TaxTMI 
TaxTMI 
2021 (2) TMI 857
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...., dated 30 October 2019 (served on the Appellant on 4 November 2019), under Section 143(3) read with section 92CA read with section 144C of the Income Tax Act 1961("the Act") in pursuance of the directions issued by the Dispute Resolution Panel ("DRP"), Bangalore dated 23 August 2019 (received by the Appellant on 31 August 2019) under Section 144C(5) of the Acton the following grounds: Each of the following grounds are without prejudice to each other: 1. The assessment order issued under Section 143(3) read with section 92CA read with section 144C of the Act dated 30 October 2019 (served on the Appellant on 04 November 2019) by the Ld. AO pursuant to DRP directions is based on incorrect facts and wrong interpretation of law and is therefore, bad in law. 2. The Ld. AO has erred in assessing the total income at INR 113,66,49,356 as against the returned income of INR 88,13,25,460 computed by the Appellant in its return of income for AY 2015-16. Grounds relating to transfer pricing matters: 3. Ld. DRP/AO/TPO have erred in applying invalid Bright Line Test (BLT) for purported determination of non-routine AMP expenditure and further in labelli....
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....the Appellant. 12. Ld. DRP/AO/TPO erred in rejecting benchmarking of international transaction of payment of royalty as carried out by Appellant on mistaken and factually incorrect presumption that all parties chosen as comparable companies are situated outside India and failed to appreciate that Appellant's royalty transaction is in fact at arm's length by applying prescribed method as per law. 13. Ld. DRP/AO/TPO grossly erred by aggregating royalty paid to AE with notional/imaginary transaction of AMP by arbitrarily segregating expenses into routine and non-routine by application of subjective process and further erred in thrusting Residual profit split method (PSM) as most appropriate method. 14. Ld. DRP/AO/TPO have erred in law and in fact by adopting an incorrect subjective mechanism not in accordance with law for computation of profit split between Appellant and AEs. a) Incorrect reasoning applied by Ld. AO/TPO in support of segregation of AMP expenses firstly into "routine" and "non-routine" and subsequently "non-routine" portion into "brand benefit to licensee" and "brand benefit to owner". b) Attribution of higher profit....
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....hat one of the comparables selected by Assessee for benchmarking royalty transaction is resident in India is a good CUP. b) Ld. DRP in its directions, stated that Assessee has not challenged the comparables selected by Ld. TPO. However, the same were contested in detailed objections filed before the DRP. c) Ld. DRP in its directions, stated that Assessee has not placed on record any different view from the TPO for computing the profit split ratio to allocate residual profits while applying PSM. However, contrary to this observation, the Assessee had placed its arguments on record by way of a submission before the DRP during the proceedings. d) Ld. DRP in its directions, stated that multiple year data is allowed only if resale price method ("RPM"), cost plus method ("CPM") or transactional net margin method ("TNMM") have been used as the most appropriate method. However, Ld. DRP failed to appreciate the fact that TPO has applied TNMM to compare the profit earned by Kontoor with that of the comparables, in order to determine the excess that the Assessee is earning on account of the AEs' brand. Grounds relating to corporate tax matters: ....
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....e asset forms part of the block of the assets, the depreciation thereon cannot be questioned unless the prescribed conditions are satisfied. 28. Ld. AO/DRP has erred in disregarding that depreciation under Section 32 is mandatory and has to be allowed to the Assessee as per Explanation 5 to Section 32 of the Act. General Grounds 29. Ld. AO/DRP has erred in law and in facts, by computing tax liability of INR 15,95,48,386/- and consequential interest of INR 9,17,41,499 under Section 234B of the Act. 30. Ld. AO/DRP has erred in law and in facts by considering a lower advance tax credit of Rs. 20,69,00,000, when the actual advance tax deposited for the subject AY is Rs. 22,55,73,541. 31. Ld. AO/DRP has erred in law and in facts by not allowing the MAT credit of Rs. 5,71,90,201 claimed by the Applicant in the Return of Income for AY 2015-16. 32. Ld. AO has erred, in law and in facts in initiating penalty proceedings under Section 271(1)(c) of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit, ....
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....e notice that an identical issue has been considered in the assessee's own case by the coordinate bench in AY 2011-12 (referred supra) when the name of the assessee was M/s. VF Brands India Pvt. Ltd. For the sake of convenience, we extract below the operative portion of the order of the Tribunal in respect of this issue. "5. Now the issue on merit is regarding allowability of depreciation on intangible assets. On this aspect, the issue is covered by the Tribunal order rendered in the case of DCIT Vs. V.F. Arvind Brands Pvt. Ltd. (supra). Para Nos. 12 to 12.5 of this Tribunal order are relevant in this regard and hence, the same are reproduced hereinbelow. "12. The next question arises about the allowability of the cost incurred by the assessee in connection with the business. In our view, such deductions cannot be disallowed on a technical basis. Supposing the assessee does not allocate the expenses under the head design and technical know-how and it prefers to allocate the same under the head goodwill. There is no dispute for the depreciation on the goodwill as held by the Honourable Supreme Court in the case of Smifs Securities Ltd. reported in 348 ITR 302 w....
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....f depreciation on the goodwill as discussed above. Therefore, in our considered view, the expenses incurred by the assessee in connection with the business cannot be disallowed merely on the ground that these have been claimed under different nomenclatural. Thus, we hold that the expenses have been incurred for the business then the deduction has to be allowed to the assessee under the provisions of the Act. 12.2 We also note that the assessee has claimed depreciation on the same intangible assets in the immediately preceding year in its income tax return which was processed under section 143(1) of the Act. Thus, it is clear that there was written down value of these intangible assets which were brought forward in the year under consideration. Thus, in our considered view the opening written down value in the year cannot be disputed. In this regard we find support and guidance from the judgment of Hon'ble High Court of Bombay in case of HSBC asset management India Pvt. Ltd. reported in 47 taxmann.com 286 wherein it was held as under: "Having perused this Appeal Memo including the impugned orders, ITA No. 42/Bang/2017 we are of the opinion that the Delhi High C....
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....report, the assessee did not disclose AMP expenses as an item of international transaction. The assessee had paid royalty of Rs. 31.67 crores to its AE and the assessee had followed CUP method to bench mark the same. 10. The TPO took the view that the AMP expenses incurred by the assessee is on the higher side and hence, by applying bright line test, split the AMP expenses into routine expenses and non-routine expenses. The TPO chose to adopt "Profit Split Method" to bench mark both royalty and AMP expenses. For this purpose, the TPO re-worked the profit margin of the assessee by considering only routine AMP expenses and the same worked out to 21.58%. The TPO worked out the profit margin of comparable companies without including brand expenses and the average profit margin worked out to 7.76%. Accordingly, the TPO held that the difference between 21.58% and 7.76%, i.e., 13.82% is the non-routine profit. He held that this profit should be shared between the assessee and its AE. The TPO determined the AE's share to be 25% and accordingly worked out AE's share in non-routine profit at Rs. 18.41 crores. The aggregate amount of royalty payment and non-routine AMP expenses was....