2019 (6) TMI 995 - AT - Income Tax

Deduction u/s 80-IB/80-IC - reallocation of common indirect expenses - HELD THAT - DRP has merely followed the decision of Tribunal in assessee s own case. The revenue is unable to point out any distinguishing feature during the impugned AY. Nothing on record would suggest that the ruling of Tribunal is not applicable to the facts of the present case. 2015 (12) TMI 514 - ITAT MUMBAI . It has been brought to the notice that department s appeal against Tribunal s decision for AY 2008-09 has already been dismissed by Hon ble Bombay High Court. Respectfully following binding judicial pronouncement, we upheld the stand of Ld. DRP. DRP has overruled application of provisions of Section 80- IA(10) by following the decision of Ld. DRP in AY 2008-09 2009-10 which was confirmed by Tribunal in 2015 (12) TMI 514 - ITAT MUMBAI Therefore, taking consistent stand in the matter, we confirm the directions of Ld. DRP, in this year also. Depreciation claim on computer peripherals - @15% OR 60% - HELD THAT - As decided in assessee's own case 2015 (12) TMI 514 - ITAT MUMBAI we direct Ld. AO to allow depreciation @60% on the computer peripherals. Ground No. 1 stand allowed. Addition being un-reconciled amount reflected in Annual Information Return AIR - HELD THAT - The perusal of directions of Ld. DRP reveal that this issue was not raised by the assessee before Ld. DRP. The letter stated to be issued by the bank, as placed before us, is after the date of directions of Ld. DRP. Therefore, while concurring with the stand of Ld. Sr. Counsel that mistaken reporting in AIR could not entail addition in the hands of the assessee, we deem it fit to restore the matter back to Ld. AO with a direction to the assessee to reconcile the stated discrepancy. AO is free to peruse latest AIR information of the assessee and seek information from the bank so as to arrive at logical conclusion TP adjustment - ALP of Export Sales - HELD THAT - As no further appeal has been preferred by revenue for AY 2009-10 against the order of the Tribunal, on this issue. The revenue is unable to controvert the same. Therefore, respectfully following the consistent view of the Tribunal, we delete TP adjustment of ₹ 129.83 Lacs on account of export sales and allow ground no. 2 of assessee s appeal. Commission on Corporate Guarantee - TPO estimated the same @2.25% 1.15% for these two years which was restricted to 0.50% by the Tribunal in both the years - HELD THAT - Hon ble Bombay High Court rendered in Glenmark Pharmaceuticals Ltd. V/s ACIT 2017 (2) TMI 1305 - BOMBAY HIGH COURT as confirmed by Hon ble Supreme Court 2018 (12) TMI 608 - SUPREME COURT . In the said decision, Hon ble court has approved the estimation @ 0.53% 1.47%. This decision has been rendered after considering the decision in CIT V/s Everest Kento Cylinders Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT . Therefore, respectfully following the higher judicial wisdom, on the facts, we restrict the estimation to 2%. The Ld. AO / TPO is directed to recompute the impugned TP adjustment. TP adjustment pertains to ALP of intra group services - reimbursement to AE at cost - The cost was allocated in the ratio of sale of Kiwi Products worldwide - HELD THAT - In the absence of complete information, Ld. TPO was precluded to proceed with determination of ALP of these transactions. The primary onus to provide complete TP documentation was on assessee. No doubt, OECD guidelines makes it imperative for the assessee to demonstrate that the services were, in fact, received and thereafter, it was to be established that the price paid for these services was at Arm s Length. Therefore, we restore the matter back to the file of Ld. TPO for re-determination of ALP of these transactions with a direction to the assessee to demonstrate cost allocation keys, evidences in support of the receipt of services etc. Needless to add that sufficient opportunity of being heard shall be granted to the assessee. Ground No. 3 stands allowed for statistical purposes. TP adjustment for AMP expenditure - International transaction as defined u/s 92B - absence of any arrangement between the assessee and its AE - HELD THAT - As relying on JOHNSON AND JOHNSON PVT. LTD. VERSUS ADDL. COMMISSIONER OF INCOME TAX LTU 1, MUMBAI 2018 (11) TMI 1106 - ITAT MUMBAI in the absence of any arrangement between the assessee and its AE, the mere incurring of third-party AMP expenditure could not be termed as international transaction as defined u/s 92B and therefore, the question of determination of ALP of the same would not arise at all. Therefore, we delete the impugned adjustment as proposed in the final assessment order. - Decided in favour of assessee.

