2023 (1) TMI 1197 - AT - Income Tax

TP Adjustment - International transaction involving AMP expenses - difference in the arms length price (ALP) of advertisement marketing and promotion (AMP) expenses allegedly incurred on behalf of AE - HELD THAT - After hearing the parties at length the Hon ble Delhi High Court including the decision in case of Maruti Suzuki India Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT and held that the Revenue was unable to make out a case that there is an international transaction involving AMP expenses between the assessee and its AE. As observed following the aforesaid decision of the Hon ble Delhi High Court the Tribunal held that AMP expenses incurred by the assessee cannot be treated as international transaction. Considering the fact that the issue is pending before the Hon ble Supreme Court by way of an SLP filed by the Revenue the Tribunal restored the issue back to the AO to decide afresh after considering the decision of the Hon ble Supreme Court. In the context of the aforesaid decision of the Tribunal learned Departmental Representative has submitted before us to remit the issue to the Assessing Officer. However we have observed while deciding identical issue in assessee s own case in assessment year 2015-16 2020 (1) TMI 861 - ITAT DELHI the Tribunal has decided the issue in favour of the assessee. Disallowance Being expenditure incurred on credit card - HELD THAT - It is evident in compliance with the directions of learned DRP the AO has accepted major part of the expenditure incurred by the assessee. However he disallowed an amount alleging a difference between the payment actually made as per the assessee and payment as per AIR information which the assessee failed to reconcile. Before us it is the contention of the learned counsel for the assessee that the actual difference would work out to an amount. Keeping the assessee we restore the issue back to the AO for verifying the factual details filed by the assessee and thereafter restrict the disallowance to the actual difference which the assessee will be unable to reconcile. This ground is allowed for statistical purposes. Disallowance being expenditure on account of daughter s marriage fund - HELD THAT - It is a common point between the parties that the Tribunal has decided identical issue in favour of the assessee in assessment year 2015-16. As could be seen from the facts on record the assessee incurs certain expenditure being payment made to employees to meet some part of the marriage expenditure of their daughter. It is observed while deciding identical issue in assessee s own case in assessment year 2015-16 the Tribunal has restored the issue back to the Assessing Officer. Disallowance of loss claimed - AO noticed that the assessee has claimed expenditure under the head extraordinary item in the statement of profit and loss account - Being of the view that such claim is not allowable the Assessing Officer disallowed it and the disallowance was also upheld by the learned DRP - HELD THAT - The facts on record clearly reveal that the loss claimed by the assessee is only in the nature of a provision and is a projected figure. No material has been placed on record before us to demonstrate that the insurer has settled the claim in the financial year relevant to assessment year under dispute. On a specific query from the bench learned counsel for the assessee has submitted that the insurance claim was settled in the next financial year relevant to assessment year 2017-18. Learned counsel was not able to furnish any documentary evidence being any communication received from the insurer to demonstrate that the claim was settled at a particular amount in the impugned assessment year. This being the factual position emerging on record it cannot be said that loss if any has crystallized in the impugned assessment year. In view of the aforesaid we do not find any reason to interfere with the decision of the departmental authorities. Ground raised is dismissed. Disallowance being credit balance written back and treated as income under Section 41(1) - HELD THAT - we restore the issue to the assessing officer for factually verifying assessee s claim that amount in dispute has already been offered to tax as part of other income. In case assessee s claim is found to be correct addition should be deleted. This ground is allowed for statistical purposes. Disallowance of the expenditure claimed towards travelling and conveyance - HELD THAT - It is evident the assessing officer has rejected a part of the expenditure incurred on conveyance and traveling purely on ad hoc basis. He has not pointed out any deficiency either in the accounts maintained by the assessee or the evidence furnished. When assessee s books of account are under statutory audit such ad hoc disallowance in absence of any valid reasoning is unsustainable. Accordingly we delete the disallowance. This ground is allowed. Disallowance being expenses on account of presents/gifts and personnel compensation cost and personnel relocation expenses - HELD THAT - The relocation expenses are incurred by the assessee at the time of relocation/transfer of the employees from one state to another. The expenditure on account of gifts and presents are incurred by assessee towards gifts given to employees trade partners distributors etc. at the time of festivals or office celebrations or at the time of marriage of the employees. Thus considering the nature of expenditure incurred by assessee it cannot be said that they are not wholly and exclusively for the purpose of business. After all from the nature of expenditure incurred it is very much clear that they are for the benefit of employees. That being the factual position emerging from record disallowance made is unsustainable. Accordingly we delete them. This ground is allowed. Double taxation under Section 90/91 - HELD THAT - Considering the submissions of the parties and also the fact that similar nature of dispute arising in assessment year 2015-16 2020 (1) TMI 861 - ITAT DELHI was restored back to the Assessing Officer by the Tribunal we are inclined to restore the issue back to Assessing Officer for fresh adjudication after factual verification. Needless to mention assessee must be provided reasonable opportunity of being heard before deciding the issue. Deduction of education cess as business expenditure - HELD THAT - After insertion of Explanation 3 to Section 40(a)(ii) of the Act as noted above education cess being part of income-tax cannot be allowed as expenditure. Admittedly the decisions relied upon by learned counsel for the assessee are prior to the amendment made to section 40(a)(ii) of the Act by insertion of Explanation 3 - Thus assessee s claim of deduction of education cess has to be disallowed. Accordingly we do so. This ground is dismissed.

