TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 390
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.... by the assessee with its Associate Enterprises (AEs). The TPO vide order dated 31.10.2019, passed u/s 92CA of the I.T.Act, proposed the TP adjustment totaling to Rs.63,27,41,494 under various segments. The details of the same are as follows:- Segment Adjustment (Rs.) Issue of sourcing commission 30,57,35,722 Reimbursement of expenses 17,77,95,683 Third party royalty 2,00,08,967 AMP expenses 12,92,01,122 Total 63,27,41,494 3. Pursuant to the TPO's order, draft assessment order was passed on 26.12.2019 incorporating the above TP adjustments. The Assessing Officer also made certain corporate tax additions / disallowances. 4. Aggrieved, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide its order dated 05.02.2021, disposed of the objections raised by the assessee. The DRP partially granted relief to the assessee. Pursuant to the draft assessment order, the impugned final assessment order was passed on 27.03.2021. 5. Aggrieved, the assessee has filed the present appeal before the Tribunal. Both the parties agreed that revised grounds submitted on 01.10.2021 may be adjudicated. The revised grounds raised read as follows:- "The grounds ....
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.... The Learned AO / Learned TPO / Hon'ble DRP erred on facts and in law by not considering the detailed analysis in relation to the Development, Enhancement, Maintenance, Protection and Exploitation ("DEMPE function") furnished by the Appellant which demonstrates that Appellant is not contributing to the development or enhancement of the NIKE brand. 7. The Learned AO / Learned TPO / Hon'ble DRP erred in not considering the fact that the AMP expenses are incurred for promoting popular sports (such as cricket) which are purely for the benefit of the Appellant. 8. The learned AO / Learned TPO / Hon'ble DRP erred in selecting companies which are not engaged in distribution activities for determining the mark-up on the AMP expenses. Adjustment pertaining to payment of sourcing commission 9. The Learned AO / Learned TPO / Hon'ble DRP erred in considering the arm's length price of sourcing commission as nil and proposed an adjustment of INR 30,57,35,722 towards payment of sourcing commission, thereby disregarding the commercial expediency of the Appellant. 10. The Learned AO / Learned TPO / Hon'ble DRP erred in disregarding the evidences furnished by the assess....
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....ss risk. 16. The Learned AO / Learned TPO / Hon'ble DRP erred in not considering the commercial expediency of the Appellant in making such reimbursements when such expenses pertain to activities which are essential for running the Appellant's business operations, and that such expenditure has resulted in tangible benefit. 17. The Learned TPO / Hon'ble DRP erred in not acknowledging that the jurisdiction of the Learned TPO under section 92CA of the Act is only to determine whether the international transaction is at arm's length and that he has no jurisdiction to decide on whether the transaction was required to be entered into or whether the Company derived any benefit from the transaction and accordingly, !be .commercial expediency of the Appellant cannot be questioned by the Learned TPO. 18. The Learned AO / Learned TPO / Hon 'ble DRP erred in disallowing reimbursement of third party royalty transaction for an amount of INR 2,00,08,967 and determining the arm's length price to be nil without adopting one of the prescribed methods. Further, it erred in failing to appreciate that the royalty payable to third parties were paid by the AE and then cross-c....
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....eously categorized as a service provider rather than a licensed distributor assuming normal business risk. 6. Notwithstanding and without prejudice to the above, the Hon'ble DRP erred in not deleting the double di allowance of the aforesaid expense, since the same has been considered by the TPO under TP adjustment. Promotion for sales return 7. The learned AO/ Hon'ble DRP erred in not appreciating the submissions placed on record and disallowing provision for sales returns under section 37 of the Act contending that the same is not an ascertained liability. 8. The learned AO/Hon'ble DRP failed to appreciating that the Appellant has recognized provision for sales return based on principles laid down by the Hon'ble Supreme Court in the case of Rotork Controls India (P)Ltd ([2009] 180 TAXMAN 422 [SCD and Accounting Standard ["AS"] 29 and hence, ought to be allowed under section 37 of the Act. 9. The learned AO, despite concluding that the provision was based on historical data, has erred in not allowing the expense which is contrary to the position upheld by the Hon'ble Supreme Court in the case of Rotork (supra) and Hon'ble Karnataka High Court in the case o....
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....curred by the assessee. The DRP confirmed the view of the TPO. Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR submitted that the issue in question is squarely covered in favour of the assessee by the order of the Tribunal for assessment year 2015-2016 (supra). The learned DR was duly heard. 9. We have heard rival submissions and perused the material on record. The Tribunal in assessee's own case for assessment year 2015-2016 (supra) had held that the assessee is a full-fledged distributor of NIKE product and on examination of royalty agreement, it was held by the Tribunal for assessment year 2015-2016 that there is no clause which mandated incurring of any AMP expenses. It was held by the Tribunal that in the absence of no written agreement exists between the assessee and its AE requiring the assessee to incur AMP expenses, the same cannot be regarded as an international transaction at all. The relevant finding of the Tribunal reads as follows:- "13. The sum and substance of the same is that there should be existence of an agreement to incur AMP expense between the assessee and the foreign AE either expressed or there must be circumstances indi....
