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2022 (5) TMI 1522 - AT - Income TaxTP adjustment - intra group services which were benchmarked separately by the assessee and the Ld.TPO rejected it by adopting a wholesome approach at entity level - HELD THAT - As the transactions between the assessee and the AE has been aggregated by the Ld.AO without any basis. We also note that the benchmarking of the transaction has been considered by the Ld.TPO at entity level, without segregating the non-AE transactions which is a requirement as per section 92B of the Act. As held by various Courts, no addition can be made to the local transactions under Chapter X of the Act, and that the Ld.AO/TPO is supposed to determine the arms length price in relation to the international transaction with the AE only and not with any third party. This alone warrants to entire issue to be remanded back to the Ld.AO/TPO to reconsider the transfer pricing issues de novo. The Ld.TPO is directed to consider the transactions and apply the appropriate method as per section 92 r.w. Rule 10A of the Act, qua the facts of the assessee. The assessee is directed to file all requisite details in support of its contention to establish the need to analyse the transaction independently. The Ld.TPO shall consider the claim of assessee in accordance with law and by granting appropriate opportunity of being heard to the assessee. Nature of expenses - treating certain expenses on advertisement as capital in nature - HELD THAT - The assessee has not been able to establish that the expenditure is incurred are revenue in nature. Even before this Tribunal, the Ld.AR could not counter the observations of Ld.CIT(A) reproduced hereinabove. We do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Disallowing the foreign exchange fluctuation on restatement of receivables and payables - HELD THAT - In the present facts also, there is no dispute that the outstanding liability was in respect of trade receivables and payables and therefore loss would be on revenue account. In such circumstances respectfully following the above view in assessee s case for A.Ys. 2012-13 and 2013-14 2019 (11) TMI 857 - ITAT BANGALORE we direct the Ld.AO to allow the deduction as claimed by the assessee. Interest free loan has been granted to the Director of the company towards house deposit for his residence - Salary advance was duly taxed as perquisites in the hands of such employee-thus cannot be taxed twice - HELD THAT - We direct the Ld.AO to verify the above submissions of assessee and to consider it in accordance with law.
Issues Involved:
1. Assessment of Total Income 2. Validity of Final Assessment Order 3. Transfer Pricing Matters 4. Advertisement and Sales Promotion Expenditure 5. Foreign Exchange Loss Disallowance 6. Disallowance of Notional Interest on Salary Advance 7. Other Corporate Tax Matters 8. Consequential Grounds 9. Grounds Not Pressed Issue-wise Detailed Analysis: 1. Assessment of Total Income: The learned AO assessed the total income at Rs. 59,21,92,914 against the returned income of Rs. 54,48,429 by the appellant. 2. Validity of Final Assessment Order: The appellant argued that the final assessment order issued under section 143(3) dated 28 January 2016, pursuant to DRP directions under section 144C, is time-barred and invalid in law. However, this ground was not pressed. 3. Transfer Pricing Matters: - Entity Level Benchmarking (Grounds 4, 6, 7, 8, 9, 10, 11): The learned TPO aggregated all transactions under TNMM at the entity level, rejecting the RPM method applied by the assessee for benchmarking the import of finished goods for resale. The Tribunal noted that transactions between the assessee and AE were aggregated without basis and benchmarking was considered at the entity level without segregating non-AE transactions, which is a requirement under section 92B of the Act. The issue was remanded back to the Ld.AO/TPO for de novo consideration, directing the TPO to apply the appropriate method as per section 92 r.w. Rule 10A of the Act. - Intra Group Services (Grounds 9, 10, 11): The assessee benchmarked intra-group services separately, which the TPO aggregated at the entity level. The Tribunal directed the TPO to reconsider the transactions and apply the appropriate method, allowing the assessee to file requisite details to establish the need to analyze the transaction independently. 4. Advertisement and Sales Promotion Expenditure (Grounds 13, 14): The AO treated certain advertisement and sales promotion expenditures as capital in nature. The Tribunal upheld the AO's view, noting that the expenditures were in the nature of advertising/marketing tools resulting in brand-building, which creates an enduring benefit of brand loyalty over a long period. The Tribunal directed the AO to capitalize the expenditure and provide appropriate depreciation. 5. Foreign Exchange Loss Disallowance (Grounds 15, 16): The assessee restated outstanding trade receivables and payables as per Accounting Standard-11, resulting in a foreign exchange loss. The Tribunal, following the Supreme Court's decision in CIT(A) Vs. Woodward Governor, held that the loss suffered in respect of a revenue liability due to exchange rate fluctuation is an allowable expenditure under section 37(1). The Tribunal directed the AO to allow the deduction as claimed by the assessee. 6. Disallowance of Notional Interest on Salary Advance (Grounds 18, 19): The AO disallowed notional interest on a salary advance given to an employee, considering it lacked business expediency. The Tribunal directed the AO to verify the assessee's submission that the salary advance was taxed as a perquisite in the employee's hands and consider it in accordance with the law. 7. Other Corporate Tax Matters: - Grounds 5, 12, 17, 20, 21, 22: These grounds were not pressed by the appellant and were dismissed as not pressed. 8. Consequential Grounds (Grounds 23, 24): These grounds were consequential in nature and did not require adjudication. 9. Grounds Not Pressed: The appellant did not press Grounds 5, 12, 17, 20, 21, 22, and these were dismissed as not pressed. Conclusion: The appeal filed by the assessee was partly allowed, with specific issues remanded back for de novo consideration and others upheld or dismissed as per the detailed analysis above. The order was pronounced in open court on 30th May 2022.
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