TaxTMI 
TaxTMI 
2022 (3) TMI 1467
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....national transactions with its AE, the AO referred the matter to the TPO for determination of the ALP of the international transaction entered into by it. 2.1 During the course of TP assessment proceedings, the TPO noted that the assessee has reported the following international transactions in the Form 3CB: No. Nature of Transaction Method Value of Transaction 1. Purchase of raw material TNMM 149,995,444 1. Purchase of finished goods TNMM 155,430,042 1. Royalty for use of technical know-how and trde mark TNMM 743,886,716 1. Annual Maintenance fee for CODA software license fee TNMM 2,206,682 1. Recovery of expenses CUP 15,167,163 1. Reimbursement of other expenses CUP 658,781 1. Reimbursement of other expenses CUP 982,552 1. Reimbursement of affiliate support charges CUP 2,464,041 1. Reimbursement of other expenses CUP 8,041,888 1. Reimbursement of promotion and product events CUP 35,579,742 1. Purchase of finished goods TNMM 1465,821,890 3. The TPO noted that the tax payer has benchmarked most of the transactions, international trans....
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....d. It was argued that in the multi-level marketing model the assessee applied, the business model was not comparable to FMCG companies. The assessee also objected that no exact details of the quantum of adjustment using CPM method had been provided. 6. However, the TPO was not satisfied with the arguments advanced by the assessee. Relying on various decisions, the TPO proposed an upward adjustment of Rs.6874,84,700/- on substantive basis on AMP expenses. While doing so, he noted that the DRP, in assessee's own case for AY 2015-16, has also confirmed the advertisement expenses of Rs.56.77 crores for that year as AMP expenses. The TPO accordingly proposed an upward adjustment of Rs.68,74,84,700/- being the ALP of the international transaction entered into by the assessee. 6.1 The AO, in the draft assessment order, made addition of the same. The AO, in the draft assessment order also made addition of Rs.26,72,67,895/- on account of sundry creditors due to inability of the assessee to furnish any details/justification/supporting evidence in this regard. 7. The assessee approached the DRP and the DRP vide order dated 23rd October, 2021, upheld the action of the TPO in holding t....
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....formation in public domain j.K. Helene Curtis is a part of the Raymond Group that has built its reputation based on the principles of Quality, Trust, Excellence and Leadership. The Park Avenue range includes Fragrances, Body Care Solutions, Shaving Systems and Hair Care Solutions. As FAR is broadly similar it should be retained as a comparable. 2. JL Morison (India) Ltd As per information in public domain J L Morison (India) Ltd. Is an FMCG company based in Mumbai, India. The company has three lines of products - baby care, Morisons Baby Dreams, hair dyes, Bigen and toothpaste for sensitive teeth. As FAR is broadly similar it should be retained as acomparable. 3. Modicare Ltd. As per information in public domain Modicare is one of India's leading Direct Selling Companies and is a major player in an industry selling nutrition and healthcare products. As FAR is broadly similar it should be retained as a comparable. 3.1.1.21 The AO/TPO is directed to verify the correct operating margins of the assessee and re-compute the adjustment after considering the comparables as directed above, by the Panel." 7.1 So far as the addition on account of sundry credi....
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....; a) The said grounds were, prima facie, not general. b) The said grounds were not general as the same were factual in nature. c) Specific and detailed written submissions with regard to the same was made in the application as well as during the proceedings. d) Detailed oral submissions on these grounds were made during the course of hearing and cognizance of the same was taken by the DRP without pointing out any error in the submissions. 3. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the AO /TPO erred by erroneous application / understanding of Ld. DRP order dated 11.09.2019 in assessee's own case for the immediately preceding Assessment Year 2015- 16 rendered on identical facts and circumstances of the matter. 4. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the TPO erred by not following his own order dated 04.10.2019 giving effect to the Hon'ble DRP order dated 11.09.2019 for the immediately preceding Assessment Year in assessee's own case rendered on the identical facts and circumstances of the matter. ....
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....nly substantial activity of the assessee is marketing and promoting the brand image of the AE products and legal structure of trading created by the assessee is only a facade, smokescreen to conceal the real activity and using this to justify the AMP adjustments made by the TPO. 14. The Ld. DRP has erred on facts and in law in grouping grounds. 15. The Ld. DRP has erred on facts and" in law in not allowing the contention of the appellant that additions made on account of alleged increase in sundry creditors is not in accordance with the provisions of the Act and any addition made in pursuance of the same deserves to be deleted. 16. The Ld. DRP has erred on facts and in law in not allowing the contention of the appellant that the addition INR 26,72,67,895/ on account of alleged increase in the creditors cannot be made when there is not even an allegation that corresponding purchases/supplies/services were suspicious or doubtful. 17. The Ld. DRP has erred on facts and in law in not allowing the contention of the appellant that the addition INR 26,72,67,895/ on account of alleged increase in the creditors cannot be made when regular books of account....
