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2021 (11) TMI 879 - AT - Income TaxTP Adjustment - determination of ALP of AMP expenses - HELD THAT - In view of the above order of the Tribunal own case for assessment year 2015-2016 2021 (2) TMI 857 - ITAT BANGALORE which is identical to the facts of the instant case, we restore the issue of determination of ALP of AMP expenses to the files of AO/TPO. AO/TPO is directed to afford a reasonable opportunity of hearing to the assessee and take a decision in accordance with law. It is ordered accordingly. Depreciation on intangible assets - whether design and technical knowhow, vendor network relationship (VR) acquires as part of slump sales? - HELD THAT - An identical issue was considered in assessee's own case by the co-ordinate Bench of the Tribunal for assessment year 2015-2016 2021 (2) TMI 857 - ITAT BANGALORE followed the Tribunal order for the assessment year 2011-2012 2019 (11) TMI 1701 - ITAT BANGALORE and held that the assessee is entitled to depreciation on intangible assets. Deduction in respect of education cess and secondary higher education cess u/s 37(1) - HELD THAT - The issue raised in the additional ground is a pure legal issue, which does not require any verification of facts. Therefore, we admit the same for adjudication. As in the case of Sesa Goa Limited 2020 (3) TMI 347 - BOMBAY HIGH COURT had held education cess is an allowable expenditure as the word cess is conspicuously absent under the provisions of section 40(a)(ii) . The Mumbai Bench of the Tribunal in the case of Voltas Limited 2020 (7) TMI 125 - ITAT MUMBAI had admitted additional ground of appeal with regard to the claim of education cess and adjudicated the matter in favour of the assessee, by following the judgment of the Hon'ble Bombay High Court in the case of Sesa Goa Limited - In the light of the aforesaid judicial pronouncements, we hold that education cess is to be allowed as deduction. It is ordered accordingly.
Issues Involved:
1. Transfer Pricing Adjustment of AMP Expenses 2. Depreciation on Intangible Assets 3. Deduction of Education Cess and Secondary Higher Education Cess Detailed Analysis: 1. Transfer Pricing Adjustment of AMP Expenses (Ground Nos. 4 to 21): - The assessee incurred ?45.68 crore on advertisement and sales promotion expenses (AMP) but did not disclose AMP expenses as an international transaction in the transfer pricing study. - The Transfer Pricing Officer (TPO) applied the bright line test, splitting AMP expenses into routine and non-routine expenses, and adopted the Profit Split Method to benchmark both royalty and AMP expenses. - The TPO reworked the profit margin of the assessee, determining a non-routine profit of 18.35% and allocated 25% of this profit to the Associated Enterprise (AE), resulting in a transfer pricing adjustment of ?32.50 crore. - The Dispute Resolution Panel (DRP) confirmed the TP adjustment. - The Tribunal, referencing its own decision for the assessee's case in the previous year, restored the issue of ALP determination for AMP expenses to the AO/TPO for fresh examination, emphasizing the need to establish the existence of international transactions separately. 2. Depreciation on Intangible Assets (Ground Nos. 22 to 27): - The AO disallowed the depreciation claim of ?1,35,90,554 on intangible assets such as Design and Technical Knowhow and Vendor Network Relationship, consistent with past years. - The DRP upheld the AO's disallowance. - The Tribunal referenced its prior decisions in the assessee’s own case for previous assessment years, where it was held that the assessee is entitled to depreciation on intangible assets. - The Tribunal reiterated that the expenses incurred for business purposes should not be disallowed on a technical basis and upheld the assessee's entitlement to depreciation on the said intangible assets. 3. Deduction of Education Cess and Secondary Higher Education Cess (Additional Ground): - The assessee sought to claim education cess and secondary higher education cess as a deduction under section 37(1) of the I.T. Act, which was omitted in the original return. - The Tribunal admitted the additional ground, noting it as a pure legal issue. - Citing the Hon'ble Bombay High Court's decision in Sesa Goa Limited v. JCIT and the Hon'ble Rajasthan High Court's judgment in CIT v. Chambal Fertilizers and Chemical Limited, the Tribunal held that education cess is an allowable expenditure. - The Tribunal emphasized that the term "cess" is absent from section 40(a)(ii) of the I.T. Act, thus allowing the deduction of education cess. Conclusion: - The appeal was partly allowed, with the Tribunal directing the AO/TPO to re-examine the AMP expenses and confirming the assessee's entitlement to depreciation on intangible assets and the deduction of education cess.
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