2022 (10) TMI 390 - AT - Income Tax

TP Adjustment - international transaction - Advertisement Marketing and Promotional Expenses (AMP) - assessee did not consider incurring of AMP expenses as an international transaction and did not file any transfer pricing analysis benchmarking the AMP expenses - TPO held that there has been an agreement to incur AMP expenses, and therefore, incurring of AMP expenses was an international transaction - HELD THAT - Tribunal in assessee s own case for assessment year 2015-2016 2022 (7) TMI 1329 - ITAT BANGALORE had held that the assessee is a full-fledged distributor of NIKE product and on examination of royalty agreement, it was held by the Tribunal for assessment year 2015-2016 that there is no clause which mandated incurring of any AMP expenses. It was held by the Tribunal that in the absence of no written agreement exists between the assessee and its AE requiring the assessee to incur AMP expenses, the same cannot be regarded as an international transaction at all. Thus we delete the transfer pricing adjustment made by the TPO on account of AMP expenses incurred by the assessee. Payment of outsourcing commission - additional evidences filed are certain email correspondence to explain the nature of services rendered by NGTPS to the assessee - HELD THAT - In view of the above order of the Tribunal 2022 (7) TMI 1329 - ITAT BANGALORE for the assessment year 2015-2016, we restore the matter back to the files of the TPO to consider the issue de novo. The TPO shall analyse the evidence on record and the additional evidence which is now filed by the assessee before the Tribunal to determine whether NGPTS had rendered services to the assessee for receipt of sourcing commission. Reimbursement of expenses - HELD THAT - As decided in own case for AY 2013-2014 . 2021 (6) TMI 1120 - ITAT BANGALORE and 2015-2016 2022 (7) TMI 1329 - ITAT BANGALORE on the issue of payment of cross charges of expats costs and contractor charges claimed as reimbursements to the parent compan we are of the considered opinion that the TPO has been right in holding thatthe nature of these expenses are such that they cannot be attributed to have been solely and exclusively for the distribution business of the assessee, the claim of the assessee that it had derived tangible benefit from the expenditure has not been substantiated with evidence - there is no evidence or likelihood of any independent entity dealing in similar circumstances bearing such expenditure. We, therefore, uphold the finding in the orders of the authorities below in making the T.P. adjustment and dismiss the grounds raised by the assessee. Disallowance of Trade Samples - HELD THAT - Respectfully following the aforesaid order of the Tribunal rendered in assessee s own case for assessment year 2013- 2014 2021 (6) TMI 1120 - ITAT BANGALORE we reject grounds 1 to 6. AR, however, submitted that disallowance on purchase of trade samples was also subject matter of TP adjustment by the TPO and to that extent there should be direction to ensure that there is no double taxation of the same income. We accept the prayer of the learned AR and direct the AO / TPO to consider the plea of the learned AR in this regard and allow necessary relief in the event the same income gets doubly taxed. Nature of expenses - Retail Fixtures for Stores - HELD THAT - We hold that since the facts are identical and the expenditure incurred are with reference to refurbishment of the showroom, we hold that the expenditure claimed by the assessee is on the revenue front. It is ordered accordingly. Interest u/s 244A of the I.T.Act on the refund determined - HELD THAT - We have heard rival submissions and perused the material on record. We direct the A.O. to examine the issue and follow the directions of the DRP. It is ordered accordingly.

Issues Involved:
1. Transfer Pricing Adjustment
2. Advertisement Marketing and Promotional (AMP) Expenses
3. Sourcing Commission
4. Reimbursement of Expenses
5. Royalty
6. Corporate Tax Issues: Purchase of Trade Samples, Sales Return, Retail Fixtures for Stores
7. Short Grant of Interest under Section 244A of the Act

Detailed Analysis:

Transfer Pricing Adjustment:
The Tribunal dismissed the general ground raised by the assessee on transfer pricing documentation.

Advertisement Marketing and Promotional (AMP) Expenses:
The Tribunal found that AMP expenses incurred by the assessee cannot be regarded as an international transaction. It was noted that there was no written agreement mandating the incurring of AMP expenses between the assessee and its Associated Enterprises (AEs). The Tribunal referenced its own previous decisions in the assessee's case for earlier assessment years, emphasizing the absence of any such agreement or compulsion. Consequently, the transfer pricing adjustment made by the TPO on account of AMP expenses was deleted.

Sourcing Commission:
The Tribunal restored the matter of sourcing commission back to the files of the TPO for de novo consideration. The assessee had submitted additional evidence in the form of emails explaining the nature of services rendered by NGTPS Singapore. The Tribunal instructed the TPO to analyze both the existing and additional evidence to determine whether services were rendered by NGTPS for the receipt of sourcing commission amounting to Rs.30,57,35,722.

Reimbursement of Expenses:
The Tribunal upheld the TPO's adjustment regarding the reimbursement of expenses, deciding against the assessee. This decision was consistent with the Tribunal's earlier rulings in the assessee's own cases for previous assessment years. The Tribunal found that the nature of these expenses could not be attributed solely to the distribution business of the assessee and confirmed the transfer pricing adjustment.

Royalty:
Similarly, the Tribunal upheld the adjustment made by the TPO concerning the royalty payments. The Tribunal referenced its previous decisions, noting that the assessee had not provided sufficient evidence to substantiate that the expenses were related to its business activities and not for creating brand awareness. The Tribunal confirmed the TPO's determination of the Arm's Length Price (ALP) of royalty payments as nil.

Corporate Tax Issues:
- Purchase of Trade Samples: The Tribunal rejected the assessee's grounds, following its earlier decisions that the expenditure on trade samples should be borne by the manufacturer and not the distributor. However, the Tribunal directed the AO/TPO to ensure no double taxation of the same income.
- Sales Return: The Tribunal dismissed the assessee's grounds, consistent with its previous rulings.
- Retail Fixtures for Stores: The Tribunal allowed the assessee's claim, treating the expenditure on refurbishing retail showrooms as revenue expenditure. Consequently, the additional ground for claiming depreciation was dismissed as infructuous.

Short Grant of Interest under Section 244A of the Act:
The Tribunal directed the AO to examine the issue of short granting interest under Section 244A and to follow the directions of the DRP. This ground was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed, with the Tribunal providing detailed directions on various grounds, including the deletion of certain transfer pricing adjustments and the restoration of some issues for further examination by the TPO.

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