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2015 (4) TMI 797 - AT - Income TaxTransfer pricing adjustment - Arm s length price adjustment on account of reimbursement of expenses - Expenses incurred for the brand building of Associated Enterprises - Held that - It is clear that the assessee itself has claimed as an agent for its AE for providing advertising support services and distribution of the ten sports channel. There is no quarrel on the point that any expenditure even on the advertisement of the assessee s own business activity and assessee s own brand name is an allowable expenditure and would not fall in the category of the expenditure for the promotion of brand of AE. However in this case the expenditure has been incurred for organizing cricket match at UAE which has been sponsored by the AE and its Ten Sports channel. Therefore prima facie it appears that the expenditure has been incurred for brand promotion of the AE of the assessee. An identical issue has been considered and decided by the Special Bench of this Tribunal in the case of of L.G. Electronics India (P) Ltd. 2013 (6) TMI 217 - ITAT DELHI Thus it is clear that the amounts spent on an international transaction is required to be taken out for processing under TP provisions to find out its taxability in the hands of the Indian assessee. The amount incurred towards its own business expenses shall be considered for taxability as per regular provisions of the Act including section 37 of the Income Tax Act. In view of the fact that when a transaction falls in the ambit of International Transaction even if part of the expenditure is relevant to the expenses for the purpose of the assessee s own business activity the remaining of the expenses has to be tested under the provisions of section 92 for its taxability in the hands of the assessee. In the case in hand the assessee has not filed the relevant agreements so as to give a findingn on the nature of relationship between the assessee and its AE as well as the respective cotractual obligations and rights of the parties. Further the authorities below have also not examined and discussed the agreements entered into between the assessee and AE. Accodingly in the facts and circumstances of the case and in the interest of justice we set aside this issue to the record of TPO/AO to reconsider and decide the samer after verification of all the facts and in the light of decision of Special Bench in the case of L.G. Electronics India (P) Ltd. 2013 (6) TMI 217 - ITAT DELHI . - Decided in favour of assessee.
Issues Involved:
1. Duplicate appeal filing. 2. Transfer pricing adjustment on reimbursement of expenses. Issue-wise Detailed Analysis: 1. Duplicate Appeal Filing: At the hearing, it was noted that the assessee had inadvertently filed two appeals against the same impugned order dated 22-08-2012. The appellant requested the dismissal of ITA no. 6434/Mum/2012 as it was a duplicate of ITA no. 6307/Mum/2012. The Revenue raised no objection to this request. Consequently, the Tribunal dismissed ITA no. 6434/Mum/2012 as a duplicate appeal. 2. Transfer Pricing Adjustment on Reimbursement of Expenses: Background: The assessee, engaged in providing distribution services and advertising sales and marketing services to its Associate Enterprise (AE), Taj TV Ltd., reimbursed expenses amounting to Rs. 1,03,89,353/- to its AE during the financial year 2007-08. These expenses were primarily incurred for organizing cricket matches in UAE for the distributors of the Ten Sports channel owned by the AE. TPO and AO's Findings: The Transfer Pricing Officer (TPO) determined that the expenditure was primarily for building the brand value of the channel, which is the responsibility of the owner (AE). Thus, the TPO set the arm's length price (ALP) of the reimbursement at Nil, recommending an adjustment of Rs. 1,03,89,353/-. The Assessing Officer (AO) included this adjustment in the draft assessment order, which was upheld by the Dispute Resolution Panel (DRP). Assessee's Arguments: The assessee contended that the expenses were incurred in the regular course of business and were wholly and exclusively for the assessee's business. The expenses included salaries, travel, and stay costs for employees and clients, related to business promotion activities. The assessee argued that the expenses should not be disallowed under transfer pricing provisions, citing a Third Member decision in Star India Pvt. Ltd. vs. ACIT. Revenue's Arguments: The Revenue maintained that the expenses were for brand promotion of the AE's channel, thus rightly disallowed on the grounds of Nil ALP. The Revenue cited the Special Bench decision in L.G. Electronics India (P) Ltd. vs. Asst. CIT, which supported their stance. Tribunal's Analysis: The Tribunal noted that the expenses were incurred for organizing a cricket match sponsored by the AE, indicating brand promotion. The Tribunal referred to the Special Bench decision in L.G. Electronics India (P) Ltd., which held that advertisement and marketing promotion (AMP) expenses for brand building of a foreign AE fall within the ambit of international transactions and should be tested under transfer pricing provisions. Conclusion: The Tribunal found that the assessee had not provided the relevant agreements to substantiate its claims about the nature of the relationship with the AE and the contractual obligations. Consequently, the Tribunal set aside the issue to the TPO/AO for reconsideration and decision after verifying all facts and in light of the Special Bench decision in L.G. Electronics India (P) Ltd. vs. Asst. CIT. Final Order: The appeal in ITA No. 6370/Mum/2012 was allowed for statistical purposes, and the appeal in ITA no. 6434/Mum/2012 was dismissed as a duplicate.
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