TaxTMI 
TaxTMI 
2019 (12) TMI 1483
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....rned AO erred in assessing the returned income of Rs. 15,50,03,450 at Rs. 52,89,44,734. Transfer Pricing Grounds 3. That on the facts and in the circumstances of the case and in law, the Learned AO erred in upholding the adjustment made by the Learned Transfer Pricing Officer (''TPO'') of INR 364,127,428 to the income of the Appellant. 4. That on the facts and in the circumstances of the case and in law, the Learned TPO erred by taking suo moto cognizance of an alleged international transaction on account of Advertisement, Marketing and Promotion ('AMP') expenses of Appellant. 5. That on the facts and in the circumstances of the case and in law, the Learned TPO/AO/Dispute Resolution Panel erred in adopting an incorrect and unjustified interpretation of section 92C of the Act by assuming the AMP expense would satisfy the jurisdictional pre-requisite of being an "international transaction". 6. That on the facts and in the circumstances of the case and in law, the Learned AO/Dispute Resolution Panel ("DRP")/TPO erred in holding that AMP expenses paid to unrelated third parties in India by Appellant for itself is an "inte....
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....the Learned AO / DRP / TPO erred by not taking cognizance of the business model, functional and risk profile of the Appellant and in concluding AMP expenditure to be excessive. 14. That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO erred by identifying incorrect set of comparables. 15. That on the facts and in the circumstances of the case and in law, the learned AO / DRP / TPO erred by excluding few companies from the set of comparables while benchmarking the percentage of AMP expenditure incurred by the Appellant against the percentage of AMP expenditure incurred by comparable companies in an ad-hoc manner. Further, learned AO erred by stating that no arguments were providing against Rathi Graphics Limited and excluding the same from the set of com parables while benchmarking the percentage of A&P expenditure. 16. That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO erred by making a mechanical comparison between the AMP expenditure of the Appellant and other comparable companies and concluding it to be excessive. 17. That on the facts and in the circumstances o....
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.... capital assets getting converted into stock-in-trade. 27. That on the facts and circumstances of the case, the AO/DRP erred in not following the decision of Hon'ble ITAT and Hon'ble Delhi High Court in Appellant's own case deleting a similar disallowance in earlier year. Disallowance of depreciation on computer peripherals 28. That on the facts and circumstances of the case, the Learned AO has erred in law and facts in disallowing depreciation amounting to Rs. 8,89,960 on the assets written off. 29. That on the facts and circumstances of the case, Learned AO/DRP erred in law and facts by disallowing a sum of Rs. 8,26,071, by not allowing the depreciation at 60% on printers, routers, UPS SMF battery etc. as they fall under the definition of computer and computer system, and instead allowing 15% depreciation by treating them as 'Plant and Machinery'. Disallowance of Bad debts and advances written off 30. That on the facts and circumstances of the case, Learned AO/DRP erred in law and facts by disallowing a sum of Rs. 56,03,670 of bad debts and advances written off. Levy and withdrawal of interest u/s ....
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....0.48% 5 Kilburn Office Automation Ltd. 1.04% 6 Priya Ltd. 0.06% 7 Rathi Graphic Technologies Ltd. 12.96% 8 Ricoh Ltd. 3.32% 9 Savex Computers Ltd. 0.31% 10 SPS International Ltd. 0.38% 11 Spice Mobiles Ltd. 13.71% 12 Tyche Peripherals Ltd. 2.19% 13 Universal Print Systems Ltd. 1.20% 6. Declining the contentions raised by the taxpayer that no direct benefit accrues to any other Xerox enterprise or the holding company Xerox USA from the marketing activities carried out by the taxpayer, the TPO proceeded to hold that by incurring these expenses, taxpayer enhanced the value of intangibles that is owned by the parent company and determined the Arm's Length Price (ALP) qua AMP expenses resulting into creation of marketing intangibles in favour of AEs at Rs. 36,41,27,428/- 7. The taxpayer carried the matter before the ld. DRP by way of filing objections, who has confirmed the proposed adjustment incurred on account of AMP expenses by the taxpayer. Ld. DRP also confirmed the mark-up of 12.5% of AMP expenses charged by the TPO for the entrepreneurial effort including use of its infrastructure etc. Feeling....
