TMI Blog2019 (5) TMI 1598X X X X Extracts X X X X X X X X Extracts X X X X ..... ark Adidas and enjoys all proprietary rights related thereto. We cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court in Soney Ericson Mobile Communications (supra) and Maruti Suzuki Inida Ltd. [ 2015 (12) TMI 634 - DELHI HIGH COURT] which are under consideration before the Hon ble Apex Court is modified or reversed by the Hon ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon ble Apex Court. Ground allowed for statistical purposes. TP adjustment with relation to export of goods - HELD THAT:- As observed that assessee had imported finished goods amounting to ₹ 13,76,26,854/- out of which, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. A.Y. Impugned Order passed by Date of order Appeal filed by 1. 2006-07 ITO, Ward 1(2) u/s 143(3)(ii) r.w.s.144C(13) 30/04/2014 Assessee 2. 2007-08 CIT(A)-XX 30/03/12 Assessee Revenue 3. 2008-09 CIT(A)-XX 25/10/2013 Assessee 1.1 . It is observed that appeal for A.Y. 2006-07 arises as a consequence of order of this Tribunal wherein, issues were set aside to file of DRP/AO, vide order dated 14.12.2012 in ITA No.2889/Del/2010 by making following observations in para 7: If we look at the order of Ld.DRP extracted (supra) in the light of above proposition, it will reveal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the said provision could not be invoked to determine the quantum / extent of business expenditure. 2.4. The DRP erred on facts and in law in not appreciating that the Transfer Pricing adjustment sought to be made by the TPO in the present case was a mere quantitative adjustment, on the footing that the appellant had incurred excessive amount of AMP expenditure and consequently that such Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. 2.5. The DRP/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 2.6. That the DRP/TPO erred on facts and in law in holding that AMP expenses incurred by the appellant resulted in promotion of brand owned by the associated enterprise, thereby creating marketing intangibles whose ultimate benefit inured to the associated enterprise. 2.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by applying one of the methods specified in section 92C of the Act. 2.15. That the DRP erred on facts and in law in holding that, bright line is a line drawn within the overall amount of AMP expenses incurred for the normal business of the assessee and the remaining amount on the other side is the value of the international transaction representing the amount of AMP expenses incurred for and on behalf of the foreign AE towards creating its marketing intangible . 2.16. Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 2.17. Without prejudice that the assessing officer erred on facts and in law in considering selling and distribution expenses amounting to ₹ 12.00,57,999 for the purpose of calculating alleged AMP expenditure of the appellant. 2.18. Without prejudice that the DRPTPO erred on facts and in law in not following the principle laid down by the Special Bench in case of LG Electronics Private Limited of excludi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciating that no royalty is being paid by the appellant for the use of brand name Adidas . 3. That the assessing officer / DRP erred on facts and law in making transfer pricing adjustment amounting to ₹ 10,48,537 in relation to international transaction of exports of goods made by the appellant to its AE. 3.1. The DRP erred on facts and in law in upholding the Transfer Pricing adjustment of ₹ 10,48,537 made in relation to international transaction of export of goods allegedly on the ground that the appellant did not follow uniform approach for benchmarking of international transaction. 3.2. That the assessing officer /DRP erred in law and facts in disregarding the CUP data provided by the appellant to benchmark the international transaction of export of goods allegedly holding that the appellant has not applied CUP method on all the transaction of export of goods. 3.3. That the assessing officer / DRP erred in law and facts in not appreciating that the appellant has distribution rights only in territory of India and the exports of outdated/ slow moving stock to AE is made due to business necessity / c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee to be A high risk distributor/de facto manufacturer , and having rejected the case of TPO and the comparable relied upon by him, ought to have passed a speaking order for rejecting the comparable selected by the TPO. 4. That, the order of Ld. CIT(A) is totally silent and fails to adjudicate the arguments of the cross objector assessee that, in the determination of the addition made by the TPO on AMP expenses, there has to be a reduction on account of comparative benefits and advantage of the global advertisements of the parent company AE for the period . 