2022 (12) TMI 1542 - AT - Income Tax

TP adjustment - excess AMP expenditure pertaining to trading segment - HELD THAT - We find an identical issue raised considered by the Tribunal in assessee s own case for assessment year 2012- 2013 2023 (3) TMI 656 - ITAT BANGALORE followed the dictum laid down in the case of Maruti Suzuki India Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT , Sony Ericsson Mobile Communications India (P.) Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT and directed the A.O. to delete the AMP TP adjustment and the mark up thereon. Thus we delete the TP adjustment made on AMP expenses - Decided in favour of assessee. Deduction towards provision for leave encashment on accrual basis - HELD THAT - In view of the judgment of the Hon ble Apex Court in the case of National Thermal Power Co. Ltd. 1996 (12) TMI 7 - SUPREME COURT the additional ground raised is admitted and taken on record for adjudication. The Bangalore Bench of the Tribunal in the case of M/s. Hewlett Packard (India) Software Operation Pvt. Ltd. 2021 (3) TMI 1379 - ITAT BANGALORE had categorically held that deduction to the extent of leave encashment has actually been paid should be allowed as deduction u/s 43B of the I.T. Act. The Tribunal in assessee s own case for assessment year 2012-2013 2023 (3) TMI 656 - ITAT BANGALORE has also taken a similar view. Thus we restore the issue raised in ground 14 to the files of the A.O. with the direction to allow deduction u/s 43B(f) of the I.T.Act with regard to leave encashment on actual payment basis. Not allowed appropriate credit for TDS as claimed - The issue raised is restored to the files of the A.O. to examine the matter and grant TDS credit in accordance with law.

Summary

Issues Involved:

1. Transfer Pricing (TP) Adjustment of Advertisement, Marketing, and Promotion (AMP) Expenses.
2. Short Grant of Credit for Tax Deducted at Source (TDS).
3. Deduction for Leave Encashment Payments under Section 43B of the I.T. Act.

Detailed Analysis:

1. Transfer Pricing (TP) Adjustment of AMP Expenses:

The primary issue involved the TP adjustment of INR 1,11,41,19,868 related to AMP expenses. The assessee contended that the AMP expenditure was not an international transaction as per Section 92B of the I.T. Act. It was argued that there was no agreement or understanding with the Associated Enterprises (AE) regarding AMP expenses, and the expenses were legitimate business expenditures. The assessee also challenged the application of the Bright Line Test (BLT) by the TPO, which is not legally recognized. The Tribunal observed that similar issues were addressed in the assessee's own case for the assessment year 2012-2013, where the Delhi High Court's judgments in Maruti Suzuki India Ltd. and Sony Ericsson Mobile Communications India (P.) Ltd. were followed. These judgments clarified that AMP expenses do not automatically constitute an international transaction, and the BLT is not a valid method for determining ALP. The Tribunal directed the deletion of the AMP TP adjustment, aligning with the previous rulings.

2. Short Grant of Credit for TDS:

The assessee claimed that the Assessing Officer (AO) erred in granting credit for TDS, resulting in a shortfall of INR 46,78,79,913. The Tribunal restored this issue to the files of the AO, directing them to examine the matter and grant TDS credit in accordance with the law. This ground was allowed for statistical purposes, indicating that the AO needs to reassess the TDS credit claim.

3. Deduction for Leave Encashment Payments under Section 43B:

The assessee raised an additional ground regarding the non-grant of deduction for leave encashment payments of INR 14,650,125 under Section 43B. The Tribunal noted that the Supreme Court in UOI v. Exide Industries Ltd. upheld the validity of Section 43B(f), which allows deduction only on actual payment. The Tribunal directed the AO to verify the actual payments made during the relevant assessment year and allow the deduction accordingly, ensuring no double deduction occurs. This ground was also allowed for statistical purposes, necessitating further examination by the AO.

Conclusion:

The appeal was partly allowed, with the Tribunal directing the deletion of the AMP TP adjustment and remanding the issues of TDS credit and leave encashment deduction back to the AO for reconsideration. The judgment emphasized adherence to established legal precedents and statutory provisions in resolving the issues.