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....s in the absence of which it is very clear that no written agreement exists between the assessee and its AE requiring the assessee to incur the AMP expenses. We therefore hold that the incurring of AMP expenses cannot be regarded as an international transaction at all and therefore the impugned addition cannot be sustained and the same is directed to be deleted. 10. In view of the above order of the Tribunal, we delete the transfer pricing adjustment made by the TPO on account of AMP expenses incurred by the assessee. Source Commission (Grounds 9 to 11) 11. The assessee had paid outsourcing commission of RS.30,57,35,722 to NIKE Global Trading Private Limited, Singapore (NGTPS). The outsourcing commission was calculated at 7% of FOB value of products sourced by the assessee from NGTPS. The TPO held that there is no evidence for substantiating the claim of receipt of services and the entire outsourcing commission paid to NGTPS was treated as an addition on determination of ALP. The DRP confirmed the order of the TPO. Aggrieved, the assessee has raised this issue before the Tribunal. The assessee has filed an additional evidence (dated 22.03.2022) in the form of emails explaining t....
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....l in assessee's own case for Assessment Year 2013-14, the issue should be remanded to the TPO for consideration denovo. We hold and direct accordingly." 13. In view of the above order of the Tribunal, we restore the matter back to the files of the TPO to consider the issue de novo. The TPO shall analyse the evidence on record and the additional evidence which is now filed by the assessee before the Tribunal to determine whether NGPTS had rendered services to the assessee for receipt of sourcing commission amounting to Rs.30,57,35,722. The TPO shall follow the directions of the Tribunal rendered in the assessment year 2013-2014 in IT(TP)A No.2809/Bang/2017 (order dated 30.06.2021) and assessment year 2015-2016. It is ordered accordingly. 14. Therefore, grounds 9 to 11 are allowed for statistical purposes. Reimbursement of expenses (Grounds 14 to 16) 15. The learned AR fairly submitted that the above issue is decided against the assessee by the order of the Tribunal for the assessment year 2013-2014 and 2015-2016 (supra). The relevant finding of the Tribunal for assessment year 2015- 2016, reads as follows:- "24. Learned Counsel for the assessee admitted that the issue raised b....
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....revenue's view is that the assessee has failed to establish and demonstrate that these expenses are to be attributed to the business operations of the assessee. 5.5.2 To understand and appreciate the role and business of the assessee and the interplay it has with its parent company, Nike Inc., USA, in respect of its operations, an examination of the Transfer Pricing Study/Report submitted by the assessee is both informative and useful. In the Transfer Pricing report, under the heading "Brief on the Business", it is mentioned that - "1.2.3 Nike India, a wholly owned subsidiary of NIKE Holdings Inc., is responsible for distribution of footwear, sports apparel and equipment. In addition, NIKE India Provides administrative support in relation to the marketing and brand promotion initiatives of NIKE Group in India. 1.2.4 The development of arm's length price in this analysis recognizes that NIKE India acts as a wholesale distributor and is primarily engaged in the business of providing value added services, acting as an intermediary between entrepreneurs and customers. This analysis reflects the provisions of the OECD Guidelines concluding that, at arm's length, compan....
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....er, as pointed out by the TPO, the assessee has separately booked substantial expenses amounting to approx. Rs.2.42 Crores towards advertising, marketing and sales promotion which is approx.. 8% of sales turnover and these have been allowed as expenses incurred towards promotion of product sales. The onus for proving that the expense! incurred by the parent, Nike Inc, USA, are towards the sales of the products and not for the purpose of creating brand awareness is on the assessee, which onus is not discharged by the assessee. Also considering that the assessee itself has admitted that the parent, Nike Inc. USA has brand marketing and promotion initiatives in India, it is but natural to conclude that the expenses incurred by Nike Inc., USA are towards creation of brand awareness, for which the parent has the responsibility. In this view of the matter, the expenses on cost of samples, etc., have to be attributed to the parent, Nike Inc., USA and therefore it is not correct to conclude that these expenses have to be borne by the assessee. 5.5.5 As regards the expenses related to employees, of the parent company who have been deputed to the assessee, the FAR analysis in the Transfer ....
