2014 (1) TMI 1634 - AT - Income Tax

Disallowance of Transfer Pricing Adjustments - Assesse followed TNMM method to determine the ALP with its AE transactions and in its return itself offered to tax an amount of 3, 31, 652 calculated at 4.88% qua the bulk sale of books to AEs - Held that - Apropos T.P. adjustments there is merit in the argument of ld. Counsel for the assessee that bulk discount and reduce bad debt liability risk with AEs is well known factor and is to be considered while making T.P. adjustments. In view thereof CIT(A) has rightly appreciated the issue and held that the suo motu offer of adjustment by assessee at 4.88% as net profit margin adjustment was reasonable. The CIT(A) s order being based on sound reasoning and proper appreciation of facts needs no interference which is upheld. - Apropos advertisement also assessing officer has not given any rational basis or cogent reasons to come to a conclusion that 15% ad hoc of the total expenditure on publicity & advertisement was attributable to brand building. CIT(A) has rightly held that the expenditure has been incurred on profit generating apparatus of the assessee. - Respectfully following Hon ble Supreme Court judgment in the case of Emporium Jute Co. Ltd. 1980 (5) TMI 1 - SUPREME Court And Citi Finance (2011 (3) TMI 622 - Delhi High Court) we uphold his order - Decided against Revenue.

Summary

Issues:
1. Transfer Pricing adjustment
2. Disallowance of advertising and publicity expenses

Transfer Pricing adjustment:
The appeal was against the order of CIT(A) relating to A.Y. 2006-07. The Revenue challenged the deletion of additions made by the AO on account of transfer pricing. The assessee, a subsidiary of a US-based multinational company, used the TNMM method to determine the ALP with its AE transactions. The assessee offered to tax an amount calculated at 4.88% for bulk sales of books to AEs. The CIT(A) deleted the addition, stating that volume discounts in book publication are a common practice, increasing turnover and reducing risks. The CIT(A) found the adjustments made by the assessee reasonable and in line with commercial reality. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Disallowance of advertising and publicity expenses:
The assessing officer disallowed a portion of the advertisement and publicity expenses without providing a rational basis. The CIT(A) deleted the addition, stating that the expenses were incurred on the profit-generating apparatus of the assessee. The Tribunal upheld the CIT(A)'s decision, citing judgments that treat such expenses as revenue in nature, fully allowable in the year incurred. The Tribunal dismissed the Revenue's appeal, upholding the order of the CIT(A) on this issue as well.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on both issues, dismissing the Revenue's appeal in its entirety. The judgments were based on sound reasoning, proper appreciation of facts, and in line with established legal principles regarding transfer pricing adjustments and the treatment of advertising and publicity expenses.