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2021 (2) TMI 609 - AT - Income TaxTP Adjustment - MAM selection - it was the revenue who was aggrieved by the directions of DRP in considering CPM as the most appropriate method for determining ALP of the international transaction under trading segment - HELD THAT - In the present facts the Ld.TPO adopted TNMM as against CPM adopted by assessee with the same set of comparables as considered by assessee for determining the arm s length price of the transaction under trading segment. Admittedly, no difference has been pointed out in facts and circumstances for assessment year under consideration vis-a-vis assessment year 2011-12. Respectfully following the directions of this Tribunal for assessment year 2011-12 in assessee s own case, we direct the Ld.TPO to determined the arm s length price of the transaction under trading segment by using CPM as the most appropriate method and to carry out the exercise of determining the arm s length price of the transaction in accordance with law. Disallowance of provision created for sales/advertisement - DRP upheld the action of the Ld.AO as the liability was not crystallised during the year under consideration - HELD THAT - DRP referred to the categorical observation in the draft assessment order wherein the said fact has been noted by the Ld.AO. DRP also noted that the said expenses would be allowable only when it is crystallised which falls in the next year. This has not been controverted by any documents/evidences by the Ld.AR even before us. Under such circumstances we do not find any infirmity with the observations of DRP in upholding the action of the Ld.AO.Accordingly this ground raised by assessee stands dismissed. Disallowance of expenditure on advertisement and warranty provision - AR prayed for one more opportunity to be granted to assessee to support its claim - HELD THAT - We remand this issue to the Ld.AO for assessee to provide necessary documents in support of its claim. The Ld.AO shall verify the details/evidences filed by assessee and consider the claim in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustments 2. Disallowance of Provision for Sales/Advertisement 3. Disallowance of Advertisement Expenditure 4. Disallowance of Warranty Provision Detailed Analysis: Transfer Pricing Adjustments: The appellant contested the adjustment of INR 21,17,82,872/- made by the Assessing Officer (AO), Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) concerning its international transactions with Associated Enterprises (AEs) under section 92CA of the Income-tax Act, 1961. The appellant argued that the authorities erred in rejecting the Transfer Pricing (TP) documentation and disregarded the economic analysis justifying the arm's length nature of the transactions. The appellant maintained that the Cost Plus Method (CPM) was the most appropriate method for its manufacturing activities, which was not accepted by the authorities who instead applied the Transactional Net Margin Method (TNMM). The appellant also contended that the losses incurred were due to market penetration strategies, price competitiveness, under-utilization of capacity, and foreign exchange fluctuations. The Tribunal noted that similar issues were addressed in the appellant's case for the assessment year 2011-12, where the matter was remanded to the TPO. Following this precedent, the Tribunal directed the TPO to determine the arm's length price using CPM as the most appropriate method for the current assessment year, allowing the appellant's grounds for statistical purposes. Disallowance of Provision for Sales/Advertisement: The appellant challenged the disallowance of a provision for sales/advertisement expenses amounting to ?73,37,974/-. The DRP upheld the AO's decision, noting that the liability crystallized in the next financial year based on the sales numbers of the current year. The Tribunal found no infirmity in the DRP's observations and dismissed this ground, agreeing that the expenses were allowable only in the subsequent year when the liability crystallized. Disallowance of Advertisement Expenditure: The appellant contested the disallowance of advertisement expenditure amounting to ?93,02,790/-, which the AO had considered unexplained due to a lack of supporting evidence. The Tribunal, acknowledging the appellant's request for another opportunity to provide necessary documentation, remanded the issue to the AO for verification. The AO was directed to consider the claim in accordance with the law after examining the evidence provided by the appellant, thus allowing this ground for statistical purposes. Disallowance of Warranty Provision: The appellant also disputed the disallowance of a warranty provision amounting to ?94,95,260/-. The DRP had directed the AO to verify whether the expenditure was debited, as the disallowance was valid only if the amount was claimed as an expenditure for the year. The Tribunal noted that the verification had not been carried out and, therefore, remanded the issue to the AO for necessary verification. The AO was instructed to consider the claim based on the evidence provided by the appellant, granting this ground for statistical purposes. Conclusion: The Tribunal partially allowed the appeal, directing the TPO to reassess the transfer pricing adjustments using CPM and remanding the issues of advertisement expenditure and warranty provision disallowances to the AO for further verification. The disallowance of the provision for sales/advertisement was upheld.
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