2017 (11) TMI 1783 - AT - Income Tax

ALP adjustment on protective basis - adjustment in respect of AMP expenses - HELD THAT - There is no dispute that the application of bright line test, for making ALP adjustments in respect of the AMP expenses, is held to be unsustainable in law by Hon ble jurisdictional High Court, and the TPO himself states so in so many words. - it is not, cannot be, open to us to disregard the binding judicial precedents and uphold the application of bright line test, for determining the ALP adjustment in respect of AMP expenses, merely because a binding judicial precedent from Hon ble jurisdictional High Court has been challenged by the revenue authorities before the Hon ble Supreme Court. The very concept of protective addition is relevant only when an income is to be added in the hands of more than one taxpayer, in a situation in which there is an element of ambiguity as to in whose hands the said income can be rightly brought to tax. That s not the case before us. - the concept of protective assessment , as is known to the income tax law, has no application this case - Additions deleted. Set off of the brought forward business losses - HELD THAT - Assessee has claimed set off of the loss of ₹ 26,25,85,933 incurred in the assessment year 2012-13 which could not have been set off for the prior years, and the only year following the said assessment year is the year before us. It is also pointed out that the ALP adjustment, in respect of AMP expenses by applying the bright line test (BLT), which is now decided in favour of the assessee. While learned Departmental Representative did not really address on all these aspects, he fairly agreed to our suggestion that the matter is required to be examined afresh by the Assessing Officer in the light of outcome of the appellate proceedings for the other assessment years as also by way of a speaking order dealing with the specific contentions of the assessee - remit the matter to the file of the Assessing Officer for fresh adjudication

Summary

Issues:
1. Addition of &8377; 23,83,92,783 for arm's length price adjustment for advertising promotion and marketing (AMP) expenses.
2. Denial of set off for brought forward business losses.

Analysis:

*Issue 1: Addition of &8377; 23,83,92,783 for AMP Expenses*
The appeal challenges the addition of &8377; 23,83,92,783 made by the Assessing Officer for arm's length price adjustment for AMP expenses. The Transfer Pricing Officer initially recommended an adjustment of &8377; 51,06,32,341, but this was later deleted by the Assessing Officer. The Assessing Officer then made a protective addition based on the Bright Line Test to safeguard revenue interests pending a Supreme Court decision. However, the Tribunal found no merit in this protective basis adjustment. It emphasized that the application of the bright line test for ALP adjustments in AMP expenses is unsustainable as per binding judicial precedents. The Tribunal held that the addition must be deleted as the concept of protective addition does not apply in this case.

*Issue 2: Denial of Set Off for Brought Forward Business Losses*
The second grievance relates to the denial of set off for brought forward business losses amounting to &8377; 26,25,85,933. The Assessing Officer denied the set off due to previous additions made in preceding assessment years. The Tribunal, after hearing both parties, concluded that the matter needs fresh adjudication by the Assessing Officer considering the outcome of appellate proceedings in previous years. The Tribunal directed the assessee to cooperate with the Assessing Officer for expeditious disposal of the remanded proceedings. The Tribunal partially allowed the appeal and remitted the matter for fresh adjudication.

In conclusion, the Tribunal deleted the addition of &8377; 23,83,92,783 for AMP expenses and remitted the issue of set off for brought forward business losses for fresh adjudication. The appeal was partly allowed, and the stay application was dismissed as infructuous.