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2022 (9) TMI 28 - AT - Income TaxTP Adjustment - AMP expenditure as established as an international transaction - HELD THAT - We set aside the whole issue back to the file of the learned Assessing Officer/ Transfer Pricing Officer for determination of Arm s Length Price of international transition of excess AMP spend of the assessee Capital work in progress - assessee has shown a capital work in progress at schedule 6 of the fixed assets - Assessee objection before the learned dispute resolution panel who gave a direction to allow project cost expenditure to the extent third party bills has been submitted by the assessee - HELD THAT - The fact shows that in this year the assessee has shown a capital work in progress and has not claimed any deduction. Therefore, the question of making any disallowance or addition on that account does not arise in this year. However when the assessee makes capitalization of the capital work in progress into fixed assets, the learned assessing officer has every right to examine the actual cost of the asset, when it is put to use an the use for business purpose for allowability of the depreciation. Therefore, at present, the findings of the learned assessing officer are premature. Accordingly, ground number 19 of the appeal is allowed. Disallowance of bad debt - Assessee did not submit any detail and therefore the claim of the bad debt was disallowed - HELD THAT - Before the lower authorities, the assessee did not submit any information. Therefore, the addition was confirmed. Even in the form of additional evidences before us, the assessee has merely submitted the name of the parties, the amount, and the permanent account number of some of the parties. For the claim of the bad debt, the assessee should have shown that these amounts have been included in income of the assessee in earlier years. The assessee has failed to show the same. Therefore, we do not find any infirmity in the orders of the lower authorities in confirming the disallowance of the bad debt. Accordingly, ground number 20 of the appeal is dismissed. Mismatch in annual information return - AO asked the assessee to reconcile the AR information as per 26 AS with the books of accounts - HELD THAT - We find that merely because there are difference between the AIR and the books of account, the addition cannot be made but it is the first trigger point for making further investigation and obtaining the details from the assessee to justify the difference. If the assessee can reconcile such difference and even otherwise satisfy the learned assessing officer, that such addition is unwarranted, the addition is not required to be made. As the learned assessing officer as well as the learned DRP has made the addition merely on the basis of the difference between form No 26 As and failure of assessee to reconcile it with the books , we set-aside this ground of appeal back to the file of the learned assessing officer with a direction to the assessee to satisfy the learned assessing officer by producing the relevant details that there is no mismatch between income offered by the assessee as well as items reported in AIR. If the learned assessing officer is satisfied with the same, the addition deserves to be deleted. Therefore, the learned assessing officer may verify the information furnished by the assessee and decide afresh in accordance with the law. Accordingly, ground number 24 of the appeal is allowed with above direction. Disallowance of royalty u/s 37 (1) - AO asked the assessee to furnish the information about the royalty paid to Diageo North America and why shame should not be disallowed u/s 37 (1) - Whether assessing officer is not authorised to consider the benefit test and make the disallowance u/s 37 (1) of the act.? - HELD THAT - The identical issue arose in case of the assessee for assessment year 2010 11 before the coordinate bench and it was decided in 2019 (12) TMI 1615 - ITAT MUMBAI wherein the issue was set aside to the file of the learned assessing officer. Therefore with similar direction we also set-aside ground number 25 of the appeal. Accordingly, this ground is allowed with above direction. Charging of interest u/s 234A - Assessee submits that the return of income was filed by the assessee on 22/11/2011 whereas the due date for filing of the return of income was 30/11/2011 and therefore no interest u/s 234A of the act should have been charged, as there is no delay in filing of return of income - HELD THAT - Apparently, if the assessee has filed the return of income within the due date prescribed u/s 139 (1) of the act, interest u/s 234A cannot be levied. Therefore, the learned assessing officer is directed to delete the interest charged under that Section. Ground number 27 of the appeal is allowed.
Issues Involved:
1. Transfer Pricing Adjustment on Account of Advertisement and Sales Promotion Expenses 2. Determination of International Transaction Status of AMP Expenditure 3. Jurisdictional Error in Reference to TPO 4. Reallocation of Brand Contribution 5. Selection of Comparables for Manufacturing and Distribution Segments 6. Disallowance of Corporate Tax Deductions 7. Levy of Interest under Sections 234A and 234B 8. Initiation of Penalty Proceedings Detailed Analysis: Transfer Pricing Adjustment on Account of Advertisement and Sales Promotion Expenses The Tribunal examined the adjustment of Rs. 35,82,41,000/- made by the AO/TPO, holding that the Assessee provides brand promotion services to its overseas associated enterprises. The Tribunal referred to previous years' adjustments and confirmed the existence of an international transaction due to AMP expenses, directing the AO/TPO to determine the Arm's Length Price (ALP) of the international transaction of excess AMP spend. Determination of International Transaction Status of AMP Expenditure The Tribunal upheld that AMP expenditure is an international transaction as per Section 92B of the Act, referencing the agreement between the Assessee and its AE, which included mutual contributions to AMP expenses. The Tribunal noted that the existence of an agreement and reimbursement from AE substantiates the international transaction status. Jurisdictional Error in Reference to TPO The Assessee contended that the reference to the TPO was made without recording a finding of necessity or expediency as required under Section 92CA(1) of the Act. However, the Tribunal did not find merit in this argument and proceeded with the evaluation of the AMP expenditure as an international transaction. Reallocation of Brand Contribution The Tribunal addressed the issue of reallocating brand contribution received by the Assessee between manufacturing and distribution segments. It directed the AO/TPO to consider the actual brand contribution for the respective segments and to benchmark the international transaction of excess AMP spend accordingly. Selection of Comparables for Manufacturing and Distribution Segments The Tribunal reviewed the selection and rejection of comparables by the TPO for both manufacturing and distribution segments. It directed the AO/TPO to reconsider the selection of comparables, including those initially accepted and those proposed by the Assessee, ensuring adherence to the +/- 5% benefit as per Section 92C of the Act. Disallowance of Corporate Tax Deductions - Capital Work-in-Progress: The Tribunal found the AO's disallowance premature as the Assessee had not claimed any deduction during the year. It allowed the Assessee's ground, noting the AO's right to examine actual costs when capitalized. - Bad Debts Written Off: The Tribunal upheld the disallowance of Rs. 1,02,41,042/- due to the Assessee's failure to substantiate the claim with evidence of inclusion in income in earlier years. - AIR Mismatch: The Tribunal remitted the issue back to the AO for verification, directing the Assessee to reconcile differences between the AIR and books of accounts. - Royalty Payment: Following the precedent set in the Assessee's own case for AY 2010-11, the Tribunal remitted the issue back to the AO for fresh consideration, emphasizing the AO's lack of authority to apply the benefit test under Section 37(1). Levy of Interest under Sections 234A and 234B The Tribunal directed the AO to delete the interest charged under Section 234A, acknowledging the timely filing of the return of income. It did not specifically address Section 234B in the provided text. Initiation of Penalty Proceedings The Tribunal did not provide a detailed analysis on the initiation of penalty proceedings under Section 271(1)(c) of the Act, as the primary focus was on resolving the substantive issues raised in the appeal. Conclusion: The Tribunal provided a comprehensive analysis and directions for each issue, remitting several matters back to the AO/TPO for fresh consideration in line with established legal principles and precedents. The Assessee's appeal was partly allowed, and the Revenue's appeal was allowed for statistical purposes.
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