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.... adjustment of Rs.68,74,84,700/- is concerned, the ld. Counsel strongly challenged the addition of the same and submitted that the aforesaid adjustment is totally incorrect in view of the settled position in favour of the assessee in its own case. The ld. Counsel for the assessee drew the attention of the Bench to the following as per page-1 of his written synopsis:- Assessment Year Adjustments/Additions on account of AMP 2009-10 No adjustments were made even though the assessee had same business model and the facts and circumstances of the matter were the same. (TPO Order at Paper Book Page No. 530) 2010-11 ...........do........ (TPO Order at Paper Book Page No. 528) 2011-12 ...........do.......... (TPO Order at Paper Book Page No. 526) 2012-13 .............do................. (TPO Order at Paper Book Page No. 524) 2013-14 Adjustment of Rs. 512,47,66,707/- was proposed in Show cause notice dated 21.10.2016 (Show Cause at Paper Book Page No. 532)on account of AMP adjustment but after considering the reply of the assessee and the facts and circumstances of the matter which are identical to the facts and circumstances for the year under considerati....
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....tire addition has been deleted. 14. He accordingly submitted that the TPO has erroneously assumed that the entire advertisement and marketing expenditure is disallowable AMP expenditure incurred on account of benefit of the AE. The ld. Counsel for the assessee drew the attention of the Bench to the order of the DRP and submitted that the DRP has grossly mis-directed itself by observing that the grounds of appeal related to the aforesaid aspect were general in nature and grossly erred in denying the indisputable relief to the assessee. The ld. Counsel accordingly submitted that since no adjustment were made from AY 2009-10 to 2015-16 towards adjustment/addition on account of AMP even though the assessee had the same business model and the facts and circumstances of the matter for the instant year are the same, therefore, no addition during the year is warranted. 15. The ld. DR, on the other hand, heavily relied on the order of the TPO/DRP. He submitted that the principle of res judicata does not apply to income-tax proceedings and each year is different and distinct. He submitted that if the DRP has not followed its earlier order, the matter may be set aside to the DRP with a ....
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....r, on perusal of the DRP appeal effect order for AY 2015-16 in pursuance of the DRP's order dated 11 September, 2019, copy of which is placed at pages 497 to 500 of the paper book, we find no such adjustment has been made on account of advertisement, marketing and promotion after the order of the DRP. The relevant observation of the appeal effect order reads as under:- " Adjustment on account of Advertisement, Marketing and Promotion (AMP) 2. The Hon'ble DRP in its direction at para 2.3.11.2 and 2.3.11.3 on page no 30 has given direction to delete adjustment on account of AMP expenditure holding as under: "2.3,11.2. In terms of our findings and conclusions, taking the amount of AMP spend as per para-2.3.11 herein above, the ratio of AMP/Sales in the case of the tested party is as under: (Amount of lNR lakh) Total AMP 45,09,91,000 Sales 17,506,000,000 AMP/Sales 2.58% "As such the AMP/Sales ratio of the assessee is much less than 24.79% of the comparables. It is observed that the TPO has not used any comparable in substantive adjustment for computing excessive AMP. Therefore, there is no case for adjustment on account....
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....ircumstances of the matter in exhaustive details and deleted both substantive and protective addition. Copy of the DRP order is placed at page 431 of the paper book. The TPO has already passed the order giving effect to the order of the DRP and, in the final order passed by the TPO, no adjustment on account of AMP has been made, the details of which have already been reproduced in the preceding paragraph. Therefore, in view of the rule of consistency from AY 2009-10 to 2015-16 and considering the fact that the assessee had the same business model and the facts and circumstances of the matter for the impugned assessment year are the same, we set aside the order of the AO/TPO/DRP and direct the AO/TPO to delete the addition. 18.1 The assessee has also raised various sub-grounds challenging the order of DRP in sustaining the TP addition made by the AO/TPO. However, since we have deleted the addition by following the Rule of consistency in assessee's own case for earlier years under similar facts and the business model remaining the same, the other sub-grounds are not being adjudicated being academic in nature. The first issue raised by the assessee in the grounds of appeal are acco....
