9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (8) TMI 1061 - AT - Income TaxTP Adjustment - upward adjustment made for AMP expenses - HELD THAT - Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee s own case for the preceding two years 2020 (6) TMI 474 - ITAT KOLKATA , we are in agreement that AMP is not an International Transaction and thus, delete the ALP adjustment made - Accordingly, grounds taken by the assessee in this respect are allowed. ALP adjustment on account of payment of royalty - AO/TPO observed that many of the brands on which royalty for know-how and brand were paid are very old for which no patent exists and Assessee was show caused as to why not royalty paid for know-how on the brands be considered as junk and only the royalty on brand be allowed on the basis of comparable agreement - whether royalty is embedded in the import price paid by the assessee to its AEs, on the goods imported by it? - HELD THAT - We find force in the submissions made by the Ld. Counsel vis- -vis application of principle of consistency as well as jurisdiction of the Ld. TPO to test the commercial expediency of an international transaction while applying the benefit test for which we place our reliance on the decision of the Coordinate Bench in assessee s own case for the preceding two years (supra). Also we observe that payment of royalty on the import of goods by the assessee from its AEs is governed by the licence agreement which is effective since the year 2005. We note that there is no legal bar on the commercial terms arrange by the assessee in respect of payment of royalty of the net sales - Also, Customs Authorities have duly examined the issue in respect of royalty if embedded within the import price in respect of goods imported by the assessee from its related parties i.e. AEs. The Special Valuation Branch of the Customs Authorities has given a categorical finding that royalty is not included in the invoice value of the goods imported by the assessee - while arriving at a conclusion, ld. TPO has no where recorded and referred to any material which could demonstrate that royalty payment by the assessee is embedded in the process of the imported goods. To our understanding, it is merely a presumption which cannot be upheld after looking into the facts of the case and corroborative material placed on record - thus we delete the upward adjustment in respect of payment of royalty. Upward adjustment for R D services - TPO rejected certain comparables selected by the assessee owing to difference in functions, assets, risk (FAR analysis) - HELD THAT - As we find it proper to remit the matter back to the file of Ld. TPO to undertake comparability test based on correct functionality of the comparables by considering the material on record and arrive at the benchmarking in accordance with the provisions of law. Assessee is at liberty to furnish any further details in this respect to justify its benchmarking of ALP of the transaction. Adjustment made towards IT support services - KPO or BPO services - Comparable selection - HELD THAT - Counsel candidly submitted that after capturing the correct functional profile of the comparables based on material furnished by the assessee, the matter may be remitted back to the file of Ld. TPO to undertake a fresh comparability test to arrive at correct bench-marking. Considering the submissions made, facts of the case and material placed on record, we find it proper to remit this issue also to the file of Ld. TPO to undertake afresh comparability test by capturing the correct functionality as the assessee has described the IT support services which it has provided to its AEs. Upward adjustment on export of raw material and finished goods - TPO noted that margin in export of raw material and finished goods in the case of comparables selected is high for which assessee was issued a show cause notice and also proposed to consider internal Transaction Net Margin Method (TNMM) to determine the arms length price (ALP) - HELD THAT - As on perusal of the charts furnished with the updated computation of margin by highlighting the functional profile of each of the comparables, we find it appropriate to remit this issue to the file of Ld. TPO to revisit the comparables by taking into consideration the material placed on record. Assessee is at liberty to furnish any further details in this respect to justify its benchmarking of the transaction to arrive at ALP. Upward adjustment for import purchases of finished goods from the AEs - TPO found functional difference in the comparables and recomputed the gross profit margin of 37.06% to arrive at the ALP of imported goods - As contended that the comparables considered by the Ld. TPO have functional differences and, therefore, the entire bench- marking exercise has to be revisited - HELD THAT - As we find it proper to remit the matter back to the file of Ld. TPO to revisit the benchmarking exercise by taking into account the functional profile of the comparables and that of the assessee to arrive at justifiable ALP. Assessee is at liberty to furnish any further details to substantiate its claim. Adjustment made for mark-up of recovery and expenses - TPO observed that assessee has recovered expenses from its AEs which are in the nature of services provided in helping the AEs in the legal affairs and arranging for the trained manpower. He thus, treated this as support service and bench-mark by using the comparable companies to arrive at Profit Level Indicator (PLI) of 18.17% - assessee submitted that there is no adjudication by the Ld. TPO or Ld. DRP as to what services were rendered. According to him, expenses in question were in respect of system upgrade of the assessee for which costs were reimbursed to the assessee by the AEs - HELD THAT - We remit this issue back to the file of Ld. TPO to adjudicate upon this issue by taking into consideration the evidence placed on record by the assessee. Upward adjustment towards allocation of expenses - Counsel submitted that there is no income element in the said transactions which are on cost to cost basis reimbursements and TPO has limited jurisdiction to determine the ALP of an international transaction and questioning the commercial expediency is not in his domain - HELD THAT - As we find it proper to remit this issue back to the file of Ld. TPO to adjudicate upon the same by taking into account the details and evidence placed on record by the assessee.
