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2024 (10) TMI 21 - AT - Income TaxTP adjustment - difference in Arm s Length Price of international transaction of payment of trade mark fee - assessee selected CUP Method as Most Appropriate Method (MAM) - HELD THAT - The Co-ordinate Bench of the Tribunal in Assessee s own case 2021 (8) TMI 1423 - ITAT DELHI deleting the similar addition stating since the operating margin of the assessee at 6.96% is higher than the comparables at 2.77%, the international transaction of payment of royalty entered into by the assessee are to be considered being at arm s length applying TNMM as the most appropriate method. We therefore direct the assessing officer to delete the adjustment on this account Addition on account of Arm s Length Price of outstanding receivables - HELD THAT - By relying on the binding decision of Satyam Venture Engineering Services Pvt. Ltd. 2016 (5) TMI 715 - ITAT HYDERABAD and by, considering the fact that the outstanding payable to the respective AE s is much higher than the receivable and the Associated Enterprises has not charged the interest on delay in payment made by the assessee, therefore, in our considered opinion, charging of notional interest on outstanding receivables does not arise. Accordingly, the addition on account of Arm s Length Price of outstanding receivables are hereby deleted. Addition in Arm s Length Price of international transaction of purchase of sale of finished goods - HELD THAT - As observed that the detailed working submitted by the assessee has not been examined at all either by the TPO or the DRP, therefore, it is in the interest of justice, issue is set aside to the file of the TPO for fresh adjudication by given due consideration to the submission made by the assessee. Accordingly, the Assessee s Ground partly allowed for statistical purpose. TP Adjustment - Arm s Length Price of international transaction of payment of Regional Service Charges (RSC) and addition in the Arm s Length Price of international transaction of receipt of accounting support services - selection of Most Appropriate Method (MAM) - HELD THAT - We are of the opinion that comparable Uncontrolled Price (CUP) has been rightly taken up by the TPO. We observe that the assessee has not demonstrated the impact of the services obtained on the business affairs of the assessee in terms of turnover and profit. The abstract words of greater operational efficiency have to be demonstrated in real terms in terms of benefit obtained by the assessee, the same has not been displayed by the assessee. The cost incurred by the recipient and mark-up charges have not been given in detail by the Assessee. Hence, it would be appropriate to refer the matter to the file of the TPO with direction to the assessee to demonstrate the actual expenses incurred by the A.E and the mark-up as well as the rendition of the service by the assessee to the AE s company with regard to the five international transactions of provision of services to the assessee (except Information Technology Services) Disallowance of 30% advertising brand building and sales commercial expense - AO held that the assessee has incurred a large amount of advertisement and publicity which is resulting in benefit of AE s who own the brand - HELD THAT - The above issue has already been decided in favour of the assessee by the Coordinate Bench of the Tribunal in Assessee s own case for Assessment Year 2007-08 to 2014-15 2016 (7) TMI 21 - ITAT DELHI , 2018 (1) TMI 1716 - ITAT DELHI , 2019 (2) TMI 2111 - ITAT DELHI held that advertisement expenditure incurred by the appellant is incurred wholly for the purpose of its business and profession and ought to be allowed in entirety. Further the Assessing Officer has clearly made an ad-hoc disallowance of advertisement expenditure incurred by the appellant which is not permissible under the law - Decided in favour of assesse. Disallowance of Employees Contribution to ESI - assessee has deposited Employees Contribution Funds ESI funds beyond the time period stipulated in the relevant ESI and PF Act - HELD THAT - The provision of the Income Tax Act provides for payment of the Employees Contribution of ESI/PF on or before the due date prescribed under the relevant PF Act. The Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT categorically held that the Employees Contribution deposited after respective due date mentioned in the PF Act cannot be allowed as deduction u/s 36(1)(va) - Assessee ground dismissed.
