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2019 (3) TMI 1636 - AT - Income TaxTransfer Pricing adjustment on account of Advertisement, Marketing and Sales Promotion Expenses AMP - existence of an international transaction - HELD THAT - Operating margin excluding AMP and selling and distribution expenses of the assessee for the year under consideration is 28.03% whereas that of the comparables is 10.60% which is much much higher and if the operating margin including all the operating expenses is taken, the same is 7.04% in the case of the appellant and 5.11% in the case of comparables. The margin excluding AMP expenses only is 27.04% in the case of the appellant and 6.63% in the case of comparables. In the light of the decisions of the Hon'ble High Court in SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (NOW KNOWN AS SONY INDIA LIMITED) OTHERS VERSUS COMMISSIONER OF INCOME TAX III 2015 (3) TMI 580 - DELHI HIGH COURT and in the light of the factual matrix exhibited hereinabove, we are of the considered opinion that the impugned addition on account of AMP expenditure is uncalled for and deserves to be deleted. Disallowance u/s u/s 37(1) being 20% of the brand expenses - HELD THAT - We find force in the arguments of the Ld. Counsel that the issue is squarely covered in favour of the assessee as there is a clear finding that such expenditure does not result in any enduring benefit. Hence, these grounds of the revenue are dismissed Disallowance of provision for transit breakages - HELD THAT - Referring to case of SEAGRAM MANUFACTURING PRIVATE LTD. (NOW PEMOD RICHARD INDIA PVT. LTD.) 2016 (12) TMI 1284 - DELHI HIGH COURT we are of the view that any reversals in the provision and the actual amount have to be allowed as a deduction. We, therefore, restore this issue to the file of the Assessing Officer/TPO with the direction to verify the reversals of provision and only the actual amount to be allowed as deduction. Disallowance u/s 40(a)(ia) - assessee has disbursed an amount on account of reimbursement of trade schemes through sales promoters to various retailers - HELD THAT - Verification needs to be done in the case of the appellant. We, accordingly, set aside this issue to the file of the Assessing Officer/TPO with a direction to examine the documentary evidences to be filed by the assessee and verify whether the impugned disbursements are reimbursement and if found so, the same be allowed as deduction. Thus, ground accordingly allowed for statistical purposes. Disallowance u/s 14A - HELD THAT - We find that there is no exempt income claimed by the assessee during the year under consideration. Therefore, the ratio laid down by the Hon'ble High Court of Delhi in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT and CIT Vs. Holcim 2014 (9) TMI 434 - DELHI HIGH COURT squarely apply wherein the Hon'ble High Court has held that where there is no exempt income, there cannot be any disallowance u/s 14A Disallowance of unexplained expenses - assessment u/s 153C - HELD THAT - Assessing Officer on the basis of the seized paper relating to assessment year 2002-03 presumed that similar expenditure must have been incurred by the assessee for which he made additions in both the years under appeal. We find the issue is now settled in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Sinhagad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT wherein the Hon'ble Supreme Court has observed that the seized material must have a co-relation with the assessment year to which they pertain to and therefore invoking jurisdiction u/s 153C for an assessment year that had no relation to the seized material is bad in law. Assessment u/s 153A - Disallowance u/s 40A(3) - HELD THAT - It is nothing but a dumb document which requires no consideration. Moreover, it is an undisputed fact that the documents were seized from the premises of Samir Goyal and, therefore, any relevance to be deduced from the same has to be in the case of Samir Goyal and not the assessee keeping in mind that the assessment has been framed u/s 153A of the Act. We, accordingly, do not find any merit in the addition and direct the Assessing Officer to delete the same. Disallowance u/s 40A(3) - HELD THAT - It is true that the payments have been made by way of account payee cheques/RTGS. In our considered opinion, such payments do not attract the provisions of section 40A(3) of the Act. Moreover, the assessee has also furnished the ledger account of M/s Sky View in the books of the assessee for the period 01.04.2007 to 31.03.2011. It appears that the Assessing Officer has not examined the details from correct perspective. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. AO is directed to verify from the ledger account of Sky View and verify whether payments have been made by A/c payee cheques/RTGS and after satisfying himself, no addition need be made u/s 40A(3) Disallowance u/s 37(1) for want of verification /non-production in respect of payments made to certain parties - notice u/s 133(6) to parties - HELD THAT - It can be seen that in respect of four parties, the assessee has done no transaction. Therefore, there is no point in issuing notice u/s 133(6) of the Act to these parties. In respect of other parties, since the assessee has furnished complete details in the form of invoice, agreement, CST registration certificates and copies of ledger account, the Assessing Officer should have pointed out specific errors/defects in these direct evidences. In our considered opinion, assessment has been framed without proper verification. We, therefore, restore this issue to the file of the Assessing Officer with the direction to examine the documentary evidences furnished by the assessee and if necessary, can verify the transaction from the recipient parties. Ground allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment on Advertisement, Marketing, and Sales Promotion (AMP) Expenses. 2. Disallowance of Brand Expenses under Section 37(1) of the Income-tax Act. 3. Disallowance of Provision for Transit Breakages. 4. Disallowance under Section 40(a)(ia) for Reimbursement of Trade Schemes. 5. Disallowance under Section 14A for Exempt Income. 6. Disallowance of Unexplained Expenses. 7. Disallowance under Section 40A(3) for Cash Payments. 8. Disallowance for Non-Verification of Payments to Certain Parties. 9. Initiation of Penalty Proceedings under Section 271(1)(c). Detailed Analysis: 1. Transfer Pricing Adjustment on AMP Expenses: The assessee challenged the AMP adjustment of ?52.05 crores made by the TPO/Assessing Officer, who used the Bright Line Test (BLT) to benchmark AMP expenses. The assessee argued that the BLT has been discarded by the Delhi High Court in the case of Sony Ericsson Mobile Limited (374 ITR 118). The Tribunal agreed, citing that the BLT is not mandated by the Act or Rules and cannot be used to infer the existence of an international transaction. The Tribunal emphasized that the Revenue must establish the existence of an international transaction with tangible evidence before benchmarking AMP expenses. The Tribunal concluded that the impugned addition on account of AMP expenditure was uncalled for and deserved to be deleted. 2. Disallowance of Brand Expenses under Section 37(1): The Assessing Officer disallowed ?8,21,29,536/- being 20% of brand expenses, treating them as capital in nature. The assessee argued that this issue had been settled in its favor by the Delhi High Court and the Tribunal in earlier years. The Tribunal, following the High Court's decision, directed the deletion of the addition, stating that the expenditure did not result in any enduring benefit. 3. Disallowance of Provision for Transit Breakages: The Assessing Officer disallowed ?1,12,16,288/- claimed as a deduction for transit breakages. The assessee conceded that this disallowance had been upheld by the Delhi High Court and confirmed by the Supreme Court. However, the Tribunal directed the Assessing Officer to verify any reversals in the provision and allow the actual amount as a deduction, following the High Court's findings. 4. Disallowance under Section 40(a)(ia) for Reimbursement of Trade Schemes: The Assessing Officer disallowed ?6,35,40,939/- for reimbursement of trade schemes, treating them as commission without TDS deduction. The Tribunal, noting that similar disallowances had been allowed in the assessee's sister concern after verification, directed the Assessing Officer to verify the nature of the payments and allow the deduction if they were reimbursements. 5. Disallowance under Section 14A for Exempt Income: The Tribunal noted that Rule 8D does not apply for the assessment year 2007-08 and that there was no exempt income claimed by the assessee. Following the Delhi High Court's rulings in Cheminvest Ltd and CIT vs. Holcim, the Tribunal directed the deletion of the disallowance of ?12,68,781/-. 6. Disallowance of Unexplained Expenses: The Assessing Officer disallowed ?10.80 lakhs based on a diary seized during a search, which indicated payments to an Excise Inspector and for a license fee. The Tribunal, following its earlier decision, found the document to be a "dumb document" with no date or year and directed the deletion of the addition. 7. Disallowance under Section 40A(3) for Cash Payments: The Assessing Officer disallowed ?45,000/- based on a document seized from a third party, indicating cash payments to an Excise Official. The Tribunal found the document to be undated and unrelated to the assessee, directing the deletion of the addition. 8. Disallowance for Non-Verification of Payments to Certain Parties: The Assessing Officer disallowed ?7,16,79,359/- for payments to certain parties due to non-verification. The Tribunal noted that the assessee had furnished complete details and directed the Assessing Officer to verify the transactions from the recipient parties and allow the deduction if the transactions were genuine. 9. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal found this ground to be premature and dismissed it. Conclusion: The Tribunal allowed the appeal in part, deleting several disallowances and directing the Assessing Officer to verify certain claims. The detailed analysis provided a comprehensive understanding of the issues and the Tribunal's rationale for its decisions.
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