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....on to the Sundry Creditors outstanding during the preceding year. The ld. Counsel for the assessee, referring to the show cause notice issued by the AO on 12.12.2019, copy of which is placed at page nos. 578-579 of the paper book, submitted that the case was fixed for hearing on 13.12.2019. Despite the unfairly inadequate time given to respond, the assessee complied and submitted its reply, copy of whch is placed at page nos. 580 to 643 of the PB. He submitted that the reply also contained groupings in various sub-heads, the details of which are placed at page 585 of the paper book. He submitted that the AO without giving any further time or opportunity for rebuttal and without application of mind on the submission made passed the draft assessment order in great hurry on 15.12.2019. He submitted that the AO accepted the increase in sundry creditors amounting to nearly Rs.66.34 crores attributable to the royalty payable to an associate concern of the assessee but added the remaining difference of nearly 26.73 crores on account of increase in sundry creditors. He submitted that while making the addition of Rs.26.73 crores, the AO forgot to consider the increase of Rs.13.95 crores tha....
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....e matter in details. No direction was given to the assessee to submit any further document/information 29.09.2020 The DRP forwarded the assessee's submission dated 25.09.2020 to the AO vide letter dated 29.09.2020 (Paper Book Page No.670) with the direction to the AO to consider assessee's comments/objections and submit remand report to the Hon'ble DRP on or before 15.10.2020. Remand Report notice issued to AO and copy to appellant. 29.09.20 No response from the AO 20 to 19.10.2020 19.10.2020 Second reminder of the DRP to the AO for submission of Remand Report on or before 02.11.2020 and copy to appellant. (Paper Book Page No. 671) 19.10.2020 to 21.10.2020 No response from the AO 21.10.2020 The assessee was keen to respond to any notice from the AO. As there was no notice from the AO an Email was written by the assessee to the DRP regarding no communication received from the AO on remark, report and the assessee also sought further appropriate direction/instruction, if any from the DRP. (Paper Book Page No. 672) 21.10.2020 to 10.12.2020 Still no response from the AO 10.12.2020 Third reminder to AO by the DRP for submission of Remand ....
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....) : Smt. Sudha Loyalka; (vi) [2019] 112 taxmann.com 371 (Delhi-Trib): Swati Housing & Consruction (P) Ltd.; (vii) [2016] 69 taxmann.com 312 (Chandigrh-Trib): Sudhir Budhiraja; and (viii) [2015] 55 taxmann.com 522 (Lucknow-trib) (TM): in the ITAT Lucknow Bench 'A' (Third Member): Zazsons Exports Ld. 25. The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP. In his alternate contention, he submitted that the matter may be returned back to the file of the AO/TPO. 26. We have considered the rival arguments made by both the sides, perused the orders of the AO/TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made addition of Rs.26,72,67,895/- by invoking the provisions of section 68 on the ground that there is an increase in creditors amounting to Rs.9307 lakhs and an amount of Rs.66,34,32,105/- represents towards royalty payable to the AE and the assessee could not substantiate with evidence to his satisfaction regarding the remaining creditors. We find, after the order of the DRP, the AO, in the final assessment order made addition of th....
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....s passed u/s 143(3). 30. We find, the Hon'ble Punjab & Haryana High Court in the case of Kulwinder Singh, reported in 99 taxmann.com 449 has held that provisions of section 68 are not attracted to amount representing purchase made on credits. The Hon'ble Allahabad High Court in the case of Zazsons Export Ltd. (2017) 88 taxmann.com 617 has held that credit purchases reflected in the books of account of the assessee of raw hide from petty dealers even if not confirmed would not mean that it was concealed income or deemed income of the assessee, which could be subjected to tax under section 68 when there was no dispute as to trade practice that payment in respect of purchase of raw hide was made subsequently. Similar view has been taken in various other decisions relied on by the ld. Counsel for the assessee filed in the case law compilation to the proposition that provisions of section 68 of the Act would not be attracted to sundry creditors. In view of the above discussion and considering the fact that the assessee has given sufficient details regarding the details of sundry creditors, no such disallowance has been made by the AO in the orders passed u/s 143(3) in the subsequent ....
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....nts, security deposits taken from various vendors pending completion of work. For details refer Annexure D 157,930,000 Represents amounts payable to Contract Manufacturer 79,518,526 Represents expenses payable to various Clearing & Forwarding agents for various Sales offices. Copy of the agreement is enclosed as Annexure E 214,111,474 This represents payable in respect of various normal business related administrative expenses payable at the end of the year 168,520,000 Majorly represents amounts payable to vendors in relation to assets (shown as CWIP in books of accounts) 274,330,000 Represents amounts payable to vendors for goods in transit 238,010,800 Represents amount payable to vendors. For details refer Annexure F 22,600,000 Represents amount payable into a fund mantained for welfare of distributors 3,484,723,399 Document 2 Amway India Enterprises Private Limited Assessment Year 2016-17 Comparative details of Sundry Creditors/ Trade Payables Ðннанин (2) Royalty Payable Nature Amounts payable to affiliate entities Payable to Distributors AY 2016-17 1,335,200,000 AY 2015-16 671,767,895 ....