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2013 (4) TMI 699 - AT - Income TaxTransfer pricing adjustment - advertisement, marketing and sales promotion expenses - Held that - In view of the majority decision of the Special Bench in L. G. Electronics India P. Ltd. v. Asst. CIT reported in 2013 (6) TMI 217 - ITAT DELHI we hold that the transaction in question is an international transaction which is liable to be considered under the provisions of section 92B of the Act and the Assessing Officer was justified in treating the transaction of brand building as an international transaction in the facts and circumstances of the case. Transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee for creating or improving the marketing intangible for and on behalf of the foreign AE is permissible - set aside the present issue for adoption of the prescribed method for determining arm s length price in relation to the advertisement, marketing and sales promotion expenditure to the file of the Transfer Pricing Officer. - Decided in favour of assessee for statistical purposes. Expenditure relating to market research service - whether charges paid to selling agents and discount on sales are to be excluded from the alleged advertisement, marketing and sales promotion expenditure as being not relatable to advertisement and marketing expenditure? - Held that - We find that the Special Bench of the Tribunal (majority view) in L. G. Electronics India P. Ltd. v. Asst. CIT reported in 2013 (6) TMI 217 - ITAT DELHI held that the expenses in connection with the sales do not lead to brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost/value of the international transaction. In view thereof, we direct the Assessing Officer to exclude the expenses incurred by the assessee in connection with the sales totalling ₹ 5,500.86 lakhs as the same do not fall within the ambit of advertisement, marketing and sales promotion expenses and hence not to be considered for computing the cost/value of international transaction. In view of our decision in allowing the claim of the assessee being relatable to sales promotion expenses, this ground of appeal is thus allowed - Decided in favour of assessee. Selection of comparable companies for benchmarking the advertisement and publicity expenses - Held that - As the issue of determining the transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee being set aside to the file of Transfer Pricing Officer for redetermining the arm s length price of international transaction after considering the comparables companies, we direct the Transfer Pricing Officer to consider the aspect raised by the assessee in this regard and redetermine the value of arm s length price in relation to the advertisement, marketing and sales promotion expenditure incurred by the assessee for the brand promotion of the foreign brand and also following the directions given by the Special Bench of the Tribunal (majority view) in L. G. Electronics India P. Ltd. v. Asst. CIT supra - Decided in favour of assessee for statistical purposes. No adjustment is required to be made in respect of the advertisement expenses attributed to the promotion of domestic brand owned by the assessee - Decided in favour of assessee. Disallowance under section 43B - excess payment made on account of excise duty - Held that - In view of the above said ratio laid down by the hon ble Delhi High Court in CIT v. Maruti Suzuki India Ltd. 2012 (12) TMI 671 - DELHI HIGH COURT relied upon the ratio laid down by the hon ble Supreme Court in CIT v. Shri Ram Honda Power Equipment Ltd. 2012 (10) TMI 150 - Supreme Court wherein it has been laid down that the PLA credit was excise duty paid. The said observation was made where the assessee was following net method of valuation of closing stock. Also see CIT v. Modipon Ltd. (2011 (1) TMI 323 - Delhi High Court), Raj and San Deeps Ltd. 2007 (2) TMI 198 - PUNJAB AND HARYANA High Court and also the Special Bench of the Tribunal in the assessee s own case, we direct the Assessing Officer to allow the claim of expenditure of ₹ 36,87,481 claimed under the provisions of section 43B of the Act. - Decided in favour of assessee. Disallowance of the provisions made for post retirement medical benefits to the employees - Held that - In the facts of the present case before us the assessee had recognised and accounted for the post retirement benefit due to its employees, in terms of the scheme of employment and also in terms of the revised/ change in Accounting Standard-15 issued by ICAI which was to be followed during the year, is an allowable deduction in the hands of the assessee. The said claim being based on the valuation of the actuary is both scientific and one of the recognised method of accounting and quantifying the said post retiremental medical benefits. In such cases though actual and exact quantification may not be possible, however, the liability so recognised by the assessee could not be said to be unascertained and contingent. The assessee having followed the mercantile system of accounting was compulsorily required to account for the said post retirement medical benefits as the same was quantified and had accrued during the year. The claim of the assessee was thus allowable irrespective of the fact that the assessee had made a provision in the books of account but had claimed the said deduction in the computation of income. It is well settled proposition that the way in which entries are made by the assessee in its books of account is not determinative of the question whether the assessee had earned any profit or suffered any loss as held by the hon ble apex court in Sutlej Cotton Mills Ltd. v. CIT 1978 (9) TMI 1 - SUPREME Court - Decided in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustment related to Advertisement, Marketing, and Sales Promotion (AMP) Expenses. 2. Disallowance under Section 43B for Incremental Balance in Excise PLA. 3. Disallowance of Consumer Market Research Expenses. 4. Disallowance of Provision for Post-Retirement Medical Benefits. 5. Levy of Interest under Sections 234B and 234C. 6. Initiation of Penalty Proceedings under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment related to Advertisement, Marketing, and Sales Promotion (AMP) Expenses: The assessee contested the transfer pricing adjustment of Rs. 102,83,55,523 related to AMP expenses. The Tribunal noted that this issue was covered by the Special Bench decision in L.G. Electronics India P. Ltd. v. Asst. CIT, which held that such expenses could be considered international transactions under Section 92B. The Tribunal directed the Transfer Pricing Officer (TPO) to re-examine the comparables and compute the arm's length price (ALP) after giving the assessee an opportunity to submit relevant comparables. The Tribunal also instructed the TPO to exclude certain expenses (market research, service charges to selling agents, and discount sales) from the AMP expenses, as these were not related to brand promotion. 2. Disallowance under Section 43B for Incremental Balance in Excise PLA: The assessee claimed a deduction of Rs. 36,87,481 for the incremental balance in the Excise PLA account, citing the Special Bench decision in its own case for the assessment year 2001-02. The Tribunal allowed the deduction, referencing the consistent allowance of such claims in previous years and supporting judgments from higher courts, including the Supreme Court and High Courts, which upheld the deductibility of such payments under Section 43B. 3. Disallowance of Consumer Market Research Expenses: The Tribunal addressed this issue along with the AMP expenses, directing the TPO to exclude market research expenses from the AMP expenses, as these were related to sales and not brand promotion. Consequently, the Tribunal allowed the assessee's claim for consumer market research expenses of Rs. 567.49 lakhs. 4. Disallowance of Provision for Post-Retirement Medical Benefits: The assessee claimed Rs. 11,09,89,913 for post-retirement medical benefits based on actuarial valuation, in compliance with the revised Accounting Standard-15. The Assessing Officer disallowed the claim, considering it an unascertained liability. The Tribunal, referencing the Supreme Court's decision in Bharat Earth Movers v. CIT and other relevant judgments, held that the provision was an ascertained liability and allowable as a deduction. The Tribunal directed the Assessing Officer to allow the deduction. 5. Levy of Interest under Sections 234B and 234C: The Tribunal dismissed the ground related to the levy of interest under Sections 234B and 234C, as it was consequential. 6. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal did not specifically address this issue in the detailed analysis, implying that it would be consequential to the final assessment order. Conclusion: The Tribunal partly allowed the appeal, directing the TPO to re-examine the AMP expenses and comparables, allowing the deduction for the incremental balance in the Excise PLA, and the provision for post-retirement medical benefits. The Tribunal dismissed the ground related to the levy of interest under Sections 234B and 234C.
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