TaxTMI 
TaxTMI 
2022 (3) TMI 1467
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.... 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 transactions as well as specified domestic transactions by using entity level aggregation approach and using TNMM method as the most appropriate m....
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....see 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 that AMP expenses incurred by the assessee is an international transaction. So far as the protective adjustment using BLT and considering advertisement,....
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....ue 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 creditors is concerned, the DRP upheld the action of the AO by observing as under:- " 3.1.2.2 The Panel notes that in the draft order u/s 143(3) of the Act dated 15.12.2019 the AO gave complete opportunity in ....
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....ion 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. 5. 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 orders for the A.Y. 13-14 and A.Y 14-15 where a considered view holding AMP expenditure to be not an international transa....
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....nd 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 accounts were duly maintained and audited by the appellant and accepted by the AO. 18. The Ld. DRP has erred on facts and in law in dismissing various grounds raised by the appellant by a non-speaking order without even considering various case laws submitted by the appellant with regard to the same. 19. Ld. DRP has erred on facts and in law ....
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....ons 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 consideration no addition was made in order passed by Ld. TPO (TPO Order at Paper Book Page No. 536) 2014-15 ..............do ............... (TPO Order at Paper Book Page No. 251) 2015-16 Adjustment of Rs. 216,39,19,833/- was made on protective basis and adjustment of Rs 226,12,38,588/- was made on substantive basis by the Ld. TPO .(TPO Order at Paper Book Page No. 279) Hon'ble DRP considered the entire facts and circumstances of th....
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....l 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 direction to pass a speaking order. The ld. DR submitted that the ownership of the brand lies with the foreign AE, therefore, the huge advertisement expenses made by the assessee helps towards brand building of the foreign AE. Further, the assessee is paying huge royalty to the AE. He submitted that any non-routine capital expenditure is adding to the value of the brand held by the foreign AE. Since as per the provisions of section 92B such expenditure is an i....
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....RP 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 of AMP spend treating the same as 'International transaction even if the sales promotion expenses are considered as AMP expenditure in view of the fact that the Hon'ble Delhi High Court decision in case of Sony Ericsson(supra) has not been accepted and SLP has been filed before the Hon'ble Supreme Court with regard to validity of Bright Line Test as also on excluding selling and distribution expenses, discount and rebates, and other sales promotion expenses from the expenses relating to marketing ....
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....ssessee 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 accordingly allowed. 19. The second issue raised in the grounds of appeal relates to the addition of Rs.26,72,67,895/- on account of sundry creditors. 20. Facts of the case, in brief are that during the course of assessment proceedings, the AO asked the assessee to furnish complete party-wise details of sundry creditors along with explanation and justification for increase in sundry creditors and reduction in business income as compared to preceding year. Since the assessee could not furnish any details/justificatio....
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...., 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 that had happened on account of transaction with associate concerns as well. He submitted that the provisions of section 68 cannot be applied to increase in outstanding sundry creditors. Referring to the provisions of section 68 he submitted that for making an addition under the above provision, the mandatory conditions that are required to be fulfilled are: (a) the sum has to be a cash credit; and (b) the assessee offers no explanation about the nature and source of any sum found credited in his books or the explanation g....
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....o 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 Report on or before 17 .12.2020 and copy to appellant .(Paper Book Page No. 673) 10.12.2020 to 30.12.2020 Still no response from the AO. 30.12.2020 Fourth reminder to AO by the DRP for submission of Remand Report on or before 08.01.2021 and copy to appellant. (Paper Book Page No. 674) 02.01.2021 As the assessee was extremely concerned another email to DRP was written informing no communication received from the AO on remand report. It was also submitted before the DRP that lack of action on part of the Ld. AO with regard to the remand directions of the Hon&....
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....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 the same which is under challenge before the Tribunal by the assessee. It is the submission of the ld. Counsel for the assessee that the AO while passing the draft assessment order, without giving sufficient time, made the addition which is not correct and against the principles of natural justice. Further, despite full details given before the DRP, the DRP also ignored the submissions made by the assessee and made the addition even after not getting any response from the AO after 5-6 reminders by them. It is also his submission that the provisions of section 68 cannot be applied to increase in sundry creditors. It is als....