TaxTMI 
TaxTMI 
2025 (6) TMI 392
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....we take the cross appeals for AY 2013-14 in ITA Nos. 667/Del/2019 by assessee and ITA No. 702/Del/2019 by revenue for AY 2013-14. 3. These are cross appeals filed by the assessee as well as Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-44, New Delhi in Appeal No.74/2018-19 CIT(A)-44 dated 31.10.2018 for Assessment Year 2013-14. 4. The assessee has challenged the appellate order on the strength of the following grounds of appeal: "1. That on the facts and circumstances of the case and in law, the order passed by the Ll. Assessing Officer (Ld. AO')/ Ld. Transfer Pricing Officer ('Ld. TPO')/ Ld. Commissioner of Income Tax (Appeals) ('Ld. CIT (A)') under section 92CA (3)/143(3)/ section 250(6) of the Income-tax Act, 1961 ('the Act') is bad in law. 2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in confirming the addition in respect of international transaction of provision of contract Research and Development ('R&D') services by relying on the order passed by the Ld. TPO/Ld. AO under Section 92CA (3)/143(3) of the Act. 3. The Ld. CIT(A)/Ld. AO/Ld. TPO erred ....
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....rables and the Appellant. 4. That the above grounds of appeal are independent and without prejudice to each other." 5. Whereas the Revenue has also taken following grounds of appeal: "(a) Whether in the facts and circumstances of the case of CITIA) was right in holding that AMP expense does not constitute an international transaction and hence it does not lead to the creation of marketing intangibles? (b) Whether in the facts and circumstances of the case the CIT(A) was right in law in stating that the existence of an international transaction cannot be arrived at from the clauses of an intercompany arrangement? (c) Whether in the facts and circumstances of the case the CIT(A) was right in law in holding that the IT Act does not have machinery provision to benchmark the international transaction arising from AMP expenses? (d) Whether in the facts and circumstances of the case the CIT(A) was right in law in rejecting the BLT to benchmark the AMP transaction? (e) Whether in the facts and circumstances of the case the CIT(A) was right in law in observing that the benefit to the AE due to AMP expenditure is only incidental and no....
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....received) 3,57,62,260 8. Thereafter, the TPO proceeded u/s 92C(2) of the Act and after considering the information and documents maintained by the assessee, TPO vide order dated 28.09. 2016 made the following adjustments: Nature of Addition Amount (in INR) Adjustment on account of provision of contract Research and Development ('R&D') service 36,68,618 Adjustment on account of outstanding receivables 12,51,244 Adjustment on account of Advertising Marketing and Promotion ('AMP') expenses 3,49,67,677 Total 3,98,87,539 9. The AO after giving effect to the order of TPO in terms of order passed u/s 143(3) dated 10.02.2017 has made the additions of Rs. 3,98,87,539/- in respect to the TP adjustments made by the TPO in the order passed u/s 93CA(3) of the Act and, accordingly, the income of the assessee was assessed at loss of Rs. 29,62,52,125/-. Against this order, the assessee preferred an appeal before Ld. CIT(A) who vide impugned order dated 30.10.2018 allowed part relief to the assessee wherein the TP adjustments made on account of outstanding receivables and advertisement, marketing and promotion expenses (AMP) were deleted and adjustment on acco....
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....f the conditions specified in section 92C(3) are satisfied. In ground of appeal No. 3.2 assessee has challenged the action of the ld. CIT(A)/AO/TPO in disregarding the TPSR maintained by the assessee without any basis. However, the main contention of the assessee is in Ground of appeal No. 3.3 regarding conducting fresh comparability analysis by rejecting the filters applied by the assessee and substituting additional filters. Further the assessee contended that the comparables included by the TPO are not at all comparable to the appellant in terms of function performed, assets employed and risk assumed. During the course of hearing, the ld. AR emphasized that the TPO has included M/s Syngene International Limited which is functionally different company engaged in the drug discovery and development including discovery chemistry and biology services, process development, manufacture of advances intermediates etc., to pharmaceuticals and biotechnology companies worldwide, which is functionally dissimilar to the appellant's services. He further submitted that the company M/s Syngene International Limited is in manufacturing also, however in the annual report of the company for Financi....