Issues Involved:
1. Validity of assessment order under Section 143(3) read with Section 144C of the Income-tax Act, 1961. 2. Transfer pricing adjustments on account of trademark fees. 3. Transfer pricing adjustments on account of delay in receipt of receivables. 4. Transfer pricing adjustments on account of purchase and sale of finished goods. 5. Transfer pricing adjustments on account of Regional Service Charges and Accounting Support Services fees. 6. Disallowance of advertisement and publicity expenses. 7. Disallowance related to late deposit of employee contributions to Employee State Insurance. 8. Incorrect determination of Dividend Distribution Tax (DDT). 9. Incorrect charging of interest under Section 234C of the Act. 10. Charging of interest under Section 234B of the Act. 11. Initiation of penalty proceedings under Section 270A of the Act. Issue-wise Detailed Analysis: 1. Validity of Assessment Order: The assessment orders for AY 2017-18 and AY 2018-19 were challenged on the grounds that they were bad in law and unsustainable. The Tribunal did not find any specific adjudication required for this ground, thus it was dismissed as general in nature. 2. Transfer Pricing Adjustments on Account of Trademark Fees: The assessee argued that the payment of trademark fees to Goodyear USA was at arm's length since it was based on a comparable uncontrolled price (CUP) method. The Tribunal referred to its own decisions from previous years (AY 2007-08 to 2014-15) where similar adjustments were deleted. It was held that the payment of trademark fees was justified and the addition of Rs. 10,38,00,000/- was deleted for both assessment years. 3. Transfer Pricing Adjustments on Account of Delay in Receipt of Receivables: The Tribunal noted that the outstanding payables to the associated enterprises were higher than the receivables, and no interest was charged by the AEs on the delay in payment. Referring to the decision in Satyam Venture Engg. Services Pvt. Ltd., the Tribunal deleted the addition of Rs. 10,04,075/- for AY 2017-18 and Rs. 7,17,113 for AY 2018-19 on account of notional interest on outstanding receivables. 4. Transfer Pricing Adjustments on Account of Purchase and Sale of Finished Goods: The assessee used the Transactional Net Margin Method (TNMM) to benchmark its trading segment. The Tribunal found that the detailed working submitted by the assessee was not examined by the TPO or DRP. The issue was set aside to the TPO for fresh adjudication, thus partly allowing the grounds for statistical purposes. 5. Transfer Pricing Adjustments on Account of Regional Service Charges and Accounting Support Services Fees: The Tribunal observed that the assessee had not demonstrated the actual expenses incurred by the AE and the mark-up charges. The issue was referred back to the TPO for fresh adjudication with directions to the assessee to provide detailed evidence. The grounds were partly allowed for statistical purposes. 6. Disallowance of Advertisement and Publicity Expenses: The Tribunal referred to its previous decisions in the assessee's own case and found that the advertisement expenses were incurred wholly for the purpose of business. The ad-hoc disallowance of 30% was deleted, allowing the grounds in favor of the assessee. 7. Disallowance Related to Late Deposit of Employee Contributions to Employee State Insurance: The Tribunal upheld the disallowance of Rs. 19,452/- for late deposit of employee contributions, referring to the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT-1, which held that contributions deposited after the due date cannot be allowed as a deduction. 8. Incorrect Determination of Dividend Distribution Tax (DDT): The ground regarding DDT was not pressed by the assessee and was thus dismissed. 9. Incorrect Charging of Interest Under Section 234C of the Act: The Tribunal set aside the issue to the AO for de-novo consideration to determine the correct interest, thus partly allowing the ground for statistical purposes. 10. Charging of Interest Under Section 234B of the Act: This ground was dismissed as it was consequential in nature. 11. Initiation of Penalty Proceedings Under Section 270A of the Act: The ground regarding initiation of penalty proceedings was considered premature and was not adjudicated. Conclusion: The appeals for both assessment years were partly allowed, with specific directions for fresh adjudication on certain issues and deletion of certain additions and disallowances. The Tribunal emphasized consistency with its previous decisions in the assessee's own case and required detailed evidence for certain claims.
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