2017 (10) TMI 998 - AT - Income Tax

Transfer pricing adjustment on account of AMP Expenses - Held that - Abnormal expenses incurred under the head AMP cannot be termed as international transaction and thus the AO had wrongly invoked the provisions of Chapter X of the Act for the said AMP spent, thus the addition is therefore directed to be deleted. Adjustment on account of notional interest attributable to delayed payments receivable from the AE - Held that - The amendment in section 92B, at least to the extent it dealt with the question of issuance of corporate guarantees, is effective from 1-4-2012. The assessment year being an assessment year prior to that date, the amended provisions of section 92B have no application in the matter. Additions deleted Disallowance of deduction under section 10A - Held that - The impugned order of the ITAT in the case of AIPL for AY 2009-10 on the issue of allowing the deduction under Section 10A of the Act suffers from no legal infirmity either in its analysis of the legal provisions or in its conclusions. The Court is not inclined to frame any question of law on the issue concerning a Section 10A deduction in the appeal of the Revenue against AIPL for AY 2009-10. We direct the Assessing Officer to allow the deduction claimed under section 10A of the Act by the assessee Addition u/s 14A - Held that - Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Thus additions deleted. Assessing interest on income tax refund as income from other sources - Held that - In the instant case the fact that the interest was withdrawn in the year under consideration itself or in the subsequent year, is not clear from the order of the authorities below. It is also not clear what is the amount which has been withdrawn subsequently. The relevant ITNS-150 has not been produced before us. In the facts and circumstances of the case, we feel it appropriate to restore the issue to the file of the Assessing Officer for adjudication after appreciation of the facts and in the light of the decision cited by the Ld. counsel of the assessee. The assessee shall be afforded adequate opportunity of being heard. The ground of appeal is accordingly allowed for statistical purpose.

Issues Involved:
1. Validity of orders passed by AO/DRP/TPO.
2. Addition to total income under Chapter X of the Income Tax Act.
3. Transfer Pricing adjustment on AMP expenses.
4. Comparable companies for benchmarking AMP transactions.
5. Markup on excessive AMP expenses.
6. TP adjustment on notional interest for delayed payments.
7. Deduction under Section 10A of the Act.
8. Disallowance under Section 14A of the Act.
9. Taxation of interest on Income Tax refund.
10. Levy of interest under Sections 234B & 234D of the Act.

Detailed Analysis:

1. Validity of Orders Passed by AO/DRP/TPO:
The assessee challenged the validity of the orders passed by the AO, DRP, and TPO. However, the Tribunal did not find it necessary to adjudicate specifically on this ground and dismissed it as infructuous.

2. Addition to Total Income Under Chapter X of the Income Tax Act:
The AO/TPO/DRP made an addition of ?81,16,72,668/- to the total income of the assessee. This included adjustments for AMP expenses and notional interest on delayed payments.

3. Transfer Pricing Adjustment on AMP Expenses:
The Tribunal noted that the issue of AMP expenses had already been adjudicated in favor of the assessee in the previous assessment year (2009-10). The Tribunal followed the decision of the jurisdictional High Court, which held that AMP expenses could not be termed as an international transaction. Consequently, the addition of ?80,79,61,592/- on account of AMP expenses was deleted.

4. Comparable Companies for Benchmarking AMP Transactions:
The DRP had directed the TPO to conduct a fresh search for identifying comparable companies for benchmarking AMP expenses. The Tribunal, however, found that the issue was already settled in favor of the assessee in the previous year and did not require further adjudication.

5. Markup on Excessive AMP Expenses:
The TPO had applied a markup of 14.88% on the alleged excessive AMP expenses. The Tribunal, following the decision of the jurisdictional High Court, held that the AMP expenses could not be considered an international transaction, thereby nullifying the need for any markup.

6. TP Adjustment on Notional Interest for Delayed Payments:
The TPO had proposed an adjustment of ?37,11,076/- on account of notional interest attributable to delayed payments receivable from the AE. The Tribunal, referencing its decision in the previous year, held that no ALP adjustment could be made for delayed realization of sale proceeds. The addition was deleted.

7. Deduction Under Section 10A of the Act:
The AO/DRP had restricted the allowance for deduction under Section 10A to ?13,66,68,296/- against the claimed deduction of ?37,23,15,615/-. The Tribunal, following its decision in the previous year and the jurisdictional High Court's ruling, directed the AO to allow the full deduction claimed by the assessee.

8. Disallowance Under Section 14A of the Act:
The AO/DRP had made a disallowance of ?7,10,677/- under Section 14A read with Rule 8D. The Tribunal, citing the decision of the jurisdictional High Court in Cheminvest Ltd., held that Section 14A would not apply if no exempt income was received during the relevant year. The disallowance was deleted.

9. Taxation of Interest on Income Tax Refund:
The AO/DRP had taxed interest on an Income Tax refund of ?16,20,444/- as "Income from Other Sources." The Tribunal restored the issue to the AO for fresh adjudication in light of the assessee's claim that the interest was subsequently withdrawn.

10. Levy of Interest Under Sections 234B & 234D of the Act:
The ground was consequential in nature and did not require specific adjudication.

Conclusion:
The appeal was partly allowed, with significant deletions of additions related to AMP expenses, notional interest, and disallowance under Section 14A. The Tribunal directed a fresh adjudication for the issue of interest on the Income Tax refund.

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