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2024 (9) TMI 1120 - AT - Income TaxTP Adjustment - Addition on account of reimbursement of alleged excessive AMP expenses incurred by the Appellant - whether AMP expenses incurred by the Appellant in the normal course of its business were not for the sole benefit of its associated enterprise and thus did not fall within the purview of an international transaction pertaining to rendition of service, as defined in section 92B ? - HELD THAT - TPO has bench marked the distribution activities by adopting TNM method and found that it is within the ALP, hence accepted the same as proper, however proceeded to bench mark the declared reimbursement of marketing expenses from its AE and drifted to bench mark the AMP expenses by adopting BLT and ended up disallowing the whole AMP expenses. Since the facts in this AY are exactly similar to AY 2007-08, we are inclined to follow the above decision wherein it was clearly held that in the case of distribution business, when there is no ALP adjustment made by the TPO/AO, separate AMP adjustment is uncalled for. In assessee s own case, coordinate bench has considered the similar issue and remitted the issue back to file of AO/TPO to verify the reimbursement of Marketing expenses after verification of AMP expenses afresh. When the above decision passed by the coordinate bench, the issue under consideration was not settled. In our view, now the decision of Hon ble High Court decision in Maruti Suzuki 2015 (12) TMI 634 - DELHI HIGH COURT is before us, therefore, we need to follow the same. DR has made submissions that recent decision of coordinate bench has to be followed and remit this issue back to file of AO/TPO to bench the mark the AMP separately. We are not inclined to agree with the submissions made by DR and inclined to follow the decision of higher wisdom. Further observed that the issue raised in the subsequent AYs are sub-judice before Hon ble High Court, we refrain from commenting on the issue raised by the assessee before Hon ble high court. In our view, coordinate bench has not commented anything on merit on the issue of AMP vis-a-vis BLT and remitted the issue back to AO/TPO. Since the facts in the present appeal and facts in the AY 2007-08 are exactly similar where the assessee has carried on the similar nature of business and there is no deviation observed from the submissions made by the parties, we are inclined allow the grounds raised by the assessee that separate AMP adjustment is uncalled for when the distribution business of the assessee are already bench marked separately. Bench marking of reimbursement of marketing expenses - We observe that the TPO has proceeded to make the bench marking based on the disclosure made by the assessee as a International transaction, he proceeded to make bench marking of the AMP expenses based on the BLT, however, the same is not the proper way. However, we observed that coordinate bench has not given any finding on this issue but remitted the issue back to the file of AO/TPO to verify the AMP expenses. We cannot refer this issue to special bench as suggested by the DR since the issue is not adjudicated by the coordinate bench in subsequent AY 2009-10. After careful consideration, in our view, the issue has to be addressed such a way that the parties to come to terms to resolve the issue rather than keeping it alive infinitely. In our view, after decision of Hon ble High Court, what remains is the bench marking of reimbursement of marketing expenses. TPO proceeded to bench mark the AMP, at that point of time, BLT was considered as proper method, failed to address the real issue of bench marking of international transaction entered by the assessee relating to reimbursement of marketing expenses. In our view, we are dealing with the issue relating to AY 2010-11, considerable time has already elapsed. TPO should have bench marked only the international transaction involving reimbursement of marketing expenses. Since he failed to do so, in our considered view, there may be certain adjustment or verification has to be done, it is unfair to remit this issue back to AO/TPO as considerable time has already passed and also to the assessee at this stage, in our endeavor to resolve the issue under consideration and also cost involved to both the sides, the issue under consideration is only to bench mark the reimbursement cost, to our considered view, to meet the ends of justice, we would like to add 20% of the reimbursement of expenses towards ALP adjustments to resolve the long pending issue. Accordingly, we direct AO/TPO to add 20% of the reimbursement of expenses and complete the bench marking of the international transaction. Accordingly, the ground raised by the assessee is partly allowed. Bench marking the ALP relating to software division of the assessee - Deselection of companies as companies functionally dissimilar with that assessee. Depreciation on Dharuhera Unit - This Court is of the opinion that the reliance placed upon Allied Electronics 2007 (2) TMI 213 - DELHI HIGH COURT cannot be of assistance to the Revenue. That did not take into account the changes brought about through the amendment and appears to have been on an appreciation of Maharashtra Minerals Corporation Ltd. 1992 (11) TMI 5 - BOMBAY HIGH COURT That decision was in the context of law prevailing in 1972-73 obviously before the amendments were made to the Act prior to the introduction of the concept of block assets. Dividend as declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O - As Special Bench in the case of Total Oil India Pvt Ltd 2023 (4) TMI 988 - ITAT MUMBAI (SB) we are conscious of the sovereign s prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Depreciation on license fees paid by the assessee for various software licenses, which are grouped under the head Computers including computer softwares - The issue raised by the AO is whether the assessee is eligible to claim the depreciation as per the category of computers @ 60% or it should be treated as intangible assets and eligible to claim the depreciation @ 25%. The same issue was considered by the DRP in its order and they have remitted the issue back to AO to verify and recompute the depreciation on computer software as per Item no. III(5) of part A of new appendix I of the Income Tax Rules, 1962.
