2021 (10) TMI 782 - AT - Income Tax

TP Adjustment - upward adjustment on account of brand promotion expenditure (AMP) - international transaction or not? - HELD THAT - As relying on Tribunal in the assessee s own case for the AY 2011-12. 2017 (3) TMI 1162 - ITAT CHENNAI and in the case of M/s.Maruti Suzuki India Ltd., 2015 (12) TMI 634 - DELHI HIGH COURT the Ld.CIT(A) directed the AO to delete the Transfer Pricing upward adjustment - DR could not controverted to the above findings of the Tribunal by filing the High Court decision having modified or reversed or altered that AMP spent of the assessee is not an international transaction and the addition is deleted - We, therefore, find no infirmity in the order passed by the Ld.CIT(A). Accordingly, the ground raised by the Revenue is dismissed. Addition u/s.36(1)(va) r.w.s.2(24)(x) - remittance pertaining to employee s contribution to PF ESI beyond the due dates - Assessee has submitted that since the entire amount has been remitted before the due date for filing of return of income, the same should be allowed as deduction under section 43B - HELD THAT - By following the decision of Hon'ble High Court of Madras in the case of CIT v. Industrial Security Intelligence India Pvt. Ltd. 2015 (7) TMI 1063 - MADRAS HIGH COURT and the Ld.CIT(A) directed the AO to allow the deduction. Just because, the Revenue has preferred the Review Petition before the Hon ble High Court of Madras, the decision already rendered by the Hon ble Madras High Court cannot be held as invalid until and unless the said order is modified or altered. Thus, we are of the view that the Ld.CIT(A) has rightly followed the decision of the Hon ble Madras High Court and we find no infirmity in the Appellate Order passed by the Ld.CIT(A) on this issue. Accordingly, the ground raised by the Revenue stands dismissed.

Summary

Issues Involved:
1. Transfer Pricing issue relating to deletion of the upward adjustment of ?3,26,29,475/- on account of brand promotion expenditure (AMP) for AY 2012-13.
2. Corporate Tax issue of deletion of ?9,05,913/- made under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Transfer Pricing Issue:
The primary contention revolves around the deletion of an upward adjustment of ?3,26,29,475/- related to brand promotion expenditure (AMP). The Revenue argued that the Commissioner of Income Tax (Appeals) [CIT(A)] mechanically followed the ITAT's order for the previous assessment year (AY 2011-12) without examining the actual contractual relationship between the assessee and the Associated Enterprise (AE). The Revenue contended that the AMP functions were performed at a much higher intensity compared to comparables, suggesting that the AMP expenses were for the benefit of the AE.

The Tribunal examined similar issues from the previous year, where it was established that the AMP expenses were not incurred for brand building of the AE but were business expenditures for the assessee. The Tribunal noted that the Assessing Officer (AO) and Transfer Pricing Officer (TPO) failed to provide evidence that the expenses were for the AE's brand building. The Tribunal reiterated that the Bright Line Test method used by the AO/TPO was not appropriate as per Indian Transfer Pricing Regulations, citing several judicial pronouncements, including the Delhi High Court's decision in Maruti Suzuki India Ltd. and Sony Ericsson.

The Tribunal concluded that the AMP expenditure was not an international transaction as defined under Section 92B(1) of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision to delete the upward adjustment, finding no infirmity in the order.

2. Corporate Tax Issue:
The second issue pertains to the disallowance of ?9,05,913/- related to the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) beyond the due dates. The AO disallowed the amount under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. However, the CIT(A) allowed the deduction, following the Madras High Court's decision in CIT v. Industrial Security & Intelligence India Pvt. Ltd., which held that contributions made before the due date for filing the return of income should be allowed under Section 43B.

The Revenue argued that the decision in Industrial Security & Intelligence India Pvt. Ltd. was under review. Nonetheless, the Tribunal upheld the CIT(A)'s decision, stating that the existing High Court ruling remains valid until modified or reversed. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both the Transfer Pricing adjustment related to AMP expenditure and the disallowance of employees' contribution to PF and ESI. The Tribunal reinforced the application of judicial precedents and the appropriate interpretation of the Income Tax Act provisions.