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....part of machines. These rebates/ discounts are based on schemes announced by the company from time to time 61800301 Cash Discount to Customers 61,86,170 Cash discount offered to Channel Customers Partners/distributors for early/prompt payments (Upfront payments) Total 17,88,03,695 Similarly, you have provided details of commission paid which are tabulated below. Account code Description Amount in Rs. Nature 53300101 Dealer Commission on Equipment Sales ORS 5,46,34,581 Normal commission paid to the dealers depending upon approved commission percentage 53300121 Dealer Commission on Paper Sales 1,14,40,125 Normal commission paid to the dealers depending upon approved commission percentage Total 660,74,706 12. Ld. TPO chosen 10 comparables with average of 1.18% to benchmark the AMP expenditure of the taxpayer which are as under :- Sl.No. Name AMP/Sales (%) 1 Dhoot Industrial Finance Ltd. 0.06% 2 Intex Technologies Ltd. 5.53% 3 HCL Infosystems Ltd. 0.58% 4 Ir....
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....actions involving AMP can be computed. 16. Ld. AR for the taxpayer vehemently contended that AMP expenditure is not an international transaction nor any objective findings have been returned by the ld. TPO. When we peruse the findings of ld. TPO in paras 3.5 & 3.6, the TPO in order to find out whether AMP is an international transaction relied upon section 92F(v) which defines transaction as under :- "(v) "transaction" includes an arrangement, understanding or action in concert,- (A) whether or not such arrangement, understanding or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding." 17. Ld. TPO by relying upon section 92F (v) of the Act returned the findings declaring AMP expenditure as an international transaction as under :- "The issue of AMP expenditure falls squarely within the definition of 'transaction' as per sec. 92F(v). Hence, there is no infirmity with the action of this office." 18. The ld. AR for the taxpayer further contended that continuous growing sales pattern of the taxpayer substantiates the fact that the benefit of AMP activit....
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....ess, brand ambassador, product, market and other similar details in the advertisement is confined to India only. So, it cannot be said to promote the Xerox brand world-wide. Moreover, when it is undisputed fact that the taxpayer has not paid any royalty for use of Xerox brand name, incidental benefits, if any, to overseas entity does not call for any compensation for the taxpayer. 23. In case of Valvoline Cummins (P.) Ltd. vs. DCIT (2017) 84 taxmann.com 191 (Delhi), Hon'ble Delhi High Court held that mere use of brand name or logo owned by the AEs by the taxpayer will not automatically lead to influence that any expenses that the taxpayer incurred towards AMP was only to enhance the brand by returning following findings :- "17. Once the BLT has been declared by this Court in Sony Ericsson India Pvt. Ltd.(supra) to no longer be a valid basis for determining the existence of or the ALP of an international transaction involving AMP expenses, the order of the TPO was unsustainable in law. The mere fact that the Assessee was permitted to use the brand name 'Valvoline' will not automatically lead to an inference that any expense that the Assessee incurred towards AMP was only....
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....third company, M/s. Rathi Graphics Ltd., the TPO has observed in the order that it was carrying out AMP activities on behalf of its subsidiaries also. The assessee has not given any arguments to rebut the contention of the AO. Therefore, the assessee's objection regarding rejection of all the three comparables is turned down by the Panel. The assessee has also given a list of its own comparables for determining the "brightline". However, all the comparables proposed by the assessee are distributors of branded goods and, therefore, for the reasons mentioned above, such comparables cannot be accepted. However, the Panel, on its own, has carefully examined the functional profile as well as the financials of all the comparables used by the TPO. It has been noted that more than 50% of turnover of M/s Dhoot Industrial Finance Ltd. is from sale of shares. The Panel is, therefore, of the view that it should have not been considered as a comparable." 25. By now, it is settled principle of law that BLT is not a valid method for determining the existence of international transaction or for determination of ALP of such transactions. 22. Hon'ble Delhi High Court in case of CIT vs. Whi....