5. That, the order of Ld. CIT(A) is totally silent and fails to adjudicate the arguments of the cross objector assessee that, in the determination of the addition made by the TPO on AMP expenses, there has to be a reduction on the savings made by the cross objector assessee due to waiver of ITA 29/Del/14 A.Y. 2008-09 (Assessee s appeal) 1. On the facts and in the circumstances of the case, the learned CIT(A)/Assessing Officer / TPO has erred both in law and facts in disallowing sum of ₹ 7,23,41,946 out of advertisement, Marketing and Promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case the learned CIT (A) has erred in coming to conclusion that the CUP is being rejected as the case is covered by the judgment of Hon'ble Special Bench in LG Electronics India Private Limited. d) On the facts and circumstances of the case the learned CIT (A)/ TPO/AO has erred in not giving credit for excess AMP expenditure being incurred by AE as compared to assessee especially since the benefit of the same has been received by assessee in the form of global advertisement and sponsorships. 5. a) Without prejudice the above, the AO/TPO erred in rejecting the comparables submitted by the appellant. b) On the facts and circumstances of the case the learned CIT (A)/ Assessing Officer/TPO erred in rejecting all Indian Comparables which were promoting Indian Brands. 6. a) Without prejudice the above, the CIT (A)/Assessing Officer/TPO erred in substituting his own comparable for benchmarking which are erroneous. b) On the facts and in the circumstances of the case, the learned CIT (A)/ Assessing Officer / TPO has erred both in law and facts in not considering various reasons given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) a) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer has erred in making addition on notional basis mark-up of 15% on expenditure incurred for developing the intangible of ₹ 7,23,41,946 amounting to ₹ 1,08,51,292. b) On the facts and in the circumstances of the case, the learned CIT (A)/TPO/Assessing Officer erred in not allowing set off of savings on account of Interest when the mark up has been calculated at equivalent interest rate of 15 %. c) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer / TPO has erred both in law and facts in coming to conclusion that the assessee had rendered intra group services to its AEs. 13) On the facts and in the circumstances of the case, the learned CIT (A)/Assessing Officer has erred is not granting the benefit of +/- 5% of range as envisaged by the proviso to Sec. 92C (2) of the Income Tax Act 1961. 14). The appellant craves for grant of permission to add, alter and delete any ground of objection at or any time during the hearing. 2. Both parties su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of sales in case of assessee was at 8.43% which was higher than average AMP expenses incurred by comparables, thereby making an adjustment of difference which resulted in creation of marketing intangibles on account of promotion and development of brand Adidas legally owned by Associated Enterprise. 3.3. Ld.TPO thus held AMP expenditure to be an international transaction within the meaning of section 90 2B (1) of the Income Tax Act, 1961 (the Act). 4. Aggrieved by order of Ld. AO, assessee is in appeal before us now. 5. At the outset, Ld.Counsel submitted that Ground No. 1 raised by assessee is general in nature, and therefore do not require any adjudication. Accordingly the same is dismissed. 6. Ground No. 2 to 2.29 have been raised against adjustment made by Ld.AO on account of alleged excessive AMP expenses amounting to ₹ 243.85 crores. It has been submitted by Ld.Counsel that said issue now stands squarely covered in case of Whirlpool India Ltd. Vs. DCIT reported in (2014) 42 taxmann.com 553, which is upheld by Hon ble Delhi High Court reported in (2015) 64 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act read with Section 92F(v) of the Act? is answered in the negative, i.e., in favour of the Assessee and against the Revenue. Consequently Question (ii) in the Assessee's appeal is not required to be answered. Further, the only question framed in the Revenue's Appeal viz., Whether the ITAT erred in deleting the addition of ₹ 180,73,10,769 made by the AO/TPO on account of AMP expenses under Section 37 of the Act? is answered in the negative, i.e. in favour of the Assessee and against the Revenue. 