TaxTMI 
TaxTMI 
2019 (4) TMI 1868
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....tances of the case, the ld.CIT(A) erred in deleting the amount of Rs. 2,22,39,759/- on account of advertising and publicity expenses stating that these expenses are revenue in nature by completely ignoring the detailed reasons given by the AO and without appreciating the fact that the above expenditure was not incurred wholly and exclusively for the purpose of business of the assessee and was also capital in nature. 4. Whether in the facts and circumstances of the case, the ld.CIT(A) erred in deleting the disallowance of Rs. 1,38,26,742/- on account of impairment of stock entirely relying on the submission of the assessee by completely ignoring the detailed reasons given by the AO and without appreciating the fact that no evidence filed by the assessee that the above expenditure was an ascertained liability? 5. Whether in the facts and circumstances of the case, the ld.CIT(A) erred in deleting the disallowance of Rs. 20,277/- made on account of excess claim of depreciation on printer and UPS @ 60% as computer peripherals are not part of the computer? 6. That the order of Ld.CIT(A) is erroneous and is not tenable on facts and in law. 7. That the g....
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....ion which resulted in a loss while making the payment. Accordingly, the liability to deduct TDS on such an amount does not arise and this erroneous disallowance should be deleted. 3.3 The Learned AO has erred in disallowing an amount of Rs. 2,297,795 related to demurrage charges, on account of non crystallization of liability and thereby considering the same as contingent in nature, irrespective of the fact that such amount has been paid in respect of goods lying with the port authorities, in order to keep the goods in the safe custody beyond the lay time. Thus the expenses were in the nature of compensatory rental. 4. Grounds pertaining to Transfer Pricing Matters 4.1 That the Learned TPO / Learned CIT(A) have erred both in law and on facts in inappropriately applying Indian Transfer Pricing regulations to determine the arm's length price for amounts paid domestically to independent third parties by the Appellant to fulfill its own business interests. The Learned TPO / Learned CIT(A) have failed to appreciate that such an unilateral action of the Appellant (to incur such expense) cannot be regarded as an "international transaction" as per the provision o....
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....arables for the purposes of drawing a comparison. The Learned TPO / Learned CIT(A) has chosen to completely ignore the guidance on the issue of choice of appropriate comparable companies for 'Brightline' analysis, as has been laid out in the decision of Hon'ble Special Bench in the case of M/s L.G. Electronics India Private Limited. 4.7 Without prejudice, That the Learned TPO / Learned CIT(A) have erred on facts and in circumstances of the case by conveniently ignoring that the Appellant has received voluntary reimbursement to the extent of Rs. 35,121,600 for such impugned AMP expenses incurred for the subject year, and which has been duly offered to tax in the return of income for FY 2010-11 i.e. the year in which it is received. * Thereby Learned TPO / Learned CIT(A) failed to grant much required relief to the extent of Rs. 35,121,060 while computing the adjustment on AMP expense. In this regard, the application seeking rectification under section 154 of the Act has been already filed before the learned CIT(A) to effect for. 4.8 Without prejudice to the above grounds, the Learned TPO / Learned CIT(A) have erred in facts and circumstances of the case....
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..../ Sales (GP/ Sales) as Profit Level Indicator (PLI). The management services were justified under Transactional Net Margin Method (TNMM) using foreign comparables. Assessee had not treated Advertisement, Marketing and sales Promotion expenses (AMP) expenditure as international transaction. 2.3. The Transfer Pricing Officer (TPO) determined (ALP) of international transaction involved in import of finished goods and other activities mentioned in item 1 to 4 in above table by using TNMM as most appropriate method and Operating Profit/ Operating Revenue (OP/ OR) as (PLI) at entity level. He has taken 5 comparables selected by assessee for this exercise. They are as follows: Table-2: Company Name % of Adv exp to sales Falcon Tyres Limited 6.39% India tyre and Rubber Company (India) Limited 3.93% Kesoram Indsutries Limited 1.19% Monotona Tyres 2.26% TVS Srichakra Limited 4.07% Arithmetic mean 3.57% 2.4. It is important to note that TPO rejected 2 companies, namely, Krypton Industries Ltd. and Ecowheels Pvt. Ltd. which were appearing in TP documentation for the reason that first company was not trading in tyre and for second company....
