TaxTMI 
TaxTMI 
2026 (7) TMI 405
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....ed. Notices u/s. 142(1) of the act along with questionnaire were issued. The assessee filed replies online on ITBA module and through mails. 2.1 During the assessment year, the assessee entered into various international transactions involving importing of raw materials, export of finished goods, reimbursement of expenses, import of finished goods and provision of marketing support services etc. 2.2 The assessee had international transactions with its AE which were above minimum threshold as per Form 3CEB filed on records. The matter was referred to the Transfer Pricing Officer (TPO) u/s. 92CA after giving an opportunity of hearing to the assessee. The TPO passed order dated 25.01.2025 proposing substantive adjustment on AMP amounting to Rs. 82,89,61,564/- and by Rs. 1,95,15,828/- in respect of Recovery of Expenses as benchmarked by Other Method. A total adjustment of Rs. 84,84,77,392/- was to be made in the income of the assessee. 2.3 Notice u/s. 142(1) of the Act dated 24.02.2025 was issued to the assessee to show cause as to why substantive adjustment on AMP amounting to Rs. 82,89,61,564/- and adjustment on recovery of expenses amounting to Rs. 1,95,15,828/- should not ....
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.... expenses under section 40(a)(ia) of the Act. 124,58,86,616/- (iv) Addition under section 28 of the Act on account of undisclosed sale i.e. shortage of stock due to breakage. 76,26,382/- (v) Disallowance of 30% of legal and professional fee under section 40(a)(ia) of the Act. 3,50,270/- (vi) Disallowance of reimbursement of expenses in connection with employee stock option plan ("ESOP") under section 40(a)(i) of the Act. 6,88,96,216/- (vii) Disallowance of expenses claimed in respect of transit breakage under section 37 of the Act. 2,90,50,509/- (viii) Disallowance of 30% of advertising and marketing expenses under section 40(a)(ia) of the Act. 18,87,796/- Total Income 2338,25,98,841/- 4. The assessee sought rectification dated 26.07.2023 issued by CPC u/s. 143(1) of the act. Along with final assessment order, Ld. AO also issued computation and notice of demand dated 30.01.2026 raising total tax demand of Rs. 85,82,77,860/-. 5. Being aggrieved, the appellant/assessee preferred present appeal on following grounds: - "1. That the impugned order / Final Assessment Order dated 30.01.2026 passed under section 143(3) read with section....
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....61,564 (substantive) computed by the Transfer Pricing Officer ("TPO") on account of advertising, marketing and promotional ("AMP") expenses incurred by the Appellant in the distribution segment. 8. That the TPO/ AO/ DRP grossly erred in assuming jurisdiction under section 92CA of Act, in respect of transaction which did not partake the character of "international transaction" within the meaning of the term, as defined in section 92B of the Act read with section 92F(v) of the Act. 9. That the TPO/ AO/ DRP grossly erred in holding that the Appellant was rendering a service to its associated enterprises ("AES") which was an "international transaction" under the terms of section 92B of the Act, encompassing creation and use of marketing intangibles in the favour of the AEs by virtue of incurring high intensity AMP expenses in the distribution segment. 10. That the TPO/ AO/ DRP failed to discharge the preliminary onus placed upon them, viz. to establish the existence of any "arrangement", whereby the AE, being the owner of the intellectual property, had directed any level / quantum of AMP expense to be incurred by the Appellant. 11. That the TPO/AO/ D....
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....st-to-cost basis. 19. That the TPO/ AO/ DRP erred in not appreciating that the above-mentioned expenses were paid by the Appellant for and on behalf of its AEs for administrative convenience alone. 20. That the TPO/AO/ DRP grossly erred in attributing a mark-up of 16.62% on recovery of expenses in the nature of payroll charges paid by the Appellant on behalf of its AES, in utter disregard of the fact that the said transaction neither had an element of service, not did it create any benefit or generate any value for the AEs. 21. That the TPO/ AO/ DRP erred in ignoring that the nature and FAR profile of transactions of Marketing Support Services and reimbursements received from AEs are completely different and the latter is not a category for which any mark-up ought to have been charged. Re: Disallowance of INR 124,58,86,616/- [being 30% of INR 415.29 crores of trade schemes paid to sales promoters by the Appellant in the corporation market] under section 40(a) (ia) of the Act. 22. That the AO grossly erred in disallowing disbursement of trade schemes to retailers through sales promoters, amounting to INR 124,58,86,616/- [being 30% of INR ....