49. The impugned order of the ITAT and the corresponding orders of the DRP and the TPO, on the above issues are hereby set aside. The appeal of the Assessee, ITA No. 228 of 2015 is allowed and the appeal of the Revenue, ITA No. 610 of 2014 is di smissed in the above terms, but in the circumstances with no orders as to costs. 7.3. On perusal of orders passed by Ld.TPO/AO/DRP for year under consideration, it is observed that AMP expenditure has been considered to be international transaction by applying Bright Line Test, whereby Ld.TPO proposed an adjustment of 243.8 crores. 7.4. Ld.Sr.DR preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observes that assessee has been licensed the brand Adidas by its domestic AE (Adidas India Pvt. Ltd). He also reproduces relevant extract from the agreement, wherein it is recorded that Adidas India Pvt. Limited is the exclusive owner of trademark Adidas and enjoys all proprietary rights related thereto. It is observed that relevant clauses reproduced in Transfer Pricing order is an extract from the trademark agreement dated 14/02/1997. Further in para 5.2 at page 7 of TPO order Ld.TPO records as under: 5.2. .. A closer examination of the facts of the case has revealed that assessee s case is in fact no different from other cases wherein the Indian entity licenses the brand directly from its overseas AE. In assessee s case, a domestic AE (Adidas India private limited) has been interposed merely as a planning device and with no economic substance. .. 5.3. The assessee was asked to furnish the audited financial statement of its immediate holding company in India with Adidas India private limited. On perusal of the same, it is quite clear that the holding company is just a shell company that does nothing else apart from holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon ble Apex Court is modified or reversed by the Hon ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. Accordingly Grounds 2 to 2.24 stand allowed for statistical purposes. 9. Ground No. 3-3.3 have been raised by assessee against Transfer Pricing adjustment with relation to export of goods. 10 . Ld.Counsel submitted that assessee had to minimise exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the records placed before us. 13. It has been submitted that assessee follows consistent approach in dealing with slow-moving stock which is in consonance with company policy as has been explained by Ld.Counsel in his argument. Nothing on record has been placed before us by Ld.Sr.DR or by authorities below pointing out any fault or error in the company policy of disposing off seconded goods. Moreover assessee has discretion to decide how its business needs to be conducted. It is observed that Ld.TPO proposed adjustment as in his opinion assessee could have directly sold these goods to third parties. Ld.A.O. was of the opinion assessee sold the goods through AE and part of the profits has been shifted to the A.E. 13.1 . It is observed that assessee bench marked the transaction of sale to AEs by using internal CUP. From records placed before us it is observed that assessee sold finished goods to following AEs amounting to ₹ 45,64,209/-: (a) Adidas Solomon Sourcing Ltd.: ₹ 44,05,621/-; (b) Adidas New Zealand : ₹ 67,760/-; (c) Adidas Latin America: ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of filing revised return, placing reliance upon Hon ble Supreme Court in case of Goetze India Ltd reported in 284 ITR 323 . 15.2. Ld.Counsel submitted that in case of Goetze India Ltd (supra), Hon ble Supreme Court dealt with the issue of power of Assessing Officer to admit a claim which was not raised in the return of income and does not incline on the power of appellate authority. Instead placing reliance upon the decision of Hon ble Supreme Court in case of TRF Ltd vs CIT reported in 323 ITR 397 , Ld.Counsel submitted that it is not necessary for assessee to establish that the debt in fact had become irrecoverable and it was enough if bad debts is written off as irrecoverable in the accounts of assessee. 16. Ld.CIT, DR placed reliance upon the order of authorities below. 