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2020 (4) TMI 91 - AT - Income TaxTransfer pricing adjustment on account of AMP expenses - HELD THAT - According to the Rule, under the PSM, combined net profit of the AEs arising from the international transaction has to be determined and thereafter, if incurrence of AMP expenses is to be considered from the value of such international transaction then the combined profit has to be determined from the value of such international transaction. No FAR analysis of AE has been carried out or even demonstrated that any kind of profit has been derived by the AE from the AMP expenses incurred in India. Otherwise also, the profit earned on account of AMP expenses incurred by the assessee by way of economic exploitation of the trademark/brand in India already stands captured in the profit and loss account for the assessee company and the same has duly offered to tax and hence there was no logic to compute or make any Transfer Pricing Adjustment on this score. As rightly observed by the Ld. DRP in its order these issues are covered in assessee s own case for the assessment year 2006-07 to 2013-14 2018 (12) TMI 277 - ITAT DELHI Subsidy from the Government of West Bengal received for setting up for a new project in West Bengal under the West Bengal incentive scheme 2000 and 2004 - Revenue or capital receipt - HELD THAT - As decided in own case 2018 (12) TMI 277 - ITAT DELHI 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. Credit of TDS - assessee agitates that the actual credit of tax deducted at source to the tune of ₹ 5,31,70,455/-as claimed in the return of income for the assessment year 2015-16 should have been allowed, is a matter of verification and direct the Assessing Officer to verify the actual credit of tax deducted at source and allow the same - HELD THAT - We do not find any justification to sustain the additions made by the learned Assessing Officer. We therefore, set aside the findings of the Ld. DRP and direct the Assessing Officer to delete the impugned additions.
Issues Involved:
1. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotional (AMP) Expenses. 2. Addition on Account of Industrial Promotion Assistance (IPA) Subsidy. 3. Allowance of Actual Credit of Tax Deducted at Source (TDS). Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotional (AMP) Expenses: The assessee, a company engaged in trading and manufacturing soft drink beverages and snacks, had entered into various international transactions with its associated enterprises (AEs). The Transfer Pricing Officer (TPO) proposed an adjustment of ?457,20,63,73/- towards the arm's length price of the international transaction on account of AMP expenditure. The Tribunal referred to its earlier decision for the assessment years 2006-07 to 2013-14, wherein it was concluded that AMP adjustment made by the TPO could not be sustained. The Tribunal observed that: - An international transaction cannot be identified simply because excess AMP expenditure has been incurred by the Indian entity. - The "Bright Line Test" (BLT) cannot be applied to determine the value of international transactions. - There is no provision in the Act or Rules to justify the application of BLT for computing the Arm's Length Price. - The Revenue cannot quantify the adjustment by determining the AMP expenses spent by the assessee after applying BLT. The Tribunal highlighted that brand building through AMP expenses benefits the assessee company rather than the AE, as it enhances sales and profitability in India. The Tribunal also noted that the foreign AE did not perform any relevant functions, use any assets, or assume any risks related to the Indian market. Therefore, no Arm's Length compensation was required from the AE to the assessee company. The Tribunal rejected the TPO's application of the Profit Split Method (PSM) and the "Other Method" for AMP adjustment, stating that these methods were incorrectly applied and did not conform to the relevant rules and guidelines. 2. Addition on Account of Industrial Promotion Assistance (IPA) Subsidy: The assessee received subsidies from the governments of West Bengal and Maharashtra. The Assessing Officer accepted the subsidy from Maharashtra as capital in nature but treated part of the subsidy from West Bengal as revenue receipt. The Tribunal referred to its earlier decision for the assessment years 2006-07 to 2013-14, where it was held that the subsidy received under the West Bengal Incentive Scheme 2004 was capital in nature. The Tribunal noted that the subsidy was given for setting up new projects or substantial expansion and was based on fixed capital investment, although disbursed as reimbursement of sales tax paid. The Tribunal emphasized that the purpose of the subsidy, rather than the manner of its disbursement, determines its nature. The Tribunal concluded that the subsidy from the West Bengal government was capital in nature and should not be taxed as revenue receipts. The Tribunal also addressed the Ld. DRP's direction to reduce the amount of capital subsidy from the block of assets for computing depreciation, stating that such a direction lacked legal backing and was inconsistent with the approach followed in preceding years. 3. Allowance of Actual Credit of Tax Deducted at Source (TDS): The assessee claimed a credit of ?5,31,70,455/- for tax deducted at source (TDS) in its return of income for the assessment year 2015-16. The Tribunal directed the Assessing Officer to verify the actual credit of TDS and allow the same. Conclusion: The Tribunal found no justification to sustain the additions made by the Assessing Officer. It set aside the findings of the Ld. DRP and directed the Assessing Officer to delete the impugned additions. The appeal of the assessee was allowed.
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