9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (6) TMI 353 - AT - Income TaxTransfer pricing adjustment - retrospective applicability of sec. 92CA(2B) - powers of assessing officer to make such reference and the powers of TPO to furnish report in this behalf - Held that - respectfully following the Special Bench judgment in the case of L.G. Electronics India (2013 (6) TMI 217 - ITAT DELHI), we decide these legal grounds against the assessee as a consequence thereof, the relevant grounds raised in the memo of appeal, touching these legal aspects stand dismissed. Nature and scope of AMP expenses as elucidated by the Special Bench. The quantification thereof and the bench marking of the AMP expenses which is to be subjected to TP adjustments applying the ALP methodology by the TPO and DRP. - Held that - Merit in the argument of assessee as there being no objection or adverse comment in respect thereof coming from any of the lower authorities i.e. AO/ TPO, DRP and also ld. CIT(DR), there is no justification in setting aside these expenses for verification again to AO/TPO as supported by judgment in the case of M/s Glaxo Smitkline Consumer Healthcare Ltd. (2012 (4) TMI 279 - ITAT CHANDIGARH) and Canon India Ltd. - Consequently, only the figures supplied by assessee excluding the items like trade discounts, cash discounts, subsidy etc. which are to be excluded by Special Bench should be verified by AO because no adverse comments are offered by lower authorities on these details. Thus only such details of expenses are set aside back to the file of AO/TPO to decide the issue of AMP expenses by applying the proper comparables after hearing the assessee and keeping in view the Special Bench directions in this behalf - grounds about TP adjustments in respect of AMP expenses are partly allowed for statistical purposes. V.R.S.- whether for purpose of claiming deduction u/s 35DDA, scheme of voluntary retirement need not comply with conditions laid down in section 10(10C) r.w.r. 2BA and SID is eligible to claim deduction of 1/5th of the expense incurred on VRS under section 35DDA - Held that - Rule 2BA is in the form of guidelines for the purpose of Section 10(10C), which relates to taxation of income/amount received by an employee under VRS scheme. The said Rule does not deal with the expenditure incurred by the employer when the assessee makes payment under the VRS scheme formulated by them. The treatment of expenditure or outgoing of the employer has to be dealt with under Section 35DDA and the prescribed rules, if applicable. Rule 2BA, which is applicable to the recipient i.e. the employee, cannot be applied. No substantial question of law arises for consideration. Depreciation on printers, scanners, UPS and switches etc. - 60% or 15% - Held that - As decided in CIT v. BSES Yamuna Power Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT computer accessories and peripherals form an integral part of a computer system and therefore, depreciation has to be allowed at the rate of 60%. Disallowance of part of advertisement and selling expense - Held that - This issue has been decided in favour of the assessee in view of the decision of CIT vs. Salora International Limited (2008 (8) TMI 138 - DELHI HIGH COURT) wherein held that there was a direct nexus between the advertising expenditure and the business of the assessee and that unless the assessee made its products known to the market, its business would suffer, therefore, entire expenditure on advertising to be of a revenue nature Disallowance of depreciation on software license fees at 60% - Held that - License is an intangible asset as per Part-B of Appendix-I, in which the rate of depreciation on all intangible assets has been prescribed @ 25 per cent. Therefore, excess claim of 35 per cent was disallowed. No particular argument has been made by the assessee. Part-B of Appendix-I in respect of intangible assets provides depreciation at uniform rate of 25 per cent and licenses have been included therein. Accordingly no error in the order of DRP. Miscellaneous income incidental and inextricably linked to the business of the undertaking considered for computing deductions u/s 10A and 10B - Held that - Since the complete details of ancillary income have not been referred to no reasons to interfere with the findings of DRP and AO. This ground of the assessee is dismissed. Assessee s appeals are partly allowed for statistical purposes
Issues Involved:
1. Transfer Pricing (T.P.) Adjustments 2. Corporate Tax Issues Issue-wise Analysis: 1. Transfer Pricing (T.P.) Adjustments: - Ground 1: The DRP confirmed adjustments of Rs. 65,34,38,272/- for AY 2007-08 and Rs. 1,12,67,15,023/- for AY 2008-09 made by the TPO under section 92CA. The assessee contended that these adjustments were erroneous. - Ground 2: The DRP erred in considering advertisement and marketing expenses incurred by the appellant as domestic transactions, which should not fall under section 92B. - Ground 3: The DRP failed to recognize that the advertisement and marketing expenses were for promoting the appellant's business in India and not for promoting the "Sony" brand internationally. - Ground 4: The TPO incorrectly held the AMP expenses as "excessive" based on a "bright line limit" using inappropriate comparables. - Ground 5: The TPO incorrectly assumed that the appellant rendered services to its AEs by incurring AMP expenses and thus should earn a markup of 7%. - Ground 6: The DRP endorsed the TPO's approach of re-characterizing the appellant as a limited risk distributor. - Ground 7: The DRP did not apply the Proviso to section 92C, denying the benefit of upward variation of 5% in determining the Arm's Length Price. Analysis: The TPO aggregated all selling, marketing, and advertisement expenses, proposing that part of it benefited the AEs for brand building. The Special Bench in the case of LG Electronics India Pvt. Ltd. provided a framework for AMP adjustments, emphasizing factors like business model, contractual arrangements, and comparables. The ITAT, following the Special Bench decision, noted that the TPO's analysis in SID's case did not align with these principles. The ITAT directed the AO/TPO to exclude expenses like trade discounts and volume rebates from AMP expenses and re-evaluate the TP adjustments. 2. Corporate Tax Issues: - Ground 1: Disallowance of Rs. 6,70,49,994/- for amortization under section 35DDA for VRS expenditure. The ITAT and Delhi High Court had previously ruled in favor of the assessee, stating that the VRS scheme need not comply with Rule 2BA for section 35DDA deductions. - Ground 2: Restriction of depreciation on printers, UPS, switches, etc., from 60% to 15%. The ITAT and Delhi High Court had allowed higher depreciation at 60% in earlier years. - Ground 3: Disallowance of Rs. 1,61,75,067/- (AY 2007-08) and Rs. 1,30,43,524/- (AY 2008-09) for depreciation on assets of the Daruhera factory. The ITAT had previously ruled against the assessee, and appeals were pending before the Delhi High Court. - Ground 4: Disallowance of Rs. 11,88,18,028/- (AY 2007-08) and Rs. 19,04,89,900/- (AY 2008-09) for 10% of advertisement and selling expenses, alleging benefit to AEs. The ITAT had ruled in favor of the assessee in earlier years, stating such expenses were revenue in nature. - Ground 5: Depreciation on software license fees at 60% instead of 25%. The ITAT had ruled against the assessee in AY 2006-07, but the issue was pending resolution of an MA and subsequent appeal. - Ground 6 (AY 2007-08): Disallowance of deductions under section 10A and 10B for miscellaneous income. The ITAT upheld the DRP and AO's decision due to insufficient details. Analysis: The ITAT followed precedents set by its earlier decisions and the Delhi High Court, allowing the higher depreciation rates and deductions for VRS expenditure. However, it dismissed the grounds related to depreciation on Daruhera factory assets and software license fees, pending further resolution. The ITAT also upheld the disallowance of deductions under section 10A and 10B due to lack of detailed information. Conclusion: The ITAT partially allowed the appeals for statistical purposes, directing the AO/TPO to re-evaluate certain TP adjustments and corporate tax issues while following established precedents and guidelines.
|