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....controlled transactions which may have a material effect on account of gross profit should be made and, for applicability of this method one should ascertain, functional similarity performed by tested party before it resold the property or services and also the cost incurred for performing these functions to be similar and identical to the comparable uncontrolled transactions. Ld.Sr.DR submitted that gross profit margin earned by the tested party can then be compared with gross profit margin of comparable which has performed similar functions and has calculated gross margin after considering cost of those functions. Ld.Sr. DR also pointed out that assessee is maintaining a very high inventory which is evident from scheduled 12 of profit and loss account which indicates that products are not moving fast for correct applicability of RPM. He submitted that RPM is more accurate where it is realised within a short time of reseller's purchase of goods, as more time that lapses between the original purchase and resale more likely it is that other factors like changes in the market in rates of exchange in cost etc will need to be taken into account in any comparison. It has been emphasised....
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....g upon decision of L'Oreal India Pvt. Ltd vs ITO in ITA No. 5423/Mum/2009, agreed for RPM to be most appropriate method to determine ALP in case of assessee. 12.1. Section 92C(1) of the Income-tax Act, 1961 provides that arm's length price in relation to international transaction shall be determined by any of methods, being, the most appropriate method, having regard to nature of transaction or class of transactions or class of associated persons or functions performed by such persons or such other relevant factors. Amongst five specific methods, include, RPM and TNMM. Sub-section (2) of section 92C provides that most appropriate method referred to in sub-section (1) shall be applied for determination of ALP in the manner as may be prescribed. Rule 10B sets out the procedure under above referred five methods. Rule 10B(1) states that ALP of an international transaction shall be determined by any of the prescribed methods being most appropriate method, given in section 92C(1) at the material time and such computation can be done only in the manner as is prescribed under the rule. The instant controversy narrows down to examining and deciding as to whether, RPM or TNMM is the m....
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.... no or insignificant value addition to goods purchased from foreign AE. In case goods so purchased are used either as raw material for manufacturing finished products, or are further subjected to processing before resale, then RPM cannot be characterized as proper method for benchmarking international transaction of purchase of goods by assessee from its AE. 13.3. Further on facts of present case it is observed that assessee has used 6 comparables and the PLI chosen was gross profit margin being GP/sales. 13.4. Ld. CIT (A) while dealing with the issue has observed as under: "4.4. I have carefully examined the issue. The debate regarding RPM vs. TNMM has been settled by the decision of the Hon'ble ITAT in the case of L'oreal (supra) when the underlying international transaction is resale of imported goods. The facts of the case of the appellant are similar to the case of L'oreal because the appellant is a reseller of tyres without any value addition. Therefore, I hold that the ratio of L'oreal is applicable to the facts of the present case. Further, it is not the case of the TPO that appellant is doing any value addition before selling the tyres in Ind....
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....rofit of the 5 comparables taken by the TPO is given in the following table: Table-3: Name of the Company Gross Margin Falcon Tyres Limited -4.98% India tyre and Rubber Company (India) Limited Not available Kesoram Industries Limited Not available Monotona Tyres Limited 8.95% TVS Srichakra Limited -17.69% Arithmetic mean -4.57% Further, the appellant has calculated its gross margin as below (which is extracted from Annexure-5 of TP study): Table-4: Working of gross margin of the appellant for AY 2007-08 (in Rs.) Sales (excluding sales tax) 935,844,603 Add: Change in Stock Opening Stock 114,945,031 Closing Stock 191,585,098 Inventory Written Off - Warrantee expenses reclassified - (76,640,067) Less: Purchase value of traded Purchase Value of traded products 500,161,378 Custom Duty 253,552,099 753,713,477 Cost of Sales 677,073,410 Gross Profit 258,771,193 Gross Margin 27.65% 4.7. The appellant h....
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....as been raised by revenue against disallowance of Rs. 2,22,39,759/-, being deleted on account of advertising and publicity expenses stating that these expenses are revenue in nature. 15. Ld.Sr.DR submitted that Ld.CIT (A) has not considered the detailed reasons given by Assessing Officer. He submitted that the Ld.CIT (A) failed to appreciate that expenses were not incurred wholly and exclusively for purposes of business of assessee and therefore should be considered as capital expenditure. 16. On the other hand Ld.Counsel submitted that assessee incurred expenditure on sponsorship of events, advertisement and newspaper, magazine, electronic media, banners, wall paintings etc to promote and sale of tyres in India. He submitted that Ld.AO disallowed 50% of advertisement expenses on ad hoc basis by holding that such expenditure are towards brand building of entities owning the grant without giving due cognizance to the fact that the direct beneficiaries of these expenses are assessee itself. 17. We have perused submissions advanced by both sides in light of records placed before us. 17.1. We have perused observations of Ld. CIT (A) which is as under: "14.4. I have....
