2015 (3) TMI 225 - AT - Income Tax

Transfer Pricing Adjustment - AMP expenses - Held that - There is a merit in the contention of the ld. AR that the selling commission and discount etc. should be excluded from AMP expenses for working out the TP adjustment, if any. The Special Bench in LG Electronics India (P.) Ltd. (2013 (6) TMI 217 - ITAT DELHI) has specifically dealt with this issue in para 18 of its order and held that the sales specific expenses such as commission and discount etc. should not be included within the overall AMP expenses for processing them u/s 92 of the Act. Following the Special Bench decision, we hold that the selling expenses and discount paid by the assessee should be excluded from the total of AMP expenses and thereafter a fresh determination should be made for ascertaining the extent of TP adjustment, if any, in accordance with the directions given by the Special Bench in the case of LG Electronics India (P.) Ltd. (supra). - Matter remanded back - Decided in favour of assesse. Non recording of transactions in books of account - assessee explained that the PAN of the assessee company got reported against this expenditure incurred by Mr. I. Rahumathullah, who was earlier working for the assessee and after leaving the assessee, joined M.J. India - Held that - relevant material on record we find that the said Mr. I. Rahumathullah categorically admitted the version stated by the assessee. There is further corroboration of this version from Citi Bank, a copy of which has been reproduced in the direction of the DRP. These facts amply prove that the credit card with the PAN of the assessee was actually used by its former employee, who admitted this fact. Further in view of the fact that the bank has also supported the version of the assessee, we are unable to see as to how any addition can be made in the hands of the assessee. This addition is directed to be deleted - Decided in favour of assesse.

Summary

Issues:
1. Transfer Pricing Adjustment on account of AMP expenses.
2. Addition of Rs. 9,52,719 based on City Bank Transactions.

Transfer Pricing Adjustment on account of AMP expenses:
The appeal challenged the Transfer Pricing Adjustment on AMP expenses for the assessment year 2009-10. The Special Bench of the Tribunal in LG Electronics India (P.) Ltd. case addressed this issue, emphasizing that incurring AMP expenses towards brand promotion constitutes a transaction and an international transaction. The Special Bench held that even if the overall net profit rate declared by the assessee is higher than other cases, disallowance of AMP expenses can still be made. The Tribunal listed 14 parameters for determining the correct ALP of AMP expenses, applicable to both manufacturers and distributors. The AR contended that selling commission and discounts should be excluded from AMP expenses. The Tribunal agreed, following the Special Bench decision, and remitted the matter to the AO/TPO for fresh determination in line with the LG Electronics India (P.) Ltd. case.

Addition of Rs. 9,52,719 based on City Bank Transactions:
The AO added Rs. 9,52,719 based on City Bank Transactions, questioning why the amount was not recorded in the books of account. The assessee explained that the expenditure was incurred by a former employee who used the company's credit card for expenses related to his new employer. The former employee admitted to this, and the bank corroborated the explanation. The Tribunal found the explanation credible and deleted the addition. The ground about charging interest was deemed consequential. Consequently, the appeal was allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of Transfer Pricing Adjustment on AMP expenses and the addition based on City Bank Transactions, providing detailed analysis and rulings for each matter. The Tribunal upheld the principles established in the LG Electronics India (P.) Ltd. case and made decisions based on the facts and evidence presented in each case.