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2019 (5) TMI 1598 - AT - Income TaxTP adjustment - analysis of advertisement, marketing and sales promotion (AMP) expenses by applying Bright Line Test - international transaction or not ? - TPO held that AMP expenses of sales in case of assessee was at 8.43% which was higher than average AMP expenses incurred by comparables, thereby making an adjustment - HELD THAT - Since basis on which adjustment has been made being Bright Line Test itself has been rejected in case of Sony Ericson India P.Ltd 2015 (3) TMI 580 - DELHI HIGH COURT and no further interference is called for at this stage. On perusal of TP order it is observed that Ld.TPO made an effort to analyse whether AMP expenditure is an international transaction or not. It is very interesting to note that Ld.TPO observes that assessee has been licensed the brand Adidas by its domestic AE (Adidas India Pvt. Ltd). He also reproduces relevant extract from the agreement, wherein it is recorded that Adidas India Pvt. Limited is the exclusive owner of trademark Adidas and enjoys all proprietary rights related thereto. We cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court in Soney Ericson Mobile Communications (supra) and Maruti Suzuki Inida Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT which are under consideration before the Hon ble Apex Court is modified or reversed by the Hon ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon ble Apex Court. Ground allowed for statistical purposes. TP adjustment with relation to export of goods - HELD THAT - As observed that assessee had imported finished goods amounting to ₹ 13,76,26,854/- out of which, goods worth ₹ 45,64,209/- has been exported back due to its slow moving nature. The percentage of goods exported is approximately 3.3%. In our opinion as the percentage of goods that was returned back as slow moving is within the permissible limits of less than 10%. Even otherwise the gross margin earned by assessee from imported goods is in excess of 40% vis- -vis the margin earned by assessee from imported goods is in excess of 40% vis- -vis the margin earned by AE from sale with third party in case of slow moving goods exported by assessee.We are therefore of considered opinion that no adjustment is called for in this regard. Deduction of bad debts written off being disallowed - HELD THAT - There are plethora of decisions by various Courts and Hon ble Supreme Court wherein it has been held that a legitimate claim of assessee should be allowed even if it is raised during assessment proceedings. There is no dispute with the Department that said amount has been written off in accounts of assessee. However merely because it was not claimed in return of income, will not vitiate right of assessee to claim it during pendency of assessment proceedings. Ld.TPO is directed to allow the claim of assessee as per law. Disallowance of interest expenditure u/s 36(1) - HELD THAT - Assessee has submitted that during year under consideration a sum of ₹ 2,08,31,000/- was shown recoverable as opening balance as on 01/04/2006 from AE. As observed that Ld.AO blindly made addition without appreciating the fact that interest was not charged due to commercial expediency. Respectfully applying ratio laid down by Hon ble Supreme Court in case of S.A.Builders vs. CIT 2006 (12) TMI 82 - SUPREME COURT we do not find any infirmity in the view taken by Ld.CIT(A) and the same is upheld.
Issues Involved:
1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses. 2. Transfer Pricing adjustment related to export of goods. 3. Disallowance of bad debts written off. 4. Disallowance of interest expenditure. 5. Disallowance of extra depreciation on computer peripherals. 6. Levy of interest under Section 234B and Section 234C of the Act. Detailed Analysis 1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses: The Tribunal noted that the adjustment made by the Transfer Pricing Officer (TPO) on AMP expenses was based on the Bright Line Test, which has been rejected by the Delhi High Court in the case of Sony Ericson India Pvt. Ltd. The Tribunal observed that the AMP expenditure was considered an international transaction by applying the Bright Line Test, and the TPO proposed an adjustment of ?243.85 crores. The Tribunal highlighted that the expenditure towards advertisement and marketing incurred by the assessee in India was mainly for its own benefit to market products manufactured by it in India, with any incidental benefit to the foreign Associated Enterprise (AE) being secondary. The Tribunal followed the decision of the Delhi High Court in Sony Ericson Mobile Communications and deleted the adjustment made in respect of AMP expenses. However, the Tribunal noted that the decision of the Supreme Court would be binding and set aside the orders of the authorities below, restoring the matter to the file of the Assessing Officer (AO) for fresh consideration based on the Supreme Court's decision. 2. Transfer Pricing adjustment related to export of goods: The assessee exported slow-moving stock to its AE, Adidas Solomon Sourcing Ltd, Hong Kong, and used the Comparable Uncontrolled Price (CUP) method for benchmarking the transaction. The TPO proposed an adjustment, arguing that the assessee could have sold the goods directly to third parties. The Tribunal noted that the assessee followed a consistent approach in dealing with slow-moving stock and that the gross margin earned by the assessee from imported goods was in excess of 40%. The Tribunal found no fault or error in the company's policy of disposing of seconded goods and concluded that no adjustment was called for in this regard. 3. Disallowance of bad debts written off: The assessee claimed a deduction for bad debts written off during the year, amounting to ?71,88,979/-, which was disallowed by the AO on the ground that the claim was not made in the return of income. The Tribunal noted that the amount had been written off in the accounts of the assessee and that a legitimate claim should be allowed even if raised during assessment proceedings. The Tribunal directed the AO to allow the claim of the assessee as per law. 4. Disallowance of interest expenditure: The AO disallowed interest expenditure of ?15,70,657/- on the ground that the assessee granted a loan to its AE at 'nil' rate of interest from borrowed funds. The Tribunal noted that there was no loan given by the assessee to its AE and that the amount was recoverable from the AE as on 31/03/07. The Tribunal followed its decision in the assessee's case for the assessment year 2004-05, where a similar disallowance was deleted, and upheld the view of the CIT(A), allowing the ground raised by the assessee. 5. Disallowance of extra depreciation on computer peripherals: The Tribunal noted that the issue of disallowance of extra depreciation on computer peripherals was covered by the decision of the Delhi High Court in the case of CIT vs. BSESE Yamuna Power Ltd. The Tribunal upheld the view of the CIT(A) and dismissed the ground raised by the revenue. 6. Levy of interest under Section 234B and Section 234C of the Act: The Tribunal noted that the ground raised by the assessee regarding the levy of interest under Section 234B and Section 234C of the Act was consequential in nature and did not require any adjudication. Conclusion The appeals were decided with the Tribunal setting aside certain issues to the AO for fresh consideration in light of the Supreme Court's pending decision, while other grounds were either allowed or dismissed based on existing judicial precedents and the facts of the case.
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