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....n and thereafter its ALP." 26. Hon'ble Delhi High Court in case of Maruti Suzuki India Ltd. vs. CIT (2015) 64 taxmann.com 150 (Delhi) also decided as to how the international transaction qua AMP expenditure is to be determined and as to how the price of international transaction qua AMP expenditure is to be determined by returning following findings :- "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that....
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....f any 'arrangement' or 'understanding' or any conduct of either party to show that they were 'acting in concert' as far as the Assessee having to promote the brand of the foreign AE is concerned. 28. In case of LE Passage to India Tour & Travels (P.) Ltd. (2017) 391 ITR 207 (Delhi), Hon'ble Delhi High Court again held that all transactions reporting AMP cannot be treated as international transaction and the fact of each case would have to be examined independently by returning following findings :- "4. This Court is of the view that whilst L.G. Electronics India Pvt. Ltd.(supra) indicated that AMPs were or did constitute the basis for an inquiry into the international transaction and indicated a "bright line" test for it, Sony Ericsson Mobile Communications India Pvt. Ltd.(supra) overruled that decision. This per se does not mean that every endeavour will be to conclude that all transactions reporting AMPs are to be treated as international transactions, the facts of each case would have to be examined for some deliberations. Whilst the TPO and the DRP undoubtedly held that the international transactions existed - that understanding apparently was passed upon th....
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....or for that matter for calculating the ALP of such transaction. The decision of the Full Bench of the ITAT in L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1which sought to make BLT the basis was set aside by this Court." 30. In the instant case, there is not an iota of material on the file apart from relying upon the fact that by incurring huge AMP expenses to the tune of 6.93%, taxpayer has enhanced brand value and created intangibles in favour of its AE, no cogent material is there to treat the incurring of AMP expenses as international transactions. TPO has also not returned the finding that how the benefit of AMP expenditure incurred by the taxpayer have benefited AE, no calculation has come on record, so in these circumstances when we discarded the BLT the entire case of ld. TPO/DRP fell flat. 31. In view of what has been discussed above and following the decisions rendered by Hon'ble High Court discussed in the preceding paras, we are of the considered view that firstly, there is not an iota of material with ld. TPO to prove the existence of an international transactions involving AMP expenses by the taxpayer. TPO rather proceeded on the premise ....
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....at the ALP of an international transaction involving AMP 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. CORPORATE GROUNDS GROUNDS NO.26 & 27 37. AO/DRP have made adjustment of depreciation of Rs. 24,94,155/- on account of capital as....
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....enue. Consequently, the addition of Rs. 24,94,155/- made by the AO/DRP is ordered to be deleted. Hence, ground nos.26 & 27 are determined in favour of the taxpayer. GROUND NO.28 39. Ground No.28 is dismissed having not been pressed during the course of arguments. GROUND NO.29 40. The taxpayer challenged the disallowance of Rs. 8,26,071/- by AO/DRP on the ground that the depreciation @ 60% on printers, routers, UPS SMF battery etc. is allowable as against 15% depreciation by AO/DRP by treating the same as plant and machinery. 41. Hon'ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. in ITA 1267/2010 order dated 31.08.2010 affirmed the findings returned by the Tribunal that computer accessories and peripherals, such as, printers, scanners and server etc. are integral part of the computer system, hence entitled for depreciation @ 60% instead of 15% allowed by the DRP/AO. Consequently, following the decision rendered by the Hon'ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. (supra), we are of the considered view that the taxpayer is entitled for depreciation @ 60% on computer accessories and peripherals. So, the AO is directed to calculate th....