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2021 (5) TMI 536 - AT - Income TaxTP Adjustment - ALP Adjustment - AMP expenses - HELD THAT - Carefully considered the decision of the Hon'ble High Court and the Tribunal. We find force in the contention of the ld. counsel for the assessee. Similar quarrel was there before the Tribunal and HC 2019 (3) TMI 326 - ITAT DELHI , 2019 (11) TMI 341 - DELHI HIGH COURT , 2017 (4) TMI 1259 - DELHI HIGH COURT we direct the Assessing Officer /TPO to delete the additions made on account of AMP expenditure, substantive and protective. Disallowance u/s 14A - HELD THAT - We find that during the year under consideration, the assessee has earned no exempt income. Therefore, in the light of the ratio laid down by the Hon'ble Jurisdictional High Court decision of the Special Bench of the Tribunal in the case of M/s Cheminvest Ltd 2009 (8) TMI 126 - ITAT DELHI-B which was affirmed by the Hon'ble High Court of Delhi 2015 (9) TMI 238 - DELHI HIGH COURT . Same view is taken by the Hon'ble Gujarat High Court in the case of Corrtech Energy (P) Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT . We are of the considered opinion that no disallowance should have been made u/s 14A of the Act. We accordingly direct the Assessing Officer to delete the addition.
Issues Involved:
1. Transfer pricing adjustment on account of Advertisement, Marketing, and Sales Promotion (AMP) expenses. 2. Disallowance under section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on AMP Expenses: The primary grievance of the assessee pertains to the transfer pricing adjustment related to AMP expenses, which includes a protective adjustment of ?158,97,37,475 and a substantive adjustment of ?84,65,771. Facts of the Case: The assessee, a joint venture entity, reported several international transactions, including the provision and receipt of IT-enabled services. The Transfer Pricing Officer (TPO) issued a show-cause notice questioning the AMP expenditure incurred by the assessee, arguing that it promoted the brand of the associated enterprise (AE), Amadeus Global, without any cost-sharing agreement. TPO's Findings: The TPO concluded that the AMP expenditure incurred by the assessee was an international transaction that had not been reported or benchmarked. Using the Transactional Net Margin Method (TNMM), the TPO benchmarked the AMP expenditure against comparable companies, determining that the expenditure exceeded the "bright line" limit and should have been compensated by the AE. The TPO proposed adjustments based on the excess expenditure and applied a markup, leading to a protective adjustment of ?158,97,37,475 and a substantive adjustment of ?84,65,771. DRP's Observations: The Dispute Resolution Panel (DRP) upheld the TPO's adjustments, noting that AMP adjustments were a legacy issue and that the matter was pending before higher judicial authorities. Tribunal's Findings: The Tribunal considered the assessee's arguments and previous judicial decisions, including those from the Hon'ble High Court of Delhi and the Tribunal in the assessee's own case for earlier assessment years. The Tribunal found that similar issues had been resolved in favor of the assessee, with the courts holding that AMP expenses did not constitute an international transaction requiring separate benchmarking. The Tribunal noted that the TPO's approach of segregating AMP expenses and applying the bright line test was not supported by statutory provisions or judicial precedents. Conclusion: The Tribunal directed the Assessing Officer/TPO to delete the additions made on account of AMP expenditure, both substantive and protective, based on the binding precedents from higher judicial authorities. 2. Disallowance under Section 14A of the Income Tax Act: Facts of the Case: The assessee was aggrieved by the disallowance of ?38,31,472 under section 14A of the Act, which pertains to expenses incurred in relation to income not includible in total income. Tribunal's Findings: The Tribunal observed that during the year under consideration, the assessee had earned no exempt income. Citing the Hon'ble Jurisdictional High Court's decision and the Special Bench of the Tribunal in the case of M/s Cheminvest Ltd, which was affirmed by the Hon'ble High Court of Delhi, the Tribunal concluded that no disallowance under section 14A should have been made. Conclusion: The Tribunal directed the Assessing Officer to delete the disallowance of ?38,31,472 made under section 14A of the Act. Consequential Issue: 3. Levy of Interest under Section 234B: The challenge to the levy of interest under section 234B of the Act was deemed consequential, and the Tribunal directed accordingly. Final Order: The appeal of the assessee was allowed, with the Tribunal pronouncing the order in the open court on 08.03.2021.
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