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....an amount equivalent to the value of such shortage back to the income of the Appellant was completely unwarranted. 30. Without prejudice, the AO/ DRP grossly erred in adding the amount of alleged undisclosed sale back to the income of the Appellant under section 28 of the Act, instead of adding back profit from such alleged sale. Re: Disallowance under section 40(a) (ia) of the Act of INR 3,50,270/- being 30% of INR 11,67,564/- booked under the head legal and professional fee. 31. That the AO/ DRP grossly erred in disallowing expenditure to the tune of INR 3,50,270/- (being 30% of INR 11,67,564/-) claimed by the Appellant under the head of legal and professional fees on account of non-deduction of tax at source under section 194J of the Act in complete disregard of the fact that INR 11,67,564/- represented Goods and Services Tax ("GST") paid and bome by the Appellant on reverse charge basis on which no tax was deductible as per law and in terms of Circular No. 23/2017 dated 19.07.2017 issued by the Central Board of Direct Taxes. 32. That the AO/DRP grossly erred in not appreciating that the Appellant had furnished voluminous data on sample basis ....
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.... substantiate its claim on actual transit breakages, which stood verified to the satisfaction of the AO. 39. That the AO/ DRP, without pointing out any specific defect in the evidences furnished on sample basis, erred in law while disallowing the remaining amount of INR 2,90,50,509/- under section 37 of the Act, thereby demonstrating a highly arbitrary approach and complete non-application of mind. Re: Disallowance under section 40(a)(ia) of the Act of INR 18,87,796/- being 30% of INR 62,92,652/- booked under the head advertising and marketing head. 40. That the AO/ DRP grossly erred in disallowing INR 18,87,796/- (being 30% of INR 62,92,652/-) under section 40(a)(ia) of the Act without alleging violation of any specific provision under Chapter XVII-B of the Act which would obligate the Appellant to deduct tax at source. 41. That the AO/ DRP grossly erred in not appreciating that the Appellant had furnished voluminous data/ details to the tune of INR 10,32,94,961/- out of the total aggregate expense of INR 10,95,87,613/- pertaining to "tasting and sampling", "reimbursement", and "foreign invoices" booked under "advertising and marketing" head, wh....
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....se would always be distinct in character as compared with a "tax". 49. That the AO/ DRP erred in law in not appreciating that "education cess" ought to have been allowed as a deduction to the Appellant under section 37(1) of the Act, being payment made by the Appellant wholly and exclusively for the purposes of its business. Re: Consequential Grounds 50. That the AO grossly erred in initiating penalty proceedings under section 270A of the Act. 51. That the AO grossly erred in proposing the initiation of penalty proceedings under section 271C of the Act. 52. That the AO grossly erred in initiating penalty proceedings under section 271AA of the Act. 53. That the AO grossly erred in levying interest under section of 234B of the Act, being consequential in nature. 54. That the AO grossly erred in levying interest under section 234C of the Act." 6. Ld. Authorized Representative for assessee at the time of hearing raised Jurisdictional ground of Appeal No. 4 that the final assessment order dated 30.01.2026 has been passed without referring to Hon'ble DRP directions and has therefore been passed in violation of Section 144C....
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....P]A No. 832/BANG/2017 had the occasion to consider identical grievance wherein it followed the decision of the co-ordinate bench in the case Software Paradigms Infotech Pvt Ltd 89 Taxman 339 and on identical facts, this Tribunal in ITA No. 1980/DEL/2014 Global One India Pvt Ltd order dated 10.12.2019, after considering the decision of the co-ordinate bench, has decided the issue. The relevant findings of the Tribunal in ITA 832/BANG/2017 read as under: "9. We have considered the rival submissions. We find that on identical facts, this Tribunal in the case of Software Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:- "3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the material on record. The undisputed facts on record, as brought out by the discussions above, is that the AO, as per law, was required to pass the final order of assessment dated 17/1/2014 for asst. year 2009-10 u/s. 143(3) r.w.s. 144C of the Act in conformity with the directions issued by the DRP u/s. 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within th....