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....ncurred for and on behalf of the assessee. In the absence of these details, the claims put forth by the assessee remain unsubstantiated. 5.5.7 Another contention of the assessee is that since the same set of expenses has been held to be at arm's length in the assessee's own case for Assessment Year 2008-09, therefore, they should be treated as arm's length in the year under consideration. We are unable to accept the contention that the transfer pricing adjustment made in the two years under consideration has to be negated only on the ground that such an adjustment was not made in the subsequent year. It is a well settled position in law that the assessment of every year stands on its own legs and the 'principle of res judicata' does not apply to income tax assessment proceedings. The ALP for each year is determined based on the set of facts applicable to each of the individual years and no common proposition can be propounded for all the years. As mentioned earlier, for the two years under consideration before us, the assessee has not furnished any evidence to substantiate its claim that these persons work onlyfor the distribution activity undertaken by the as....
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....he Transfer Pricing adjustment made by the TPO." 5.4 Consistent with the view taken by the coordinate bench on this issue in the other years, we decide his issue against the assessee and confirm the transfer pricing adjustment made by TPO/AO." Respectfully following the aforesaid decision of the Tribunal rendered in assessee's own case, we dismiss Ground Nos. 14 to 17. 16. In view of the above orders of the Tribunal, we uphold the order of the TPO / DRP. Therefore, grounds 14 to 16 are dismissed. Royalty (Grounds 18 and 19) 17. The learned AR fairly submitted that the above issue is decided against the assessee by the order of the Tribunal for assessment year 2013-2014 and 2015-2016 (supra). The relevant finding of the Tribunal for assessment year 2015- 2016, reads as follows:- "26. Learned Counsel for the assessee admitted that the issue raised by the assessee in the aforesaid grounds has already been decided against the assessee by the Tribunal in the Assessment Year 2013-14 in paragraphs 6 to 6.4 of its order, which reads as follows: "6. The next issue relates to transfer pricing adjustment in respect of royalty payment amount to Rs.12.02 crores. 6.1 The ld. A.R. fair....
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....ibutors. 16.3 We heard Ld D.R on this issue and perused the record. As observed by the co-ordinate bench in the case of the assessee in AY 2005-06, the onus to prove that the expenses incurred by the AE was towards sale of products and not for purpose of creating brand awareness lies upon the assessee. We notice that this onus has not been discharged by the assessee. The basic details like the agreement if any for reimbursing this expenses, RBI approval, business necessity/expediency in making the payment, the basis of calculation etc., have not been furnished. Hence, the TPO has taken the view that this expenditure is not related to the business of the assessee and accordingly he has determined the ALP at NIL. Before us also, no further details were furnished. In view of the above, we are of the view that there is no infirmity in the order so passed by the TPO/AO." 6.4 Following the decision rendered by the coordinate bench in A.Y 2005- 06, we decide this issue against the assessee and confirm the TP adjustment made by the TPO/AO." Following the order of the Tribunal rendered on identical facts, in Assessee's own case, we dismiss grounds 18 to 20." 18. In view of the order ....
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....t in the arm chair of the assessee and decide the mode of conducting business. He submitted that the assessee has incurred expenditure on samples on commercial considerations and hence the same should be allowed. The Ld A.R placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of CIT vs. Dhanrajgirji Raja Narasingirji (1973)(94 ITR 544), wherein the Hon'ble Apex Court has observed as under:- "It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. So far as the apportionment is concerned we are not told why we should not consider the same as a reasonable estimate." 20.4 We heard Ld D.R and perused the record. We have noticed earlier that this expenditure was a matter of transfer pricing adjustment in AY 2010-11 and 2011-12, wherein we have confirmed the transfer pricing adjustment by following the decision rendered by the co-ordinate bench in the assessee's own case in AY 2005-06 & 2006-07. In those years, the Tribunal has decided the issue against the assessee with the following observations:- "The onus....
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.... the same was charged upon it by its parent company. Hence, we are of the view that the AO was justified in holding that the burden to incur this expenditure is that of parent company and is not related to the business activities of the assessee. Accordingly, we confirm the disallowance made by the AO." 8.1 Consistent with the view taken in the above said years, we decide this issue against the assessee and accordingly, confirm the disallowance made by the A.O. on this issue." 20. Respectfully following the aforesaid order of the Tribunal rendered in assessee's own case for assessment year 2013- 2014 (supra), we reject grounds 1 to 6. The learned AR, however, submitted that disallowance on purchase of trade samples was also subject matter of TP adjustment by the TPO and to that extent there should be direction to ensure that there is no double taxation of the same income. We accept the prayer of the learned AR and direct the AO / TPO to consider the plea of the learned AR in this regard and allow necessary relief in the event the same income gets doubly taxed. It is ordered accordingly. Sales Return (Grounds 7 to 9) 21. The learned AR fairly submitted that the issue raised by ....