Summary

Issues Involved:
1. Addition on account of difference in the arms length price (ALP) of advertisement, marketing, and promotion (AMP) expenses.
2. Disallowance of AMP expenses under Section 37 of the Act.
3. Disallowance of expenditure incurred on credit card.
4. Disallowance of expenditure on account of daughter's marriage fund.
5. Disallowance of loss claimed under the head "extraordinary item."
6. Disallowance of interest paid on account of short payment/delay in deposit of TDS.
7. Disallowance of credit balance written back and treated as income under Section 41(1) of the Act.
8. Disallowance of expenditure claimed towards travelling and conveyance.
9. Disallowance of expenses on account of presents/gifts and personnel compensation cost and personnel relocation expenses.
10. Relief from double taxation under Section 90/91 of the Act.
11. Deduction of education cess as business expenditure.

Detailed Analysis:

1. Addition on account of difference in the arms length price (ALP) of advertisement, marketing, and promotion (AMP) expenses:
The assessee, a subsidiary of Whirlpool USA, incurred AMP expenses of Rs.60,75,36,000, which the Transfer Pricing Officer (TPO) benchmarked separately, treating it as an international transaction. The TPO applied the Bright Line Test (BLT) and proposed an adjustment of Rs.63,54,65,205 on a protective basis and Rs.89,75,858 on a substantive basis using the Transactional Net Margin Method (TNMM). The assessee objected, arguing that AMP expenses were for promoting its own products in India and not the AE's brand. The Tribunal found no difference in the factual matrix compared to preceding years and followed the Delhi High Court's decision, which held that AMP expenses could not be treated as an international transaction. The adjustment was deleted.

2. Disallowance of AMP expenses under Section 37 of the Act:
The Assessing Officer disallowed AMP expenses of Rs.60,67,69,273, considering them as promoting the AE's brand. The Tribunal, following the Delhi High Court's consistent view, held that incidental benefits to Whirlpool USA did not disqualify the expenses from being deductible under Section 37. The disallowance was deleted.

3. Disallowance of expenditure incurred on credit card:
The Assessing Officer disallowed Rs.26,20,527 due to unreconciled credit card expenses. The Tribunal restored the issue to the Assessing Officer for verifying the actual difference, which the assessee claimed to be Rs.1,35,450. The ground was allowed for statistical purposes.

4. Disallowance of expenditure on account of daughter's marriage fund:
The Assessing Officer disallowed Rs.41,60,000, considering it not for business purposes. The Tribunal restored the issue to the Assessing Officer for verification, following the decision in the assessee's case for the assessment year 2015-16. The ground was allowed for statistical purposes.

5. Disallowance of loss claimed under the head "extraordinary item":
The Assessing Officer disallowed Rs.80,00,000 claimed as a provision for flood-related losses, as the insurance claim was not settled in the impugned year. The Tribunal upheld the disallowance, finding no evidence of claim settlement in the relevant year.

6. Disallowance of interest paid on account of short payment/delay in deposit of TDS:
The assessee did not press this ground due to the small amount involved. The ground was dismissed as not pressed.

7. Disallowance of credit balance written back and treated as income under Section 41(1) of the Act:
The Assessing Officer added Rs.1,41,16,261 as income under Section 41(1). The assessee claimed it was already offered to tax. The Tribunal restored the issue to the Assessing Officer for verification. The ground was allowed for statistical purposes.

8. Disallowance of expenditure claimed towards travelling and conveyance:
The Assessing Officer disallowed 10% of the travelling and conveyance expenses on an ad hoc basis. The Tribunal found the disallowance unsustainable due to lack of valid reasoning and deleted it. The ground was allowed.

9. Disallowance of expenses on account of presents/gifts and personnel compensation cost and personnel relocation expenses:
The Assessing Officer disallowed these expenses, considering them not for business purposes. The Tribunal held that the expenses were for the benefit of employees and deleted the disallowance. The ground was allowed.

10. Relief from double taxation under Section 90/91 of the Act:
The Assessing Officer disallowed foreign tax credit due to lack of certificates. The Tribunal restored the issue for fresh adjudication after verification of certificates. The ground was allowed for statistical purposes.

11. Deduction of education cess as business expenditure:
The Tribunal disallowed the claim based on the retrospective amendment to Section 40(a)(ii) of the Act, which included cess as part of income-tax. The ground was dismissed.

Conclusion:
The appeal was partly allowed, with several issues restored to the Assessing Officer for verification and fresh adjudication. The Tribunal followed precedents and statutory amendments to decide the issues.