2019 (5) TMI 1541 - AT - Income Tax

Validity of the assessment order u/s 144C(13) - provisions of sec.144C(13) do not extend the time limit prescribed in sec.153 - HELD THAT - We notice that various benches of Tribunal are taking the view that the provisions of sec.144C(13) give extension of further period of one month from the end of month in which the direction of DRP was received. In the instant case, there is no dispute that the assessing officer has passed the assessment order within one month from the end of the month in which direction of DRP was received. Accordingly, consistent with the view taken by various benches of Tribunal, we reject the legal ground urged by the assessee. Disallowance made u/s 40(a)(i) - payments made by the assessee for purchase of softwares as Royalty - HELD THAT - Since the payments have been made for purchase of software, we are of the view that the decision rendered by Hon ble jurisdictional Karnataka High Court in the case of Samsung Electronics Co Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT is applicable to the facts of the present case. A.R has raised an alternative contention that the disallowance u/s 40(a)(i) should be restricted to the portion of payment which is chargeable to tax in India. Since this alternative contention was not raised before the AO, the same requires examination at his end. Accordingly we restore this alternative contention to the file of the AO for examining the same in accordance with law. TP adjustment in respect of Advertisement and Market promotion (AMP) expenses - A.R submitted that the TPO has followed Bright Line Test (BLT) in order to determine the alleged excess expenses incurred by the assessee towards AMP expenses - HELD THAT - The Hon ble Delhi High Court has held in the case of Maruti Suzuki Ltd 2015 (12) TMI 634 - DELHI HIGH COURT that the revenue needs to establish the existence of international transaction before undertaking benchmarking of AMP expenses. In the instant case, we notice that the TPO has entertained the belief on the basis of presumptions that the assessee s AMP expenses have promoted the brand value of its AE, i.e., no material has been brought on record to show the existence of International transaction. Before us, the Ld A.R placed his reliance on various case laws. We notice that the decision rendered in the case of L.G. Electronics India P Ltd vs. ACIT 2019 (1) TMI 1567 - ITAT DELHI is applicable to the facts of the present case, wherein also identical T.P adjustment had been made and held Since the operating margins of the assessee are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted AO/TPO was not justified in making T.P adjustment on account of AMP expenses. Accordingly we hold that no adjustment needs to be done in respect of AMP expenses and accordingly delete the addition made by the AO in this regard. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order passed.
2. Validity of Transfer Pricing (T.P) adjustment made in respect of AMP expenses.
3. Addition made under section 40(a)(i) of the Act.
4. Levy of interest under section 234B of the Act and levy of penalty under section 271(1)(c).

Detailed Analysis:

1. Validity of the Assessment Order Passed:
The assessee contended that the assessment order was barred by limitation as per section 153 of the Act. The Tribunal examined the issue in light of the provisions of section 144C(13) and section 153. The Tribunal referred to the decision in M/s Volvo India P Ltd vs. ACIT, where it was held that section 144C(13) provides an extension of one month from the end of the month in which the direction from the Dispute Resolution Panel (DRP) was received. The Tribunal concluded that the assessment order was passed within the extended time limit and, therefore, was valid.

2. Validity of T.P Adjustment Made in Respect of AMP Expenses:
The assessee argued that the AMP expenses do not constitute an international transaction under sections 92B and 92F of the Act. The Tribunal noted that the Transfer Pricing Officer (TPO) had applied the Bright Line Test (BLT) to determine the excess AMP expenses. The Tribunal referred to the Delhi High Court decision in Sony Ericsson Mobile Communications India P Ltd vs. CIT, which rejected the BLT for determining the Arm's Length Price (ALP) of an international transaction. The Tribunal also cited the Delhi High Court ruling in Maruti Suzuki India Ltd, which emphasized that the existence of an international transaction must be established before making a T.P adjustment. The Tribunal observed that the TPO had not provided empirical evidence to prove the existence of an international transaction. Consequently, the Tribunal held that the AO/TPO was not justified in making the T.P adjustment on account of AMP expenses and deleted the addition.

3. Addition Made Under Section 40(a)(i) of the Act:
The AO treated the payments made by the assessee for the purchase of software as "Royalty" based on the Karnataka High Court decision in CIT, International Taxation vs. Samsung Electronics Co Ltd. Since the assessee did not deduct tax at source, the AO disallowed the payments under section 40(a)(i). The assessee argued that it was a reseller of software and distinguished its case from Samsung Electronics. The Tribunal, however, held that the decision in Samsung Electronics was applicable since the payments were for software purchases. The Tribunal restored the alternative contention of the assessee, that the disallowance should be restricted to the taxable portion of the payments, to the AO for examination.

4. Levy of Interest Under Section 234B and Penalty Under Section 271(1)(c):
The assessee challenged the levy of interest under section 234B, which was deemed consequential, and the ground relating to the levy of penalty under section 271(1)(c) was considered premature. The Tribunal did not provide a detailed analysis on these grounds, indicating that they were not central to the primary issues being adjudicated.

Conclusion:
The Tribunal upheld the validity of the assessment order, rejected the T.P adjustment on AMP expenses, and restored the issue of disallowance under section 40(a)(i) to the AO for further examination. The appeals were partly allowed, with the Tribunal directing the AO to delete the T.P adjustment for both assessment years 2012-13 and 2013-14.