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....ternational Limited has registered abnormal growth and was not a good comparable. In the last, ld. AR stated that in assessee's own case for Assessment Year 2014-15, 2015-16 and 2016-17, ld. CIT(A) has accepted the assessee's plea of rejecting the company M/s Syngene International Limited as suitable comparable due to absence of segmental information though the company is having two cites of income i.e. income from contract research fees and sale of compound. He, therefore, requested that if the company M/s Syngene International Limited is excluded from list of comparable, resultant mean margin would be in its favour. 15. Per contra, the Ld. CIT-DR submit that the argument of the assessee were duly considered by the Ld. CIT(A) who had observed that the company M/s Syngene International Limited is fit as comparable since the appellant had failed to demonstrate how the issue of shares effected the profit margin. He further submitted that with regard to the non-availability of segmental information, the issue may be sent back to the AO /TPO for making necessary verification. He prayed accordingly. 16. We have heard the rival submissions and perused the materials available on rec....
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....tal information regarding contract research and manufacturing activities, it is difficult to analyse its main revenue and profit margin from the contract research work. Even otherwise also, apparently it is seen that its functional profile is different with that of the assessee company. Thus, going by the segmental data of Biocon Lid. with regard to contract research segment, we do not find any merit in the inclusion of the said company by the TPO in the set of comparables for determining the ALP in the case of the assessee. Hence, this company is directed to be excluded from the set of comparables." 17. Since Syngene International Limited has two sets of income i.e. income from contract research fees and sale of compounds and since segmental details are not available, therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the Id. CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed." 17. Since, the company Syngene International Limited has two segment and segmental details are not available, therefore, Syngene International Limited cannot be included as a comparable and w....
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....s on advertising and media promotion, sales and distribution under the guidance and supervision of its US AE and its all the functions are controlled and managed by AEs. He referred the TP study report wherein para 3.4.2 it is observed that the company focuses its marketing/merchandising efforts on tow broad areas: (i) Consumer branding and (ii) Consumer Merchandising. In Consumer branding, efforts are aided by Wrigley's global branding program aimed toward increasing worldwide product recognition. He further referred para 3.4.2.1, where it is observed that all global branding companies are led by a central team in Wrigley HQ, in a manner that ensures "all Wrigley brands will provide consumers with a consistent look and feel wherever they are purchased around the world." The Ld. CIT-DR further drew our attention to the fact that in the profits and loss account where in preceding year, as against the turnover of Rs. 385.08 Crores, AMP expenses of Rs. 66.82 Crores were claimed and in the year under appeal for the Revenue of Rs. 351.62 Crs., AMP expenses were incurred at Rs. 49.61 Crs. It is further submitted by Ld. CIT-DR that by claiming such a huge of amount expenditure which are r....
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....ction in concert, whether or not such arrangement, is in action formal or in writing which shows to substantiate in a transaction between two AEs, transfer pricing provisions would apply, and the transaction would qualify as an international transaction. Further, in the instant case, there is no arrangement between assessee and its AEs for development of marketing intangibles and AMP expenses were incurred wholly and exclusively by the assessee for the purposes of increase its sales in India which has directly for the benefit of Indian business and nothing to do with the global brand of its AEs. He further placed reliance on the judgment of Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Ltd. 318 ITR 117 (Del.) and further in the case of CIT vs. Whirpool of India Ltd. [2016] 381 ITR 154 (Delhi). He also placed reliance on the following cases on this count:- (i) Sony Ericsson Mobile Communications India (P.) Ltd, vs. CIT (2015) 374 ITR 118 (Delhi) (ii) Honda Siel Power Products Ltd. vs DCIT [2016] 237 Taxman 304 (Delhi). (iii) CIT vs. Whirlpool of India Ltd. (2016) 381 ITR 154 (Delhi) (iv) Valvoline Cummins (P.) Ltd. vs DCIT [....