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.... 19. Ld.Sr.DR submitted that impairment in the value of stocks under ascertained liability and no evidence has been brought on record to demonstrate provision was created on scientific basis. He submitted that such provision can be allowed only if same are relating to ascertained liability and have been worked out on actual basis. Ld.Sr.DR contended that in case of trading concerns debit notes are issued to suppliers as inferior manufacture tyres should be liability of the manufacturer and not the trader. 20. Ld.Counsel submitted that assessee while making provision for impairment of stock has followed Accounting Standard 2. He submitted that these stocks cannot be treated as an ascertained liability merely for the purposes of making a disallowance. He submitted that the valuation has been as per the Accounting Standard and therefore the disallowance has been wrongly made by Ld.AO on assumptions and surmises. Placing reliance upon view of Ld. CIT(A), Ld.Counsel submitted that the valuation has been provided for as per the provisions of Accounting Standard and therefore should not be held as under ascertained liability. 21. We have perused submissions advanced by both sides in....
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....o be taken. * Training and personnel services: Assistance in ensuring proper recruitment, training and human resources management. * Financial advisory services: Expertise in all the financial aspects of the business of the Beneficiary. * Economic and investment research and analysis: Assistance in financial and economic analysis. * Credit control and administration: Assistance in the selection of sources of funds. * Product distribution planning and logistics services: Assistance in the management of products flows, determine resources necessary to ensure the efficient supply of products in a timely manner. * Quality control services: Expertise on quality assurance in all the fields of activity from the development of products to the service to final client. » Legal services: Legal services in all matters including but not limited to corporate, tax, intellectual property, commerce, finance, partnership, all legal aspects of business. * Information and Telecommunication services: Assistance in technical definition, implementation and maintenance of computers and telecommunications systems. Support operati....
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....annot be questioned by the taxing authorities. The only relevant point is whether the appellant has really availed these services? If appellant had not availed these services and still paid for such things, then it is within the power of the AO to disallow such claims. The reason given by the AO that the appellant has suffered losses due to these payments is not a justification for disallowance of such claims. But the evidence shown by the appellant for availing these services are also not adequate. For the sake of argument, it is possible that all the above cited services (in para 15.1 above) may be made available by the parent company or group companies. That itself does not justify the payment made by the appellant unless and until it has availed such benefits. These management services are apparently from a common pool of expertise. The liability to pay for these services occurs only when the appellant draws from such 'pool'. The mere existence of the 'pool' of expertise elsewhere does not justify the payments. I have gone through the limited evidence produced by the appellant. The e- mails are perused. These e-mails are so routine in nature th....
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....uch evidences before authorities below, nor before us to substantiate its claim. We therefore do not find any infirmity in view taken by Ld.CIT(A). Accordingly this ground raised by assessee stands dismissed. 35. Ground No. 3.2 has been raised by assessee for the disallowance of Rs. 5,43,533/-, relating to training expenses on account of non-deduction of TDS. 36. Ld.Counsel placed reliance upon the following table: S. No. Date Party name Currency type Amount (Rs.) Nature of expenses 1. 19/09/06 Michelin Tyres PLC 405 EURO 4,806,214.00 Amount payable against Invoice 028940/20.6.2005 for Euro 107,457 for training of truck road staff & TDS deducted @ 15% as per treaty with UK (Total invoice amount 5,654,369.07 Less TDS 848,155) 2. 19/09/06 Michelin Tyres PLC 405 EURO 543,533.98 Amount incurred for training of Michelin Road Staff Total 5,349,748 36.1. Ld.Counsel submitted that, amount represents impact of foreign exchange fluctuation which resulted in a loss, while making payment, on which TDS was not to be deducted. 37. Ld.Sr.DR on the contrary submitted that as per Rule ....
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....s. 77,35,524/-. 43.2. Aggrieved by Ld.TPO assessee preferred appeal before Ld.CIT(A) who confirmed adjustment made. 43.3. Aggrieved by Ld.CIT(A) assessee is in appeal before us. 44. Ld.Counsel submitted that revenue failed to establish existence of separate international transaction of AMP. All material necessary for the same is on record and it will kindly be noticed that rightly there is not even a whisper about any lack of information. He submitted that Bright Line test (BLT) is no longer acceptable method for bench marking an international transaction pertaining to AMP expenditure, hence, qualification of adjustment is also not in accordance with law. Impugned expenditure resulted in increase of sales in India is not even disputed. It cannot be denied that such expenditure is "directly linked to pushing sales of MIPL" and bring direct benefit to MIPL and hence bring no direct benefit to the brand of the AE. It was submitted that on this premise itself the entire adjustment deserves to be deleted. 44.1. Ld.Sr.D.R. placed reliance on revised application dated 10.06.2018 filed by assessee on 21.2.19 wherein assessee at page 4 below the computation of Gross Margin of as....