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2018 (7) TMI 1964 - AT - Income TaxAssessment u/s 144C - whether final order of assessment was not passed within the time limits prescribed by law and therefore the same being bad in law is liable to be quashed? - HELD THAT - In the case on hand the DRP issued its directions on 17.12.2015 and while the same were admittedly received by the Assessing Officer on 29.12.2015 the final order of assessment was passed on 18.02.2016. According to the assessee this final order of assessment for Assessment Year 2011-12 is bad in law since it was not passed within one month from the end of the month in which the DRP directions were received. This ground was considered and decided against the assessee by a co-ordinate bench of this Tribunal in the assessee s own case for the very same Assessment Year 2011-12 2017 (8) TMI 409 - ITAT BANGALORE as held the proceedings cannot be declared as null and void simply because the AO passed the assessment order beyond the period prescribed there under. In the circumstances grounds relating to limitation raised by the assessee-company are dismissed TP adjustment - selection of MAM - TP Study / documentation done adopting TNMM as the Most Appropriate Method (MAM) and the TPO s adoption of CPM as the MAM in place of TNMM - HELD THAT - In the case on hand the net margin earned by the assessee in respect of personal care division in the domestic segment at 11.30% was compared to the net margin from exports to AEs at 15.80%. Since the net margin from exports to AEs was higher than the net margin from domestic sales to unrelated parties the assessee concluded that its exports to AEs were at arm s length. The TPO has taken AE sales comprising of both pharma and personal care products and compared the same with the personal care products of the domestic segment. Since the products compared are different consequently the gross profits are also different. The number of differences and adjustments to be carried out for comparison purposes of the TPO s order are large in number and therefore where differences are many CPM cannot be considered as MAM. CPM adopted by the TPO is incorrect and contrary to the facts of the instant case and that the assessee is justified in adopting TNMM for determining the ALP in respect of finished goods exported to AEs. Transfer Pricing Adjustment made by the TPO by adopting CPM is accordingly deleted. - Decided in favour of assessee. TP adjustment on Advertisement Marketing Sales Promotion (AMP) Expenses - TPO has made the Transfer Pricing Adjustment in respect of AMP expenses on the ground that the said expenditure has resulted in promotion of the brand Himalaya owned by M/s. Himalaya Global Holdings Ltd. Cayman Islands and has applied the Bright Line Test for this purpose - HELD THAT - Neither the TPO nor the Assessing Officer has brought on record any material evidence to substantiate the existence of any agreement or arrangement either express or implied between the assessee and HGH Cayman Islands for promotion of its brand. The Hon ble High Court of Delhi in a series of decisions inter alia including the case of Maruti Suzuki India Ltd. Vs. CIT 2015 (12) TMI 634 - DELHI HIGH COURT emphasized the importance of Revenue having to first discharge the initial burden upon it with regard to showing the existence of an international transaction between the assessee and the AE. Requirement of there being an international transaction has not been satisfied in the case on hand - the net margin from exports to AEs at 15.80% is more than the net margin earned by the assessee in respect of personal care product division in the domestic argument at 11.30%. In the factual matrix of the case as discussed above the ALP of the assessee s international transactions with its AEs were at Arm s Length and therefore no separate adjustment for AMP expenditure is called for. Transfer Pricing Adjustment made by the TPO in respect of AMP expenditure is to be deleted. - Decided in favour of assessee. Charging of Interest u/s. 234B 234C is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H Ghaswala 2001 (10) TMI 4 - SUPREME COURT and we therefore uphold the action of the Assessing Officer in charging the said interest in the case on hand.
Issues Involved:
1. Validity of the final assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act. 2. Validity of the reference to the Transfer Pricing Officer (TPO) under Section 92CA. 3. Determination of the Arm's Length Price (ALP) using the Cost Plus Method (CPM) versus the Transactional Net Margin Method (TNMM). 4. Adjustment on account of Advertisement, Marketing, and Sales Promotion (AMP) expenditure. 5. Levy of interest under Sections 234B and 234C of the Income Tax Act. Detailed Analysis: 1. Validity of the Final Assessment Order: The assessee contended that the final order of assessment was not passed within the prescribed time limits and thus should be quashed. However, the Tribunal referred to a previous decision in the assessee's own case for the same assessment year, where it was held that the delay in passing the final assessment order does not go to the root of the jurisdiction of the Assessing Officer (AO). Consequently, this ground was dismissed. 2. Validity of the Reference to the TPO: The assessee did not press grounds IV to VI, which challenged the validity of the reference to the TPO. Therefore, these grounds were dismissed as not pressed. 3. Determination of ALP Using CPM vs. TNMM: The TPO adopted CPM as the Most Appropriate Method (MAM) for determining the ALP of the international transactions, whereas the assessee used TNMM. The Tribunal found that the TPO did not make necessary adjustments for functional and other differences between the domestic and export segments, which is required under Rule 10B(1)(c). The Tribunal held that due to the numerous differences and the impossibility of making reasonably accurate adjustments, CPM could not be considered the MAM. Instead, TNMM was deemed more appropriate as it is less affected by transactional and functional differences. Consequently, the Transfer Pricing Adjustment made by the TPO using CPM was deleted. 4. Adjustment on Account of AMP Expenditure: The TPO made a Transfer Pricing Adjustment for AMP expenditure, arguing that the expenditure promoted the brand owned by the foreign AE, Himalaya Global Holdings Ltd. The Tribunal, however, found no evidence of any agreement or arrangement between the assessee and the AE to incur AMP expenditure for brand promotion. Citing various judicial pronouncements, the Tribunal held that in the absence of such an arrangement, no Transfer Pricing Adjustment could be made for AMP expenditure. The Tribunal also noted that the net margin from exports to AEs was higher than that from domestic sales, indicating that the transactions were at arm's length. Therefore, the Transfer Pricing Adjustment for AMP expenditure was deleted. 5. Levy of Interest under Sections 234B and 234C: The assessee challenged the levy of interest under Sections 234B and 234C. The Tribunal held that the charging of interest is consequential and mandatory, as upheld by the Supreme Court in the case of Anjum H. Ghaswala. The AO was directed to recompute the interest while giving effect to the Tribunal's order. Conclusion: The assessee's appeal was partly allowed. The Tribunal upheld the use of TNMM over CPM for determining the ALP and deleted the Transfer Pricing Adjustments related to both the sale of finished goods and AMP expenditure. The levy of interest under Sections 234B and 234C was upheld, subject to recomputation by the AO.
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