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....er discussing issue in detail has come to the conclusion that AMP expenses incurred by the appellant therein, cannot be treated and categorized as an international transaction w/s 92B of the Act. Thus, the issue has been decided in favour of the assessee. The Hon'ble Court in view of the above decision further held that the question of TPO making any transfer pricing adjustment in respect of such transaction under Chapter X does not arise. The Hon'ble High Court has followed its earlier decision in the case of Sony Ericsson Mobile Communication India Pvt Isd vs. CIT (2015) 374 ITR 118 (Del) Respectfully following the ratio laid down in the cited decision of the Hon ble High Court in the cate of Maruti Suzuki India Ltd(supra), we hold that AMP expentes incurred by the uppellant cannot be treated and categorized as an international transaction w/s 928 of the Act, and in view of this finding the TPO was not justified in making any transfer pricing adjustment in respect of such transaction under Chapter X of the Act. The Ground No. 5 TO 14 is thus allowed in favour of the assessee. The Ground No. 15 is an alternative ground with this contention that the Ld AO/TPO has erred by n....
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.... and further in case of Maruti Suzuki (supra), we find no error in the order of Ld. CIT(A) in holding that AMP expenditure is not an international transactions and, accordingly, we uphold the order of the Ld. CIT(A) deleting the additions on account of AMP expenditure. In the result, grounds of A to F of the Revenue are dismissed. 28. In ground of appeal No. G, the Revenue has challenged the action of Ld. CIT(A) in deleting the addition made on account of transfer pricing adjustment of interest receivables from its AEs. In this regard, the Ld. CIT-DR placed reliance on the order of TPO and submits that adjustment of Rs. 12,51,244/- is made by AO/TPO after duly considering the fact of outstanding receivables and, therefore, the same deserves to be restored. 29. On the other hand, the Ld. AR of the assessee submitted that assessee did not charge any interest from its AEs as well as from non AEs. He further submitted that in assessee's own case in Assessment Year 2011-12 and 2012-12, the TPO has not made any adjustment on this account. Ld. AR thus prayed that by following the principal of consistency, no adjustment is required in the present year also. 30. After considering t....
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....re is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. In view of these discussions, in our considered view, a continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction under section 92 B in respect of which ALP adjustments can be made. The factum of payment has to be considered vis-à-vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest @2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be trea....
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....d to verify the above contention of the appellant and to give relief if the appellant is able to prove has not charged interest from it's unrelated parties. The ground of appeal is accordingly disposed off." 31. After considering the observations of Ld. CIT(A), we find that the Revenue has failed to controvert the findings of ld. CIT(A) by placing on record any adverse material, thus, we are not inclined to interfere in the findings given by Ld. CIT(A) which are well reasoned. Accordingly, Ground No. G of the Revenue Appeal is dismissed. 32. In ground No. H, the Revenue has challenged the action of Ld. CIT(A) in allowing the inclusion of "Sequent Research Limited" as valid comparable. In this regard, the Ld. CIT-DR submitted that the said company was neither taken as a comparable by the assessee in the TP study report nor before the TPO and for the first time, it was taken before the Ld. CIT(A). He further submitted that since the TPO was not given any opportunity to examine the financial of this company, therefore, the matter may be sent back to the TPO for applying to necessary filters to examine whether the said company could be included as valid comparable. 33. On ....
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....5-16 is dismissed. 41. Now we take up the assessee's appeal for Assessment Year 2015-16 in ITA No.952/Del/2022 wherein the assessee has taken the following grounds of appeal:- "1. That on the facts and circumstances of the case and in law, the order passed by Hon'ble Commissioner of Income Tax (Appeals) -44, Delhi ['Hon'ble CIT(A)'] under section 250 of the Act, to the extent confirming the additions made to the returned income by the Assistant Commissioner of Income Tax -27(2), Delhi ('Ld. AO') and Assistant Commissioner of Income Tax, Transfer Pricing-3(3)(2), Delhi ('Ld. TPO'), is bad in law. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition of INR 2,87,01,425 with respect to the international transaction of payment of interest on external commercial borrowings ('ECB'). In doing so, the Hon'ble CIT(A) has grossly erred in: 2.1. incorrectly holding that London Inter-Bank Offered Rate ('LIBOR') rate should be used over State Bank of India ('SBI') Prime Lending Rate ('PLR') for benchmarking the impugned international trans....
