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2020 (2) TMI 509 - AT - Income TaxTP Adjustment - Addition towards compensation for advertisement, marketing and promotion (AMP) expenses - HELD THAT - As relying on assessee's own case 2019 (10) TMI 1070 - ITAT KOLKATA we delete the addition made by AO/TPO on account of compensation for advertising, marketing and promotion expenses (AMP Expenses). Therefore, ground raised by the assessee is allowed. Determining arm s length price of intra-group services in respect of support services received from its AEs as Nil - HELD THAT - As relying on assessee's own case 2019 (10) TMI 1070 - ITAT KOLKATA we restore this issue back to the file of the A.O/TPO. Therefore, grounds raised by the assessee is allowed for statistical purposes. Transfer pricing adjustment towards contract research and development services rendered to the AE - HELD THAT - As decide on assessee's own case 2019 (10) TMI 1070 - ITAT KOLKATA Adjustment made by TPO towards contract Research Development Service (Contract R D) rendered to the AE is erroneous for not taking into consideration the Tribunal s decision in assessee s sister concern M/s. Akzo Novel Car Refinishes India Pvt. Ltd. wherein the Tribunal while adjudicating similar issue has excluded Pharma Companies from the list of comparables and which action of Tribunal has been followed by the Ld. DRP in assessee s own case for AY 2014-15. If that is the case, then we are inclined to set aside the impugned order and remand the issue back to the Ld. TPO for fresh consideration Transfer pricing adjustment towards research training expenditure provided by the assessee to its AE for development and improvement of product of AEs - HELD THAT - As relying on assessee's own case 2019 (10) TMI 1070 - ITAT KOLKATA we delete the addition made by AO/TPO on account of transfer pricing adjustment towards research training expenditure provided by the assessee to its AE for development and improvement of product of AEs. Therefore, ground raised by the assessee is allowed. Disallowance of expenses u/s 37(1) - said expenses are not in the nature of advertisement and publicity - HELD THAT - Revenue submitted that since the assessee has failed to produce the evidence/documents relating to these expenses during the assessment stage therefore the Assessing Officer could not verify the nature of these expenses whether they are under the head of advertisement and publicity or whether they will fall under the ceiling of distribution expenses. Therefore, we are of the view that one more opportunity should be given by the assessee to explain the nature of these expenses before the Assessing Officer and therefore we direct the Assessing Officer to examine these expenses and adjudicate the issue in accordance with law. The ld. DR has no objection if the issue is remitted back to the file of Assessing Officer. Therefore we set aside the order of ld. DRP/A.O on this particular issue and remit the issue back to the file of the Assessing Officer to examine these expenses and adjudicate the issue in accordance with law. For statistical purposes, this ground of the assessee is allowed. Disallowance of expenditure u/s 14A - HELD THAT - ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon'ble Calcutta High Court in the case of REI Agro Ltd. 2014 (4) TMI 713 - CALCUTTA HIGH COURT . Therefore, we direct the AO to compute the disallowance under rule 8D(2)(iii) of the rules by taking into account dividend bearing securities. Disallowance of expenditure u/s 14A of the Act while computing book profit u/s 115JB - HELD THAT - The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance u/s 14A is not included in the said explanation. This issue is also covered by the judgment of the Special Bench of Tribunal in the case of ACIT Vs. Vireet Investments (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI . Therefore, we direct the AO/TPO not to consider disallowance u/s 14A, while computing book profit u/s 115JB of the Act.
Issues Involved:
1. Transfer pricing addition towards compensation for advertisement, marketing, and promotion (AMP) expenses. 2. Transfer pricing adjustment determining arm’s length price of intra-group services. 3. Transfer pricing adjustment towards contract research and development services. 4. Transfer pricing adjustment towards research and training expenditure. 5. Disallowance of expenses under section 37(1) of the Income Tax Act. 6. Disallowance of expenditure under section 14A of the Income Tax Act while computing book profit under section 115JB. Detailed Analysis: 1. Transfer Pricing Addition towards AMP Expenses: The assessee challenged the transfer pricing addition of ?119,60,60,440/- made by the Assessing Officer (AO) and Dispute Resolution Panel (DRP) towards AMP expenses. The Tribunal referenced its previous order dated 18.10.2019, which ruled in favor of the assessee for the Assessment Year 2012-13, stating that AMP expenses cannot be regarded as an international transaction under section 92B of the Income Tax Act. Consequently, the Tribunal deleted the TP adjustment for AMP expenses in the current case, following the principle established in the assessee’s own previous cases and similar judgments. 2. Transfer Pricing Adjustment for Intra-Group Services: The assessee contested the transfer pricing adjustment of ?6,31,20,532/- for intra-group support services received from its Associated Enterprises (AEs). The Tribunal referred to its earlier decision dated 18.10.2019, where the issue was remanded back to the AO/TPO for fresh consideration. The Tribunal directed the AO/TPO to re-examine the matter, following the precedent set in the assessee’s own case for the previous assessment year. 3. Transfer Pricing Adjustment towards Contract R&D Services: The assessee disputed the TP adjustment of ?1,75,36,845/- for contract research and development services rendered to its AE. The Tribunal cited its order dated 18.10.2019, which had remanded the issue back to the TPO for fresh consideration, instructing the TPO to re-evaluate the matter in light of the Tribunal's findings in the assessee’s sister concern’s case and the DRP’s decision for AY 2014-15. The Tribunal followed the same approach for the current assessment year. 4. Transfer Pricing Adjustment towards Research and Training Expenditure: The assessee challenged the TP adjustment of ?8,78,78,120/- for research and training expenditure provided to its AE. The Tribunal referenced its previous ruling dated 18.10.2019, which concluded that such expenses do not constitute an international transaction under section 92B of the Act. The Tribunal upheld this view, deleting the TP adjustment and allowing the assessee’s ground of appeal. 5. Disallowance of Expenses under Section 37(1): The assessee contested the disallowance of ?19,10,58,444/- under section 37(1) on the grounds that these expenses were not for advertisement and publicity. The Tribunal noted that the AO disallowed 10% of the total advertisement and publicity expenses on an estimated basis due to a lack of complete documentary evidence. The Tribunal remanded the issue back to the AO, directing a re-examination of the nature of these expenses and proper adjudication in accordance with the law, granting the assessee another opportunity to explain the expenses. 6. Disallowance of Expenditure under Section 14A while Computing Book Profit under Section 115JB: The assessee raised the issue of disallowance of ?33,12,488/- under section 14A while computing book profit under section 115JB. The Tribunal referred to the Hon’ble Delhi High Court’s judgment in the case of Cheminvest Ltd., which held that no disallowance is warranted under section 14A if there is no exempt income. The Tribunal directed the AO to compute the disallowance under rule 8D(2)(iii) by considering only dividend-bearing securities. Additionally, the Tribunal ruled that section 14A disallowance cannot be added while computing book profit under section 115JB, following the Special Bench decision in ACIT vs. Vireet Investments (P) Ltd. Conclusion: The appeal of the assessee was partly allowed for statistical purposes, with several issues remanded back to the AO/TPO for fresh consideration and adjudication in accordance with the law. The Tribunal upheld the principles established in previous rulings and directed the AO/TPO to follow the same for the current assessment year.
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