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2019 (8) TMI 351 - AT - Income TaxTP adjustment to the International transaction of import of finished products - choice of comparables for TNMM analysis of distribution function - TPO/AO has not considered the direction of learned DRP - HELD THAT - As per the provisions of section 144C(13) the AO is bound to pass the final assessment order in conformity with the direction of the DRP. There is no scope for the AO/TPO for any deviation from the direction issued by the DRP. In the instant case, the learned TPO/AO ought to have followed the direction of the DRP and this omission on the part of the learned AO/TPO should have been rectified by them at the earliest. This omission in the impugned order, which is against the rule of law, cannot be continued. The impugned order to the extent of addition made in respect of adjustment to International transaction of import of finished goods is set aside and matter is remitted back to the AO/TPO to comply with the direction of the learned DRP on the issue of adjustment to the International transaction of import of finished goods. The grounds No. 2 to 2.3 of the appeal are accordingly allowed for statistical purposes. AMP adjustment - expenditure on advertisement, marketing and sales promotion - HELD THAT - The issue in dispute of determination of AMP adjustment is restored to the file of the Assessing Officer for deciding in accordance with the direction given by the Tribunal in assessment year 2006-07 2019 (5) TMI 1598 - ITAT DELHI . It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. TDS u/s 195 - disallowance u/s 40(a)(i) in respect of buying agency services - procurement of goods from outside India - according to the lower authorities, the expenditure on buying agency services are in the nature of fee for technical services in terms of section 9(1)(vii) - HELD THAT - Since identical issue of buying commission paid in response to buying agency agreement for activities of coordination with the manufacture for procurement of goods by the assessee is involved in the instant case, respectfully following the finding of the Tribunal 2013 (1) TMI 106 - ITAT DELHI we hold that consideration paid by the assessee cannot be classified as fee for technical services and accordingly, not liable for deduction of tax at source and disallowance under section 40(a)(i) is not warranted. The ground of the appeal from 9 to 9.3 are accordingly allowed.
Issues Involved:
1. Jurisdiction of the Dispute Resolution Panel (DRP) 2. Transfer Pricing Adjustments 3. Advertisement, Marketing, and Promotional (AMP) Expenditure 4. Disallowance under Section 40(a)(i) of the Income Tax Act 5. Set-off of Brought Forward Losses 6. Interest under Sections 234D and 244A 7. Penalty Proceedings under Section 271(1)(c) Issue-wise Analysis: 1. Jurisdiction of the Dispute Resolution Panel (DRP) Ground 1: The assessee contended that the DRP exceeded its powers under Section 144C(8) by directing new additions on issues not arising out of the assessment proceedings. This ground was dismissed as infructuous since it was not pressed during the hearing. 2. Transfer Pricing Adjustments Grounds 2 to 2.3: The assessee challenged the transfer pricing adjustment of INR 8,87,80,971/- related to the import of finished goods. The DRP had directed the AO/TPO to use specific filters for selecting comparables and to recompute the Profit Level Indicator (OP/Sale). However, the AO/TPO did not comply with these directions. The Tribunal set aside this part of the order and remitted the matter back to the AO/TPO for compliance with the DRP's directions. 3. Advertisement, Marketing, and Promotional (AMP) Expenditure Grounds 3 to 8: The assessee contested the AMP adjustment of INR 38,97,45,132/-. The Tribunal noted that similar issues were decided in the assessee's favor for the assessment year 2006-07, where it was held that AMP expenses primarily benefit the assessee in India and do not constitute an international transaction. The Tribunal restored this issue to the AO for reconsideration, in line with the earlier decision. 4. Disallowance under Section 40(a)(i) of the Income Tax Act Grounds 9 to 9.3: The assessee argued against the disallowance of buying agency fees paid to Adidas International Trading BV, which was treated as "fees for technical services." The Tribunal referred to a similar case involving the assessee's sister concern, where such fees were not classified as technical services. Following this precedent, the Tribunal ruled that the buying agency fees were not liable for deduction of tax at source, and thus, the disallowance under Section 40(a)(i) was not warranted. 5. Set-off of Brought Forward Losses Ground 10: The assessee requested the allowance of brought forward losses under Section 72. The Tribunal directed the AO to examine and allow the claim in accordance with the law. 6. Interest under Sections 234D and 244A Ground 11: This ground was deemed consequential and did not require separate adjudication. 7. Penalty Proceedings under Section 271(1)(c) Ground 12: The Tribunal found this ground premature and dismissed it at this stage. Separate Judgments for Different Assessment Years: Assessment Year 2011-12 (ITA No. 953/Del/2016): - The appeal was partly allowed for statistical purposes, with specific directions to the AO/TPO to comply with the DRP's directions and reconsider the AMP adjustment. Assessment Year 2012-13 (ITA No. 729/Del/2017): - The issues were found to be identical to those in the assessment year 2011-12. The Tribunal decided the grounds mutatis mutandis to the earlier year, and the appeal was also partly allowed for statistical purposes.
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