Issues Involved:
1. Upward adjustment for advertisement, marketing, and publicity expenses (AMP). 2. ALP adjustment on account of payment of royalty. 3. ALP adjustment for R&D services. 4. Adjustment towards IT support services. 5. Upward adjustment on export of raw material and finished goods. 6. Adjustment for import purchases of finished goods. 7. Adjustment for mark-up of recovery and expenses. 8. Adjustment towards allocation of expenses. 9. Claim of deduction towards payment of education cess on income tax and on dividend distribution tax (DDT). 10. Non-granting of benefit of Double Tax Avoidance Agreement (DTAA) between India-UK and India-Spain. Judgment Summary: 1. Upward adjustment for AMP expenses: The Tribunal addressed the issue of upward adjustment made for AMP expenses amounting to Rs. 1,68,01,90,546/-. The AO/TPO considered AMP expenses as an international transaction and applied the Bright Line Test, adding a mark-up of 18.17%. The Tribunal referenced its earlier decisions for AY 2010-11 and 2011-12, where it was held that AMP expenses do not constitute an international transaction. Consequently, the ALP adjustment was deleted. 2. ALP adjustment on account of payment of royalty: The Tribunal discussed the ALP adjustment of Rs. 2,65,52,926/- for royalty payments. The AO/TPO had considered royalty embedded in the import price. The Tribunal noted the commercial terms of the license agreement and the consistent practice of royalty payments in previous years, supported by a Special Valuation Branch of Customs order. The adjustment was deleted, applying the principle of consistency and rejecting the notion that royalty was embedded in import prices. 3. ALP adjustment for R&D services: The Tribunal remitted the issue back to the TPO for a fresh comparability test, emphasizing the correct functional profile and FAR analysis. The assessee's services were detailed, and the Tribunal instructed the TPO to consider the material on record for accurate benchmarking. 4. Adjustment towards IT support services: Similar to the R&D services issue, the Tribunal remitted the matter back to the TPO for a fresh comparability test. The IT support services provided by the assessee were detailed, and the Tribunal directed the TPO to capture the correct functionality and undertake a fresh comparability test. 5. Upward adjustment on export of raw material and finished goods: The Tribunal remitted the issue back to the TPO, instructing a revisit of the comparables and consideration of the updated financial data/statement. The Tribunal emphasized the need for correct functional profile and FAR analysis. 6. Adjustment for import purchases of finished goods: The Tribunal remitted the matter back to the TPO to re-examine the functional profile of comparables and the assessee. The Tribunal directed the TPO to follow the DRP's criteria and verify product comparability. 7. Adjustment for mark-up of recovery and expenses: The Tribunal remitted the issue back to the TPO for adjudication, emphasizing the need to consider the evidence placed on record by the assessee. The Tribunal noted that the expenses were cost-to-cost reimbursements with no element of services rendered. 8. Adjustment towards allocation of expenses: The Tribunal remitted the issue back to the TPO, instructing a fresh examination of the details and evidence provided by the assessee. The Tribunal emphasized that the TPO's jurisdiction is limited to determining the ALP and not questioning commercial expediency. 9. Claim of deduction towards payment of education cess on income tax and on DDT: The Tribunal noted that the assessee did not press for this ground, and it was dismissed as not pressed. 10. Non-granting of benefit of DTAA: The Tribunal remitted the matter back to the AO for fresh consideration, allowing the assessee to make submissions on the factual and legal aspects in support of the claim. The Tribunal referenced the Special Bench decision in DCIT Vs. Total Oil India Pvt. Ltd. but allowed the assessee to distinguish its case. Conclusion: The Tribunal allowed the appeal of the assessee partly for statistical purposes, remitting several issues back to the TPO/AO for fresh consideration and adjudication. The order was pronounced on 20th July 2023.
|
