assessing Officer to examine the claim of the assessee of brought forward losses in accordance with the law. The ground of the appeal is accordingly allowed for statistical purposes. 9. The ground No. 11 of the appeal is consequential in nature, and accordingly we are not required to adjudicate this ground. 10 The ground No. 12 of the appeal is premature and cannot be adjudicated at this stage, accordingly it is dismissed. 11. In the result, the appeal of the assessee is allowed partly for statistical purposes. ITA No.729/Del/2017 for AY: 2012-13 12. Now we take up the appeal of the assessee for assessment year 2012-13, grounds of which are reproduced as under: Transfer Pricing Grounds 1. On the facts, in law, and in the circumstances of the case, the Panel erred in sustaining the adjustment on account of Advertisement, Marketing and Promotional ("AMP") on both protective and substantive basis. 2. On the facts, in l....
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....e Gross profit on sales earned by the applicant from its manufacturing and distribution activities. 10. Without prejudice to the above, the Ld. TPO / Ld. AO erred on the facts, and in law, in incorrectly computing the adjustment amount by considering incorrect value of AMP expense incurred by the taxpayer. 11. On the facts, in law, and in the circumstances of the case, the Ld. TPO / Ld. AO erred in making protective adjustment of Rs. 8,87,80,971/- on account of AMP expenses. 12. Without prejudice to Ground 11 above, he Ld. TPO / Ld. AO erred on the facts, in law, and in the circumstances of the case, by selecting the incorrect comparable companies to make protective adjustment. 13. Without prejudice to the above grounds, on the facts in the circumstances of the case and in law, the Ld. AO has erred in raising a demand against the protective addition made by the Transfer Pricing Officer. Corporate Tax Grounds 14. That on the facts in the circumstances of the case and in law, the Hon'ble Dispute Panel-1 ('Hon'ble DRP') erred in upholding the adjustments made by the Learned Deputy Commission of Income tax, Circle 1(2), New Delhi ('Ld. AO') which is ....