Issues Involved:
1. Transfer Pricing Adjustment for Advertisement, Marketing, and Promotion (AMP) Expenses. 2. Transfer Pricing Adjustment for Software Services. 3. Depreciation on Dharuhera Unit. 4. Disallowance of Deduction under Section 10AA of the Income Tax Act. 5. Additional Ground on Dividend Distribution Tax (DDT). Detailed Analysis: 1. Transfer Pricing Adjustment for Advertisement, Marketing, and Promotion (AMP) Expenses: The Tribunal held that the AMP expenses should not be separately benchmarked when the distribution business of the assessee is already benchmarked and found to be at arm's length. The Tribunal referred to the decision of the Hon'ble Delhi High Court in the assessee's own case for AY 2007-08, which concluded that no separate AMP adjustment is required if the distribution business is at arm's length. The Tribunal also noted that the TPO's use of the Bright Line Test (BLT) for benchmarking AMP expenses was invalidated by the Hon'ble Delhi High Court. Therefore, the Tribunal directed to follow the decision of the Hon'ble High Court and allowed the assessee's grounds, concluding that separate AMP adjustments are uncalled for. 2. Transfer Pricing Adjustment for Software Services: The Tribunal reviewed the comparables selected by the TPO and the assessee's request to exclude certain comparables. The Tribunal followed the decision in the case of the assessee's group concern, Sony Mobile Communications International, and directed the AO/TPO to exclude the comparables E-Infochips, Infinite Data Systems, Infosys Ltd., Persistent Systems, and Thirdware Solutions. The Tribunal concluded that these companies were functionally dissimilar and lacked sufficient segmental information, making them inappropriate for comparison. 3. Depreciation on Dharuhera Unit: The Tribunal noted that this issue was covered by the Hon'ble Delhi High Court's decision in the assessee's own case, which held that depreciation should be allowed on the block of assets concept. The Tribunal directed the AO to follow the High Court's decision and allow the claim of the assessee for depreciation on the Dharuhera Unit. 4. Disallowance of Deduction under Section 10AA of the Income Tax Act: The Tribunal remitted this issue back to the AO for verification. It was noted that in AY 2011-12, the AO, based on the directions of the DRP, had verified the expenses and allowed the claim. The Tribunal directed the AO to verify the calculations submitted by the assessee and allow the claim after verification as per the law. 5. Additional Ground on Dividend Distribution Tax (DDT): The Tribunal referred to the decision of the Special Bench in the case of Total Oil India Pvt Ltd., which held that the additional income tax payable by a domestic company on distributed profits should be at the rate mentioned in Section 115-O of the Act and not at the rate specified in the relevant DTAA with reference to such dividend income. Therefore, the Tribunal dismissed the additional grounds raised by the assessee regarding the claim of refund of DDT paid in excess of the rate prescribed under the applicable DTAA. Conclusion: The Tribunal partly allowed the appeal filed by the assessee and dismissed the appeal filed by the revenue. The Tribunal directed the AO/TPO to follow the decisions of higher authorities and relevant coordinate bench decisions in resolving the issues related to AMP expenses, software services, depreciation on the Dharuhera Unit, and the deduction under Section 10AA. The Tribunal upheld the decision of the Special Bench regarding the DDT issue.
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