2015 (6) TMI 928 - AT - Income Tax

Transfer Pricing Adjustment - excess advertisement, marketing and promotion expenses incurred by the assessee - Held that - In view of the directions given in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT on the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance, would try and dispose of the appeals, rather than passing an order of remand to the Assessing. Officer/TPO. The endeavour Should be to ascertain and satisfy whether the gross/net profit margin would duly account for AMP expenses. When figures and calculations as per the TNM or RP Method adopted and applied show that the net/gross margins are adequate and acceptable, the appeal of the assessed should be accepted. Where there is a doubt or the other view is plausible, an order of remand for re-examination by the Assessing Officer/TPO would be justified. - The issue may be remanded back to the file of the AO for fresh verification of facts. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Transfer Pricing Adjustment of excess advertisement, marketing, and promotion expenses.
2. Disallowance of employee referral fee paid to employees.
3. Levying interest under sections 234B, 234C, and 234D.
4. Initiating penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Transfer Pricing Adjustment of Excess Advertisement, Marketing, and Promotion Expenses:
The appeal by the Assessee is against the assessment order pertaining to the assessment year 2010-11, involving a Transfer Pricing Adjustment of &8377; 23,98,11,130 on account of allegedly excess advertisement, marketing, and promotion expenses. The Assessee argued that the expenses were incurred for the sale of its own products in India and not as part of an international transaction. Citing the decision of the Delhi High Court in a similar case, the Assessee contended that the Bright Line Test applied by the Revenue was unwarranted and that the AMP expenses should be benchmarked along with other international transactions under the entity-wide TNMM. The Tribunal, considering the directions of the High Court, remanded the issue back to the Assessing Officer/TPO for fresh verification of facts, setting aside the Transfer Pricing Adjustment for statistical purposes.

Issue 2: Disallowance of Employee Referral Fee:
The second issue involved the disallowance of &8377; 45,000 on account of employee referral fee paid to employees. The Assessee's counsel did not press this ground due to the smallness of the amount, with a clarification that the concession should not set a precedent. Consequently, the Tribunal dismissed the ground without adjudicating on its merits.

Issue 3: Levying Interest under Sections 234B, 234C, and 234D:
Regarding the levying of interest under sections 234B, 234C, and 234D, the Tribunal noted that it was consequential in nature and did not require separate consideration.

Issue 4: Initiating Penalty Proceedings under Section 271(1)(c) of the Act:
The Tribunal deemed the initiation of penalty proceedings under section 271(1)(c) premature and did not delve into this issue. The appeal filed by the Assessee was partly allowed for statistical purposes, with the Tribunal directing the Assessing Officer/TPO to follow the binding judgment of the High Court on the Transfer Pricing Adjustment issue.

In conclusion, the judgment addressed various issues related to transfer pricing adjustments, disallowance of expenses, interest levies, and penalty proceedings, providing detailed analysis and directions based on legal precedents and arguments presented by the parties involved.