2022 (3) TMI 1467 - AT - Income Tax

TP Adjustment - adjustment/addition on account of AMP - Rule of consistency - HELD THAT - We find from the various details furnished by the assessee including the TPO appeal effect order for AY 2015-16 that adjustment was made on protective basis and adjustment was made on substantive basis by the TPO - We find, after the various submissions made by the assessee, the DRP considered the entire facts and circumstances of the matter in exhaustive details and deleted both substantive and protective addition. TPO has already passed the order giving effect to the order of the DRP and, in the final order passed by the TPO, no adjustment on account of AMP has been made, the details of which have already been reproduced in the preceding paragraph. Therefore, in view of the rule of consistency from AY 2009-10 to 2015-16 and considering the fact that the assessee had the same business model and the facts and circumstances of the matter for the impugned assessment year are the same, we set aside the order of the AO/TPO/DRP and direct the AO/TPO to delete the addition. Assessee has also raised various sub-grounds challenging the order of DRP in sustaining the TP addition made by the AO/TPO. Since we have deleted the addition by following the Rule of consistency in assessee s own case for earlier years under similar facts and the business model remaining the same, the other sub-grounds are not being adjudicated being academic in nature. The first issue raised by the assessee in the grounds of appeal are accordingly allowed. Addition on account of sundry creditors - HELD THAT - Hon ble Punjab Haryana High Court in the case of Kulwinder Singh, 2017 (7) TMI 957 - PUNJAB AND HARYANA HIGH COURT has held that provisions of section 68 are not attracted to amount representing purchase made on credits.Hon ble Allahabad High Court in the case of Zazsons Export Ltd. 2017 (5) TMI 1222 - ALLAHABAD HIGH COURT has held that credit purchases reflected in the books of account of the assessee of raw hide from petty dealers even if not confirmed would not mean that it was concealed income or deemed income of the assessee, which could be subjected to tax under section 68 when there was no dispute as to trade practice that payment in respect of purchase of raw hide was made subsequently. In view of the above discussion and considering the fact that the assessee has given sufficient details regarding the details of sundry creditors, no such disallowance has been made by the AO in the orders passed u/s 143(3) in the subsequent two years and inaction by the AO to reply to the various reminders of the DRP for submission of the remand report, we are of the considered opinion that the addition made on account of increase in sundry creditors is not justified. Further, as mentioned earlier, the provisions of section 68 cannot be attracted to amount representing purchase made on credits or outstandings payable. In view of the above discussion, we set aside the order of the AO and direct him to delete the addition. The second issue raised by the assessee in the grounds of appeal are accordingly allowed

Summary

Issues Involved:
1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses.
2. Disallowance related to sundry creditors.

Detailed Analysis:

1. Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses:

The central issue revolves around the AMP adjustment of Rs. 68,74,84,700/-. The assessee contested this adjustment, arguing that it was incorrect given the settled position in its favor in previous years. The assessee highlighted that no adjustments were made for AMP expenses from AY 2009-10 to 2015-16 despite having the same business model and circumstances. The TPO, however, rejected the Transactional Net Margin Method (TNMM) adopted by the assessee, favoring the Cost Plus Method (CPM) instead, arguing that AMP expenses promoted the brand of the foreign AE and developed marketing intangibles for the AE in India.

The TPO’s reliance on the DRP’s confirmation for AY 2015-16 was factually incorrect, as no adjustment was made on account of AMP expenses after the DRP’s order. The Tribunal found merit in the assessee’s argument, emphasizing the rule of consistency and the identical nature of the business model and circumstances over the years. The Tribunal directed the AO/TPO to delete the AMP adjustment, citing the absence of such adjustments in previous years and the same business model.

2. Disallowance Related to Sundry Creditors:

The second issue pertained to the addition of Rs. 26,72,67,895/- on account of sundry creditors. During the assessment proceedings, the AO noted a significant increase in sundry creditors and asked the assessee to furnish detailed explanations. The assessee provided partial details, explaining the increase due to royalty payable to the AE and other payables. The AO, unsatisfied with the explanation for the remaining amount, invoked Section 68 of the Income-tax Act, 1961, adding the unexplained amount to the total income.

The DRP upheld the AO’s action, despite the assessee’s detailed submissions and repeated reminders to the AO for a remand report. The Tribunal found the AO’s action unjustified, noting the inadequate time given for the assessee’s response and the lack of further opportunity for rebuttal. The Tribunal emphasized that Section 68 could not be applied to sundry creditors and highlighted the consistent nature of the assessee’s business model. The Tribunal directed the AO to delete the addition, citing the detailed submissions made by the assessee and the absence of such disallowances in subsequent assessment years.

Conclusion:

The Tribunal allowed the appeal partly, directing the deletion of both the AMP adjustment and the addition on account of sundry creditors. The grounds relating to interest under Sections 234A, 234B, and 234C were dismissed as consequential, and the ground relating to penalty under Section 271(1)(c) was dismissed as premature. The appeal was thus partly allowed, providing significant relief to the assessee.