2019 (1) TMI 848 - AT - Income Tax

Transfer Pricing Adjustment - AMP expenditure - Held that - For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm s length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts. The aforesaid Rule provides that that Other Method shall be any method which takes into account the price which had been charged or paid for the same or similar uncontrolled transaction with or between non-associated enterprises under similar circumstances. Comparison of the AMP over sales ratio of the assessee with the AMP ratio of Pepsi Co Group on a worldwide basis was nothing but a distorted version of the BLT. In view of the above discussion, we hold that in none of the years impugned before us, the AMP adjustment made by the TPO/Assessing Officer can be sustained and accordingly, same is directed to be deleted. Addition on account of IPA Subsidy received by the Appellant during the subject assessment year from the Government of West Bengal under the West Bengal Incentive Scheme, 2004. - revenue or capital receipt - Held that - Hon ble Supreme Court in the case of CIT vs. Chaphalkar Brothers 2017 (12) TMI 816 - SUPREME COURT held that subsidiary scheme of the State Government to encourage development of multiple theatre complexes is capital in nature and not revenue s receipts there also subsidy was in the form of exemption from payment of entertainment due for the period of three years. Merely because here in this case the quantification of subsidy was based on reimbursement of sales tax, it does not meant that it is a revenue receipt. This view now is well supported by the various decisions as noted above that character of subsidy in the hands of the assessee is the determinative factor having regard to the purpose for which subsidy was given. Accordingly, we hold that the subsidy received by the assessee from the subsidy received under the West Bengal Incentive Scheme of 2004 is capital in nature and cannot be taxed as revenue receipts. Thus, this issue is decided in favour of the assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on AMP Expenses.
2. Addition on account of Industrial Promotional Assistance (IPA) subsidy.
3. Levy of interest under sections 234B and 234C.
4. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Transfer Pricing Adjustment on AMP Expenses:
The assessee challenged the Transfer Pricing Adjustment amounting to INR 3,34,06,17,000/- on account of Advertisement, Marketing, and Promotion (AMP) Expenses. The AO/TPO/DRP erred in assuming jurisdiction under Section 92CA of the Act for transactions not qualifying as "international transactions" under Section 92B read with Section 92F(v). They failed to establish any "arrangement" directing AMP expenditure by the appellant. The DRP's decision followed the orders of earlier assessment years (2010-2011, 2011-2012, and 2013-2014), which were overturned by the ITAT, holding that AMP adjustment made by the TPO/AO cannot be sustained. The Tribunal emphasized that no international transaction existed merely due to incurring higher AMP expenses and rejected the application of the Bright Line Test (BLT) for computing the ALP of AMP expenses. The Tribunal concluded that the AMP expenses were incurred for the assessee’s business benefit in India, without any binding obligation from the AE, and thus, no adjustment was warranted.

2. Addition on account of Industrial Promotional Assistance (IPA) subsidy:
The AO/DRP added INR 8,07,52,389/- as revenue, treating the IPA subsidy received from the Government of West Bengal under the West Bengal Incentive Scheme, 2004, as revenue in nature. The assessee argued that the subsidy was capital in nature, intended to promote industrialization by setting up or expanding units in West Bengal. The Tribunal, referencing the Supreme Court's decision in CIT vs. Ponni Sugar and Commercial Ltd., held that the purpose of the subsidy determines its nature. The subsidy, aimed at promoting new or expanded industrial units, was capital in nature, despite being quantified based on sales tax reimbursement. The Tribunal thus ruled in favor of the assessee, treating the subsidy as capital and not taxable as revenue.

3. Levy of interest under sections 234B and 234C:
The assessee contested the levy of interest under sections 234B and 234C, which the Tribunal noted as consequential in nature and requiring no separate adjudication.

4. Initiation of penalty proceedings under section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under section 271(1)(c), which the Tribunal deemed premature and rejected.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal setting aside the orders of the authorities below and deleting the additions related to AMP expenses and IPA subsidy. The stay application was dismissed as infructuous.