17. We have perused submissions advanced by both sides in the light of records placed before us. 18. In our considered opinion there are plethora of decisions by various Courts and Hon ble Supreme Court wherein it has been held that a legitimate claim of assessee should be allowed even if it is raised du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture is an international transaction or not. It is very interesting to note that Ld.TPO observes that assessee has been licensed the brand Adidas by its domestic AE (Adidas India Pvt. Ltd). He also reproduces relevant extract from the agreement, wherein it is recorded that Adidas India Pvt. Limited is the exclusive owner of trademark Adidas and enjoys all proprietary rights related thereto. It is observed that relevant clauses reproduced in Transfer Pricing order is an extract from the trademark agreement dated 14/02/1997. Further in para 5.2 at page 7 of TPO order Ld.TPO records as under: 5.2. .. A closer examination of the facts of the case has revealed that assessee s case is in fact no different from other cases wherein the Indian entity licenses the brand directly from its overseas AE. In assessee s case, a domestic AE (Adidas India private limited) has been interposed merely as a planning device and with no economic substance. .. 5.3. The assessee was asked to furnish the audited financial statement of its immediate holding company in India with Adidas India private limited. On perusal of the same, it is quite cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard. 23.2. Respectfully following the same we set aside this issue to Ld. AO/TPO to pass fresh order considering decision of Hon ble Supreme Court after giving proper opportunity to assessee. 23.3. Accordingly this ground raised by revenue stands allowed for statistical purposes. 24. Ground No. 2 has been raised by revenue against deleting disallowance of ₹ 15,70,657/- on account of interest expenditure. 25 . Ld.Counsel submitted that during assessment year under consideration Assessing Officer disallowed interest of ₹ 15,70,657/- under section 36 (1) (iii) of the Act. He submitted that Ld. AO made addition in the hands of assessee on the ground that assessee granted loan to Associated Enterprises at nil rate of interest from borrowed funds, on which, assessee paid interest. Ld. Counsel submitted that there was no loan that was given by assessee to its AE. Instead sum of ₹ 2,08,31,000/-, was recoverable from AE as on 31/03/07. It has been submitted that this amount is coming as due since 2000-01 and no addition of this amount was made during A.Y. 2000-01 to 2003-04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Hon ble High Court. In that year, it was observed that merely because the assessee was paying royalty @ 5% to its holding company would not mean that the assessee could not incur the expenditure on advertisement to popularize the products dealt with by it in Indian market. No doubt, brand name of Adidas is already a well-known brand which belongs to the parent company of the assessee. However, to popularize the said product in India and to promote its sale in Indian territories, it became necessary to incur expenditure on advertising to propagate the aforesaid brand name. The benefit thereof has to necessarily accrue to the assessee as the main purpose of the advertisement was to augment the sales. The fact that the advertisement expenditure was incurred based on commercial practice and commercial expediency was accepted by the Tribunal. It is, therefore, clear that the advertisement expenditure even if debited by the assessee to its own profit and loss account could have been allowed as admissible expenditure in the hands of the assessee within the meaning of sec. 37 of the Act as so allowed in the assessment year 1997-98. In the present assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f holding company are undoubtedly on grounds of commercial expediency inasmuch as the assessee undoubtedly would be benefited by making advertisement of the brand name Adidas to augment and promote sale effected by the assessee in the notified territories. 10. In the light of the reasons given above, we therefore, hold that the CIT(A) was not justified in confirming the Assessing Officer s action in disallowing the sum of ₹ 21,72,787/- out of the interest paid by the assessee during the year. The orders of the authorities below are therefore, reversed 10 and the ground raised by the assessee is allowed being decided in favour of the assessee. The Assessing Officer shall modify the assessment order accordingly. 27.1. On perusal of assessment order dated 28/12/2010, it is observed that Ld.AO while making disallowance placed reliance on assessment order passed for A.Y. 2004-05, wherein identical disallowance was made. 27.2. Assessee has submitted that during year under consideration a sum of ₹ 2,08,31,000/- was shown recoverable as opening balance as on 01/04/2006 from AE. 27.3. It is o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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