2019 (1) TMI 1651 - AT - Income Tax

TP Adjustment - addition made on account of AMP adjustment on protective basis by applying the BLT - HELD THAT - For assessment year 2013-14 has, again, allowed the appeal filed by the assessee by directing the Assessing Officer to delete the addition made on account of AMP adjustment on protective basis by applying the BLT. Since the Tribunal in assessee s own case has already decided the issue and directed the Assessing Officer/TPO to delete the addition made by them by applying brightline test, therefore, in absence of any contrary material brought to our notice, we set aside the order of the Assessing Officer and direct him to delete the addition. Deduction u/s 43B(a) has been paid under protest towards Customs Duty - this issue was neither before the Assessing Officer nor CIT(A) - HELD THAT - It is an admitted fact that the assessee has not claimed the amount as deduction being Customs Duty paid under protest either in the return of income or in the computation statement. Therefore, this issue was neither before the Assessing Officer nor CIT(A). However, it is also an admitted fact that the Customs Authorities have raised a demand during the financial year itself and the assessee has made a payment under protest for goods purchased, imported and cleared during the impugned assessment year which has been shown as a current asset in the balance sheet of the assessee company.

Summary

Issues Involved:
1. Determination of Arm’s Length Price (ALP) for international transactions.
2. Re-characterization of the appellant as a service provider.
3. Categorization of AMP expenditure as an international transaction.
4. Application of Bright Line Test (BLT) for AMP expenditure.
5. Deduction under Section 43B(a) for Customs Duty paid under protest.
6. Levy of interest under Section 234B and 234C.

Detailed Analysis:

1. Determination of Arm’s Length Price (ALP) for international transactions:
The assessee filed its return declaring an income of ?66,47,37,700/-. The Assessing Officer (AO) referred to the Transfer Pricing Officer (TPO) to determine the ALP of international transactions. The TPO proposed an upward adjustment of ?62,47,42,783/- on a protective basis due to AMP expenses exceeding the brightline limit. The TPO identified a profit margin of 12.35% from 7 comparables and proposed an adjustment of ?46,86,45,221/- on a protective basis. The DRP reduced this to ?45,56,72,488/- and directed the TPO to compute AMP adjustment using the intensity method for previous years.

2. Re-characterization of the appellant as a service provider:
The AO/DRP/TPO re-characterized the appellant as a service provider rendering brand building services to its AE, instead of recognizing it as a full risk-bearing distributor. The assessee contended that the AMP expenditure was incurred to promote its own sales in India.

3. Categorization of AMP expenditure as an international transaction:
The AO/DRP/TPO categorized the unilateral AMP expenditure as an international transaction under Chapter X of the IT Act. The assessee argued that there was no agreement or arrangement with the AE for such expenditure, and the AO did not provide an opportunity for a hearing or pass a speaking order.

4. Application of Bright Line Test (BLT) for AMP expenditure:
The AO/DRP/TPO applied the BLT for making a transfer pricing adjustment of ?45,56,72,488/-. The Tribunal referenced its own decisions in the assessee’s case for previous years and other cases, noting that BLT has been rejected by higher judicial authorities. The Tribunal directed the AO to delete the addition made by applying the BLT, as it has no statutory mandate.

5. Deduction under Section 43B(a) for Customs Duty paid under protest:
The assessee requested a deduction of ?10,06,87,203/- under Section 43B(a) for Customs Duty paid under protest. The Tribunal noted that the assessee did not claim this amount in the return or computation statement. However, the Tribunal admitted the additional claim and evidences, citing various judicial precedents that allow appellate authorities to consider new claims. The matter was remanded to the AO to decide the issue on merits.

6. Levy of interest under Section 234B and 234C:
The assessee contested the levy of interest under Sections 234B and 234C. The Tribunal noted that the levy of interest is mandatory and consequential, thus dismissing this ground.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal directed the AO to delete the addition made by applying the BLT and to reconsider the deduction claim for Customs Duty paid under protest. The levy of interest under Sections 234B and 234C was upheld.