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2021 (6) TMI 1120 - AT - Income TaxTP adjustment made in respect of sourcing commission - assessee claimed that the payment of commission is at arm s length - TPO determined the ALP of commission payment as Nil and accordingly made transfer adjustment of entire claim - HELD THAT - We notice that an identical issue has been examined in the assessee s own case by the coordinate bench in A.Y. 2014-15 2020 (10) TMI 1049 - ITAT BANGALORE and the matter has been restored to the file of the AO/TPO for examining it afresh. TP adjustment made in respect of payment of interest on debentures - HELD THAT - As decided in own case for assessment year 2012-13 2014-15 2020 (10) TMI 1049 - ITAT BANGALORE TPO has been taking different stand in different years. While he accepted the CCD as debentures in AY 2012-13 and reduced the rate of interest only, the TPO treated CCD as equity in AY 2014-15. However, in AY 2015-16, the TPO has accepted the rate of interest of 12% to be at arms length. We notice that the TPO has made certain enquiries in AY 2015-16 and accordingly came to the conclusion that the interest payment is at arms length. The benefit of those enquiries was not available with the TPO in the two years under consideration. Since the issue is the same in all the years and further, in view of the conflicting stands taken by TPO, we are of the view that this issue requires fresh examination at the end of TPO. Accordingly, we restore this issue in both the years under consideration to the file of AO/TPO for examining it afresh TP adjustment in respect of reimbursement of expenses - HELD THAT - Identical issue in assessment year 2005-06 and 2006-07 and has held that the nature of these expenses is such that they cannot be attributed solely and exclusively incurred by parent company for distribution business of the assessee. Accordingly, the TPO, following the decision of ITAT, determined the ALP of reimbursement of expenses at NIL. Tribunal following the decision rendered by the coordinate bench in A.Y. 2005-06 2006-07 2013 (11) TMI 355 - ITAT BANGALORE has decided this issue against the assessee. TP adjustment in respect of royalty payment - HELD THAT - We notice that an identical issue has been examined by the coordinate bench in A.Y. 2014-15 2020 (10) TMI 1049 - ITAT BANGALORE as held that onus to prove that the expenses incurred by the AE was towards sale of products and not for purpose of creating brand awareness lies upon the assessee. We notice that this onus has not been discharged by the assessee. The basic details like the agreement if any for reimbursing this expenses, RBI approval, business necessity/expediency in making the payment, the basis of calculation etc., have not been furnished. Hence, the TPO has taken the view that this expenditure is not related to the business of the assessee and accordingly he has determined the ALP at NIL. Before us also, no further details were furnished. In view of the above, we are of the view that there is no infirmity in the order so passed by the TPO/AO - Decided against assessee. TP adjustment made in respect of Advertisement, Marketing and Promotion expenses (AMP expenses) - HELD THAT - We notice that the AMP expenses incurred by the assessee in the years, other than the year in which there was partial reimbursement of expenses by A.E. of the assessee, has been held to be fully allowable by the coordinate bench. Since the facts available in the present year is akin to A.Y. 2009-10 and since it is stated that there is no agreement between the assessee and its A.E. for reimbursement of expenses, we are of the view that the decision rendered by Hon ble Delhi High Court in the case of Maruti Suzuki Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT is applicable to the facts of the present case. Accordingly, following the decision rendered by the coordinate bench in other years, we hold that the TP adjustment made in respect of AMP expenses is not justified. Accordingly, we direct the A.O. to delete the same. Disallowance of claim of purchase of samples - allowable business expenses or not? - HELD THAT - When the transaction is between related parties, the Act places more burden on the shoulders of the assessee to prove that the expenditure is related to the business of the assessee. Further, in trade circles also, it is known fact that the expenditure on samples are borne by the manufacturers only. Hence this claim of expenditure is against the trade practice and the assessee appears to have borne the expenses only on the reasoning that the same was charged upon it by its parent company. Hence, we are of the view that the AO was justified in holding that the burden to incur this expenditure is that of parent company and is not related to the business activities of the assessee - As relying on previous years we decide this issue against the assessee and accordingly, confirm the disallowance made by the A.O. on this issue. Disallowance u/s 40(a)(i/ia) of the Act for non-deduction of tax at source - A.R. submitted that the assessee could not fully furnish the relevant details before the AO/DRP in respect of expenses which were disallowed in earlier years in respect of which TDS was remitted during the year - HELD THAT - Having regard to the submissions made by the Ld. A.R., we are of the view that, in the interest of natural justice, the assessee may be provided with an opportunity in this regard. Accordingly, we restore this issue to the file of AO for examining the same afresh in accordance with law.
