AI Drafter 
TaxTMI 
TaxTMI 
2022 (5) TMI 1522
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....ances of the case and in law: 1. The learned AO has erred in assessing the total income at Rs. 59,21,92,914 as against returned income of Rs. 54,48,429 computed by the Appellant; 2. The final assessment order issued by the AO under section 143(3) dated 28 January 2016 pursuant to DRP directions under section 144C is time barred and invalid in law; Grounds relating to transfer pricing matters On the facts and in the circumstances of the case and in law: 3. The learned Transfer Pricing Officer ("TPO") erred in making an addition of Rs. 52,57,31,896 to the total income of the Appellant on account of adjustment in the arm's length price of the international transactions entered by the Appellant with its associated enterprise; 4. The learned TPO and the learned AO have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules"), conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction, and holding that the Appellant's international....
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....or such reclassification; 14. Without prejudice to the above, in case the above advertisement and sales promotion expenditure is held as capital in nature, then depreciation should be provided at appropriate rates as prescribed under the Act; 15. The learned AO has erred, in law and in facts. by disallowing foreign exchange loss of Rs.1,58,96,977 pertaining to restatement of trade receivables and payables on the basis that they are notional/ speculative losses; 16. Without prejudice to the above, the learned AO erred in ignoring the fact that the Appellant had offered to tax the unrealised foreign exchange gains on reinstatement of trade receivables and payables in earlier years and the same was accepted by the revenue. The learned AO has thus used inconsistent approach in disallowing the unrealised foreign exchange losses incurred for the current assessment year; 17. The learned AO has erred, in law and in facts, by disallowing stamp paper charges of Rs.64,200 on the basis that the same is not genuine, without providing opportunity to furnish details: 18. The learned AO has erred, in law and in facts, by disallowing notional interest of....
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.... and marketing of apparels under the various brands of Levi Strauss & Co. ("LS&Co.), a company incorporated under the laws of the United States of America. The assessee also renders sourcing support services to Levi Group Affiliates. Under this arrangement, LSIL assists in monitoring the progress of preproduction/ production activities of the identified suppliers and inspects the quality of the goods sourced from India. The assessee also received services from AE's during period of appeal. 2.2 The Ld.AO observed that, the assessee had international transactions with the associated enterprises exceeding Rs. 15 Crores, and accordingly, reference was made to the Ld.TPO to determine ALP of the international transactions. On receipt of reference u/s. 92CA, the Ld.TPO called upon the assessee to file economic details of the transactions between assessee and AE, in Form 3CEB. From the details filed, the Ld.TPO observed that assessee had following international transaction. Type of international transaction Particulars Purchase of garments 353400642 Provision of support services to Levi Strauss Asia Pacific Division Pvt. Ltd("LSAPD') 203174130 Use of support....
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....ee had not agreed for the modification of its transaction at an aggregate level before the Ld.TPO as well as the DRP. It is submitted that assessee relied upon the decision of Hon'ble Mumbai Tribunal in case of Star India Pvt. Ltd. vs. ACIT reported in 2008-TIOL-426- ITAT-MUM. He submitted that each international transaction should be benchmarked on transaction basis and that, the adjustment should be restricted only to the international transactions undertaken by assessee with its AE. 4.3 The Ld.AR submitted that, the assessee used RPM as the most appropriate method to benchmark the international transaction of import of finished garments and resale which has been rejected by the Ld.TPO by applying TNMM at an aggregate level. 4.4 The Ld.AR submitted that RPM is the method that is applied to test the transactions involving distribution functions that is, when the tested party purchases products from a related party and resale the same to independent parties. Therefore RPM is considered as the most appropriate method for computing the ALP of the finished garments imported by assessee. He placed reliance on decision of Hon'ble Bombay High Court in case of CIT vs. L'Oreal India ....
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....ng Systems (India) Pvt. Ltd. reported in (2012) 20 taxmann.com 715 4.9 The next submissions that was advanced by the Ld.AR is that the assessee was not given an opportunity to substantiate the transaction by filing comparables at inter company level afresh. It is submitted that external TNMM considered by the Ld.TPO without giving an opportunity to assessee is against the principles of natural justice. 4.10 On the contrary, the Ld.CIT.DR relied on orders passed by authorities below. 4.11 We have perused the submissions advanced by both sides in the light of records placed before us. 4.12 We note that the transactions between the assessee and the AE has been aggregated by the Ld.AO without any basis. We also note that the benchmarking of the transaction has been considered by the Ld.TPO at entity level, without segregating the non-AE transactions which is a requirement as per section 92B of the Act. As held by various Courts, no addition can be made to the local transactions under Chapter X of the Act, and that the Ld.AO/TPO is supposed to determine the arms length price in relation to the international transaction with the AE only and not with any third party. 4.13 T....
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....ue is accordingly adjudicated as under:- • The assessee's core contention is that the Company operates in the fashion wear industry which is highly volatile and competitive. The assessee explains that, for a company to sustain in such an industry and to reach out to maximum customers in the market, it has to creatively launch/ advertise its products to attract customers' attention. In the process, the Company has supplied various point of sales/ advertising materials to various distributors/franchisees, to ensure display of LEVI's branded products in uniform manner across various stores to attract customer's attention. Further it is submitted that these advertising materials have a very short term life and are to be routinely changed, since every season calls for different presentations which are based on the line of products .............each season. In this regard, the Appellant also produced sample copy of invoices to buttresses its claim that the above expenditure are normal, recurring and regular expenditure, considering the nature of business carried on by the Company. It is the assessee's stand that: such expenditure is not resulting in the creat....
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....f appeal are therefore disallowed, subject to allowance of depreciation." 5.5 The assessee has not been able to establish that the expenditure is incurred are revenue in nature. Even before this Tribunal, the Ld.AR could not counter the observations of Ld.CIT(A) reproduced hereinabove. We do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Accordingly, these grounds raised by assessee stands dismissed. 6. Ground nos. 15-16 is in respect of disallowing the foreign exchange fluctuation on restatement of receivables and payables. 6.1 The Ld.AR submitted that the assessee restated outstanding trade receivables and payables as at 31 March 2011 in accordance with Accounting Standard-11. During AY 11-12 Rs 60,409,168/- were debited to the profit and loss account towards foreign exchange loss, out of which, Rs.15,896,977/- pertains to loss incurred on restatement of outstanding trade receivables/payables as at 31 March 2011. 6.2 The Ld.AR referred to Coordinate Bench decision in assessee's case for A.Ys. 2012-13 and 2013-14 wherein this Tribunal has considered this issue as under: 6.3 For the sake of ready reference, we reproduce the relev....