Summary

Issues Involved:
1. Depreciation on computer peripherals.
2. Comparison of actual sales price and arm's length price for related party transactions.
3. Disallowance of reimbursement of advertisement expenses.
4. Arm's length price of guarantee commission.
5. Advertising and marketing functions rendered to Associated Enterprises (AEs).
6. Application of Bright Line Test for Advertising, Marketing, and Promotional (AMP) expenses.
7. Secondary adjustments for AMP expenditure.
8. Functional comparison with companies engaged in advertising and marketing.
9. Selection of comparable companies.
10. Addition of un-reconciled amount from Annual Information Return (AIR).
11. Allocation of expenses from 80IB non-eligible units to eligible units.
12. Application of average profit margin rate within 80-IC eligible units.

Detailed Analysis:

Depreciation on Computer Peripherals:
The assessee contested the restriction of depreciation on computer peripherals to 15% instead of 60%. The tribunal found that this issue was covered in favor of the assessee by earlier tribunal decisions for AY 2008-09 and AY 2009-10. The tribunal directed the AO to allow depreciation at 60%.

Comparison of Actual Sales Price and Arm's Length Price:
The assessee used an aggregate approach for benchmarking export sales to AEs, which was rejected by the TPO, leading to a TP adjustment of ?129.83 Lacs. The tribunal noted that this issue was previously decided in favor of the assessee for AY 2008-09 and AY 2009-10, and deleted the TP adjustment.

Disallowance of Reimbursement of Advertisement Expenses:
The assessee reimbursed ?49.83 Lacs to its AE for advertisement expenses. The TPO determined the ALP as Nil due to lack of evidence. The tribunal restored the matter back to the TPO for re-determination, directing the assessee to provide evidence of cost allocation and receipt of services.

Arm's Length Price of Guarantee Commission:
The TPO adjusted the guarantee commission to 3%, while the assessee had offered 1.5%. The tribunal, considering past decisions and judicial precedents, restricted the estimation to 2%.

Advertising and Marketing Functions Rendered to AEs:
The TPO concluded that the assessee was promoting brands owned by its AEs and applied a mark-up. The tribunal found no evidence of an arrangement between the assessee and its AE for incurring AMP expenditure, following the decision in Johnson & Johnson Pvt. Ltd., and deleted the TP adjustment.

Application of Bright Line Test for AMP Expenses:
The TPO applied the Bright Line Test to determine the ALP of AMP expenditure. The tribunal, following the decision in Maruti Suzuki India Ltd., held that the Bright Line Test was not sanctioned by statute and deleted the adjustment.

Secondary Adjustments for AMP Expenditure:
Given the deletion of the primary TP adjustment for AMP expenditure, the tribunal found the secondary adjustments for computing the mark-up infructuous.

Functional Comparison with Companies Engaged in Advertising and Marketing:
The tribunal did not find it necessary to address this issue separately due to the deletion of the primary AMP adjustment.

Selection of Comparable Companies:
The tribunal did not find it necessary to address this issue separately due to the deletion of the primary AMP adjustment.

Addition of Un-reconciled Amount from AIR:
The tribunal restored the matter back to the AO for reconciliation of the un-reconciled amount of ?42.51 Lacs, directing the AO to verify the latest AIR information and seek information from the bank.

Allocation of Expenses from 80IB Non-eligible Units to Eligible Units:
The tribunal upheld the DRP's decision not to reallocate common indirect expenses, following earlier tribunal decisions in the assessee's favor for AY 2005-06 and AY 2006-07.

Application of Average Profit Margin Rate within 80-IC Eligible Units:
The tribunal upheld the DRP's decision overruling the application of Section 80-IA(10), following consistent decisions in earlier years.

Conclusion:
The revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The tribunal provided specific directions for re-determination and verification on certain issues while upholding the assessee's stance on others based on past judicial decisions.