2023 (1) TMI 1320 - AT - Income Tax

Disallowance of service charges and other reimbursement(s) - Addition restricted to that @ 30% in the CIT(A)'s order - Disallowance of reimbursement of travelling expenses and depreciation on coolers - HELD THAT - We find in this factual backdrop that all these issues are no more res integra as the tribunal s coordinate bench s common order in assessment years 2000-2001 to 2004-2005 involving assessee s and Revenue s cross-appeals decided 2022 (4) TMI 1571 - ITAT PUNE inter alia, has accepted the former s claim of various expenses restricted to 30% in entirety by following its earlier orders, partly uphold the learned lower authorities action disallowing travelling expenses @ 10% only on estimation basis and rejected the department s stand on depreciation on coolers provided to bottlers/vendors vis- -vis their WDV in full, respectively. Both the parties are fair enough in not pinpointing any distinction on facts or law in the impugned assessment year as well so far as these three issues are concerned. We thus adopt judicial consistency to decide the first and foremost issue of reimbursement restricted to 30% in the CIT(A)'s order to full extent assessee s favour, uphold only 10% of travelling expenses and accept it s stand relating to depreciation on coolers in very terms. TP Adjustment - We advert to assessee s pleadings raised during the course of hearing that the department, and more particularly, the TPO took a diametrically opposite view in case of the assessee and its AE regarding the very issue. Faced with the situation and more particularly in light of the fact that the learned Panel has not discussed even the most appropriate method in short MAM before rejecting the assessee s contentions, we deem it appropriate to restore these remaining grounds back to the learned DRP for its fresh adjudication on merits, preferably within three effective opportunities of hearing as much water has flown down the stream since the impugned assessment year 2006-07. Ordered accordingly. The assessee s 2 nd substantive ground herein is accepted for statistical purposes to the above extent. Disallowance of marketing support services - We note that the Assessing Officer has refused to follow the DRP s directions regarding the matter in light of Sec. 144C(13) r.w.s. 144C(5) of the Act. He has not carried-out any verification as per his detailed discussion in page-5 para-2 of the assessment order. Faced with this peculiar situation and in view of the clinching fact that the assessee may not be able to completely verify its detailed evidence of assessment year 2007-08 in the year 2023, we deem it appropriate to restrict the impugned disallowance to that @ 5% only. Ordered accordingly. TP Adjustment on AMP expenses - international transaction or not? - HELD THAT - CIT-DR could hardly dispute that case law Maruti Suzuki India Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT has already held that such AMP transactions do not amount to an international transaction u/s. 92B of the Act. Faced with the situation, we reverse learned lower authorities action to this limited extent.

Issues Involved:
1. Disallowance of service charges including reimbursements.
2. Disallowance of reimbursement of traveling expenses.
3. Disallowance of depreciation on coolers.
4. Transfer pricing adjustments.
5. Advertisement and marketing promotion (AMP) expenses treated as an international transaction.

Detailed Analysis:

1. Disallowance of Service Charges Including Reimbursements:
The assessee's appeal raised grievances regarding the disallowance of service charges, including reimbursements, restricted to 30% by the CIT(A). The tribunal noted that this issue had been previously addressed in favor of the assessee for the assessment years 2000-2001 to 2004-2005, where the tribunal accepted the assessee's claim in its entirety. The tribunal adopted judicial consistency and decided in favor of the assessee, allowing the full extent of service charges and reimbursements.

2. Disallowance of Reimbursement of Traveling Expenses:
The tribunal addressed the disallowance of traveling expenses, which the CIT(A) had sustained entirely. The tribunal referred to earlier decisions where a 10% disallowance was deemed appropriate. Therefore, the tribunal upheld only a 10% disallowance of traveling expenses, rejecting the complete disallowance by the CIT(A).

3. Disallowance of Depreciation on Coolers:
The assessee contested the disallowance of depreciation on coolers. The tribunal noted that this issue had been previously decided in favor of the assessee, recognizing that the coolers were essential for business promotion and marketing. The tribunal upheld the assessee's claim for depreciation on coolers, reversing the CIT(A)'s disallowance.

4. Transfer Pricing Adjustments:
The assessee raised issues regarding transfer pricing adjustments, particularly the adjustment of Rs. 3,32,28,390, which the CIT(A) had treated as academic. The tribunal found that the Assessing Officer had not made any such adjustment in the final assessment. Therefore, the tribunal rejected the assessee's ground on this issue. Additionally, for other transfer pricing adjustments, the tribunal restored the matters back to the Dispute Resolution Panel (DRP) for fresh adjudication, emphasizing the need for proper discussion on the most appropriate method (MAM).

5. Advertisement and Marketing Promotion (AMP) Expenses Treated as an International Transaction:
The tribunal addressed the issue of AMP expenses being treated as an international transaction under Section 92B of the Income Tax Act. Referring to the case law Maruti Suzuki India Ltd., the tribunal held that AMP transactions do not amount to an international transaction. Consequently, the tribunal reversed the lower authorities' action on this matter, deciding in favor of the assessee.

Summary of Judgments:
- The tribunal allowed the assessee's appeals regarding service charges, reimbursements, and depreciation on coolers.
- The tribunal upheld a 10% disallowance on traveling expenses.
- Transfer pricing adjustments were mostly restored to the DRP for fresh adjudication.
- AMP expenses were held not to constitute an international transaction, favoring the assessee.
- The Revenue's cross-appeals were dismissed, and the assessee's appeals were partly or fully allowed based on the issues addressed.

Conclusion:
The tribunal's judgment provided comprehensive relief to the assessee on multiple issues, ensuring judicial consistency with previous rulings and emphasizing the need for detailed adjudication on transfer pricing matters by the DRP. The decisions reflect a thorough analysis of corporate taxation and transfer pricing principles under the Income Tax Act, 1961.

← Previous Next →