Issues Involved:
1. Transfer pricing adjustment in respect of sourcing commission. 2. Transfer pricing adjustment in respect of payment of interest on debentures. 3. Transfer pricing adjustment in respect of reimbursement of expenses. 4. Transfer pricing adjustment in respect of royalty payment. 5. Transfer pricing adjustment in respect of Advertisement, Marketing, and Promotion (AMP) expenses. 6. Disallowance of claim of purchase of samples. 7. Disallowance u/s 40(a)(i/ia) of the Act for non-deduction of tax at source. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment in Respect of Sourcing Commission: The assessee claimed ?14.06 crores as payment of commission for sourcing materials, benchmarked under CUP method, selecting 12 companies with commission rates ranging from 5% to 12%. The TPO determined the ALP of commission payment as Nil, leading to a transfer pricing adjustment of ?14.06 crores, which was confirmed by the DRP. The Tribunal noted that an identical issue was examined in the assessee's case for AY 2014-15 and restored to the TPO for fresh examination. Consistent with this view, the Tribunal remanded the issue to the AO/TPO for re-examination. 2. Transfer Pricing Adjustment in Respect of Payment of Interest on Debentures: The assessee claimed ?65.18 crores as interest on debentures. The TPO, relying on certain rulings/RBI Circular, considered CCDs as equity capital and determined the ALP of interest payment as Nil, resulting in a transfer pricing adjustment of ?64.18 crores. This issue was also examined in the assessee's case for AY 2012-13 and 2014-15, where it was restored to the AO/TPO for fresh examination. The Tribunal followed this precedent and restored the issue to the AO/TPO for re-examination. 3. Transfer Pricing Adjustment in Respect of Reimbursement of Expenses: The TPO noticed that the reimbursement of ?5.33 crores was in the nature of salary costs of employees deputed by the parent company, cross-charged by the parent company. The ITAT, Bengaluru bench, had previously held that such expenses cannot be attributed solely to the assessee's distribution business. Consistent with prior decisions for AY 2010-11, 2012-13, and 2014-15, the Tribunal decided this issue against the assessee and confirmed the transfer pricing adjustment made by the TPO. 4. Transfer Pricing Adjustment in Respect of Royalty Payment: The assessee paid ?2.02 crores as royalty. The TPO determined the ALP of royalty payment as Nil, following the ITAT's confirmation of similar adjustments in AY 2005-06 and 2006-07. The Tribunal noted that an identical issue was decided against the assessee for AY 2014-15, following the decision rendered in AY 2005-06. The Tribunal followed this precedent and confirmed the TP adjustment made by the TPO/AO. 5. Transfer Pricing Adjustment in Respect of AMP Expenses: The assessee incurred ?83.13 crores towards AMP expenses, with an adjustment of ?85.58 crores made by the AO. The Tribunal noted that similar adjustments were examined in AY 2014-15, where AMP expenses were divided into two categories: AMP expenses other than BCCI expenses and AMP expenses relating to BCCI. The Tribunal had deleted the TP adjustment for the first category and restored the issue for the second category to the AO/TPO. Since the assessee did not have an agreement with its AE for reimbursement of BCCI costs from AY 2012-13 onwards, the Tribunal held that the TP adjustment made in respect of AMP expenses was not justified and directed the AO to delete the same. 6. Disallowance of Claim of Purchase of Samples: The AO disallowed the expenditure incurred on purchase of samples and incidental expenses, holding that the expenditure should be borne by the manufacturer, not the distributor. The Tribunal noted that similar disallowances were made in AY 2012-13 and 2014-15, where it was held that the expenditure on samples was related to brand promotion and marketing initiatives of the parent company. Consistent with prior decisions, the Tribunal confirmed the disallowance made by the AO. 7. Disallowance u/s 40(a)(i/ia) of the Act for Non-deduction of Tax at Source: Certain expenses were disallowed in earlier years for non-deduction of tax at source. The assessee claimed that these expenses should be allowed as a deduction in the year in which TDS was remitted to the Government. The Tribunal noted that the assessee could not fully furnish relevant details before the AO/DRP and now sought an opportunity to present the same. In the interest of natural justice, the Tribunal restored this issue to the AO for fresh examination in accordance with the law. Conclusion: The appeal filed by the assessee was partly allowed for statistical purposes, with several issues remanded to the AO/TPO for fresh examination and some disallowances confirmed based on precedents. The order was pronounced in the open court on 30th June 2021.
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