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....rom 3rd Party and has availed loans from its group companies for the smooth running of day-to-day business operations and, therefore, interest paid out @ 5 to 6.5% on such ECBs is justified and deserves to be accepted without making any adjustment. In the alternate the Ld. AR submitted that Ld. TPO assumed an arbitrary credit rating of "BBB-, BBB, BBB+" without taking consideration of the facts and thereby, arbitrarily imputed 6 months LIBOR + 600 basis points. He submits that in the instant case credit rating is not available and, therefore, the action of TPO in applying credit rate to 'BBB-, BBB, BBB+' is without any basis and thus, he prayed that necessary directions be given for obtaining the credit rating from the prescribed agency for this purpose. 45. On the other hand, the Ld. CIT-DR supports the order of the lower authorities and submit that since, the assessee has taken borrowings from its AE, therefore, LIBOR is rightly applied. Since, assessee has not furnished the details of credit rating of AEs, therefore, the TPO has rightly taken the six month LOBOR from 300 basis point and requested for the confirmation of the said order. 46. After considering the arguments p....
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....s of the Appellant vis-a-vis foreign associated enterprise ('AE') and disregarding the benchmarking methodology of the Appellant by drawing an erroneous conclusion that the Appellant should be chosen as the tested party for benchmarking the said international transaction; 2.2. disregarding the fact that when the transaction of sale of finished goods by the Appellant to its AEs have been considered at arm's length, then the portion of purchase of raw materials consumed for the production of the goods sold to its AEs would also be at arm's length; and 2.3. without prejudice to the above, the Hon'ble CIT(A) erred in disregarding the Appellant's contention that the comparison at gross margin for benchmarking would be appropriate. 3. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition of INR 1,30,24,487 with respect to the international transaction of payment of interest on external commercial borrowings ('ECB'). In doing so, the Hon'ble CIT(A) has grossly erred in: 3.1. incorrectly holding that London Inter-Bank Offered Rate ('LIBOR') rate should be....
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....ndian market by the appellant itself or are sold to the AEs for sale in overseas jurisdictions. Wrigley India is the key decision maker in its market and assumes associated risks. In its capacity of a Wrigley Marketer, Wrigley India is responsible for making pricing decisions for its local markets i.e. Indian market. Thus, it was concluded that the overseas AEs (in its capacity as routine manufacturers only for the raw materials) were the least complex entity and were chosen as the tested party for the transaction pertaining to purchase of goods and TNMM was used as the most appropriate method with OP/TC as the relevant PLI. 53. The TPO rejected the product taken by the assessee and held that the assessee is tested party as the assessee is engaged in the least complex operations vis-à-vis its AEs with respect to the international transaction of purchase of raw material. The TPO has also deducted various comparative analysis by using for bench marking transaction on the basis of the said comparables the TPO made an adjustment of Rs. 1,99,53,199/- to the income of the appellant. 54. Before us, the Ld. AR of the assessee submitted that the Appellant being the key decision....
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....ciple of consistency no adjustment should be made for this year. 57. With regard to the comparable, the ld. AR submits that in the case of international Bakery Products Ltd. as included by the TPO is not proper comparable in terms of functions performed, assets employed and risk assumed. He thus submits that the said company deserves to be excluded from the comparables. 58. On the other hand, the Ld. CIT-DR supports the orders of the lower authorities and submits that the Ld. CIT(A) has considered all the aspects and therefore, the same deserves to be uphold. 59. After considering the arguments put forth by both the parties. It is seen that in preceding assessment years under similar circumstances, the assessee by making same analysis has made no adjustment on this count and the circumstances in previous years are in parity with the year under appeal which fact has not been controverted by any of the parties, therefore, as a matter of principle of consistency, the TPO should not make any adjustment in this year also on this issue. 60. With regard to the exclusion of International Bakery Product, it is seen that assessee is engaged in the business of manufacturing and se....