TaxTMI 
TaxTMI 
2026 (7) TMI 1818
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.... 2. That on the facts and circumstances of the case and in law, the assessment order passed under section 143(3) read with sections 147 and 144C of the Act is beyond jurisdiction, bad in law and void ab initio. 3. That on the facts and circumstances of "the case and in law, the AO erred in initiating re-assessment proceedings after the expiry of four years from the end of the relevant assessment year without appreciating that there was no failure on the part of the Appellant to disclose fully and truly all material facts necessary for assessment. Consequently, the assessment framed is nullity, bad in law and liable to be quashed. 4. That on the facts and circumstances of the case and in law, the AO has erred in initiating re-assessment proceedings without application of mind and without bringing any new material on record to infer escapement of income, which is sine qua non for initiating proceedings under section 147 of the Act. 5. That on the facts and circumstances of the case and in law, the reopening of assessment proceedings is based upon mere change of opinion as the Appellant had submitted all the requisite details and documents during the course ....
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....("the Act"). 4. At the time of hearing, ld. AR of the assessee brought to our notice relevant facts relating to these grounds and submitted his submissions. He submitted that Chanel India Private Limited, (assessee) is engaged in the business of distribution of high-end fashion and beauty products. He submitted that for the assessment year, it hasfiled its return of income for AY 2012-13 on November 30, 2012 i.e. within the time prescribed under section 139(1) of the Income-tax Act, 1961 (for short 'the Act'). Further, for the subject assessment year, the detailed assessment proceedings were undertaken under section 143(3) of the Act by the AO and during the proceedings, the TPO did not propose any adjustment in respect of the international transactions while passing the order dated December 21, 2015in this regard referred to page no. 79 to 80 of paper book. 5. He submitted that subsequently, AO while passing the assessment order dated March 29, 2016, accepted the returned income of the assessee, referred page no. 74 to 78 of paper book. Further, the notice under section 148 of the Act for the subject assessment years was issued after expiry of four years from the end of rele....
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....income as an international transaction through the following: a) The details regarding international transaction entered by the assessee during the subject assessment year filed before the TPO vide submission dated April 22, 2015 during the assessment proceedings (refer pages 86 to 88 of paper book). b) Form 3CEB filed by the assessee for the subject assessment year clearly included details regarding the international transaction of receipt of subsidy income from Chanel Hongkong (refer pages 164 to 174 of paper book) c) The transfer pricing study report of the assessee was submitted before TPO which contains details regarding the international transactions of the assessee with the Associated Enterprises ("AEs") along with the benchmarking for the subject assessment year (refer pages 89 to 163 of paper book). d) The distribution agreement dated January 01, 2005 entered by the assessee with Chanel Hongkong are submitted before TPO refer (pages 201 to 211 of paper book.) 9. He submitted that the apex Court in the case of CIT vs Kelvinator of India Ltd. (supra) held that even in case of assessment which is sought to be re-opened within a period of....
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....cord, which has been re-appreciated by the AO. Accordingly, He submitted that the impugned reassessment proceedings are nothing but a review in the guise of reassessment, which is not permissible in law. 12. He relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Usha International Ltd. (2012) 348 ITR 485, wherein it has held as under: "The expression "change of opinion" postulates formation of opinion and then a change thereof... In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. A distinction must be drawn between erroneous application / interpretation / understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order.....The said principle would apply even when there is no discussion in the assessment order but where the Assessing Officer had applied his mind. A wrong decision, wrong understanding of law or failure to draw proper inferences from the material facts already on record an....
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....oresaid international transactions are closely interlinked with the overall business operations of the assessee and, therefore, were aggregated and analysed together from an arm's length perspective and the assessee has applied the Transactional Net Margin Method ("TNMM") as the Most Appropriate Method for benchmarking such transactions. Further, he submitted that while computing the Profit Level Indicator ("PLI"), the assessee has treated the subsidy income as operating in nature, considering its direct nexus with the distribution activity and its role as a compensation mechanism to ensure arm's length profitability. Subsequently, he submitted that the TPO during the course of original Transfer Pricing assessment proceedings completed the Transfer Pricing assessment u/s 92CA(3) of the Act and accepted the arm's length nature of international transactions entered into by assessee including the nature of subsidy income being operating and adopted aggregated approach and referred pages 79 to 80 of paper book. He submitted that thereafter, notice u/s 148 of the Act was issued on March 30,2019 by the AO where while computing PLI of the assessee the subsidy amount of INR 3,11,24,885 exc....
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....come operating in nature and accordingly mentioned under the head 'other operating revenue' in the note 15 of the financial statement for FY 2011-12. The relevant extract from the financial statement of the assessee from the relevant financial year is also provided below for your reference: Note Particulars For the year ended 31 March, 2012 For the year ended 31 March, 2011 Rupees Rupees (i) Sale of traded goods comprises: Fragrance and Beauty products 10,45,67,620 8,35,25,114 Fashion products 10,57,74,555 7,33,07,030 Total - Sale of traded goods 21,03,42,175 15,68,32,144 (ii) Other operating revenues comprise: Subsidy from Chanel Ltd Hongkong 3,11,24,885 6,73,84,505 Total - Other operating revenues 3,11,24,885 6,73,84,505 20. He submitted that Hon'ble Delhi High Court also in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. (ITA No. 16 of 2014) stated that when AO/ TPO bifurcates or segregates the packaged transaction as declared by the assessee, he must conduct the exercise, rationally and objectivel....
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....ust be considered while benchmarking. AO/DRP/TPO have erred in rejecting aggregation approach 23. It is submitted, as CIPL's international transaction of purchase of traded goods and receipt of subsidy are closely linked to the distribution activity of CIPL, it would not be appropriate or feasible to apply the arm's length method on a transaction-by-transaction basis. Therefore, for determining the arm's length price, the following international transactions have been aggregated for bench marking and referred pages 119 to 120 of paper book. 24. It is submitted that the international transaction is integral and intrinsically linked to the operation of the distribution activity of the assessee. Accordingly, the services transaction is closely linked and complementary to the primary activity of the assessee. He submitted that hence, the impugned transaction cannot be evaluated separately from a transfer pricing perspective and was considered to be part of the distribution division of the assessee by adopting a combined transaction approach. 25. He further submitted that the assessee would like to submit that principle of aggregation is a well-established rule in transfer p....
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....dance with the principle laid down by the ruling of the Apex Court in the case of Siemens Public Communication Network (P) Ltd vs CIT (2017 taxmann.com 22 (SC). 29. Without prejudice to the other contentions of the assessee, he submitted that even if the Bench Panel considers the subsidy income as non- operating in nature and works out a transfer pricing adjustment, the subsidy received should be set-off/ deducted from the proposed transfer pricing adjustment. In this regard, he placed reliance on the decision of Hon'ble Delhi High Court decision of Sony Ericsson Mobile Communications India Pvt. Ltd. (ITA No. 16. 2014) wherein the Hon'ble court has upheld the principle of set-off of transactions. 30. Further he submitted that from the above contentions and arguments, it is amply demonstrated that the Ld. AO/TPO have erred in treating the subsidy as non-operating in nature and while doing so, have also erred in not appreciating that the said position of the assessee was already accepted in the original TP assessment proceedings. Accordingly, he pleased that the adjustment made by the Ld. AO/TPO should be deleted in its entirety. 31. On the other hand, ld. DR of the Revenue ....
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....self would not give him a ground to conclude that income had escaped assessment. After considering the entire facts on record, in our view, the AO had not established that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for making assessment particularly the case was reopened after expiry of the 4 years. Hence, the assessment reopened is beyond jurisdiction and we only infer that it is out of change of opinion. 33. Further on merits of the case, we observed that the assessee is a distributor in India for the range of high end Fashion products manufactured and supplied by Various Chanel Group entities. In this regard the assessee had filed transfer pricing documents by bench marking on the basis of TNMM as MAM, by computing PLI by treating the subsidy received from its AE as operating income for the reason that it has direct nexus with the distribution activities. The same was in nature of compensation to ensure profitability on the basis of line of products it is into i.e., it is high end fashion products. It is in the nature of compensation for the reason that the sales are being monitored by AE and when the assessee failed ....