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TMI Blog2012 (6) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing ALP in respect of international transaction pertaining to the provisions of software development services to associated enterprises - Held that:- Matter set aside to the file of the AO with the direction to examine the case of the assessee. Further, Since DRP has used information obtained u/s 133(6) against assessee without confronting it, in our considered opinion, the assessment order needs to be set aside to the file of AO who will refer the matter to D.R.P. for providing necessary opportunity of being heard. Advertisement, marketing and promotion expenditure - adjustment - assessee submitted that AMP expenditure incurred by the assessee does not represent international transactions between the two associated enterprises within the meaning of S92B r.w.s. 92F - Held that:- There is no dispute about the fact that Finance Act, 2012 has proposed amendment in the provisions of sec. 92B by insertion of Explanation clarifying the term "International transactions". Since both the parties agreed for setting aside the issue and decide the same in the light of the amended provisions of sec. 92B by the Finance Act, 2012, we set aside the matter to the file of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, 2010 along with copies of mail circulated to distributors specifying the basis of price protection. Thereafter no further questions were raised by the AO as to why the said expenditure should not be disallowed. It was only on the perusal of draft assessment order that the assessee came to know about the disallowance made by the AO. The AO made disallowance without providing any opportunity in support of explanation filed by the assessee. The assessee filed copy of Trade Protection Policy before Dispute Resolution Panel (DRP) along with confirmation from one of the biggest distributors i.e. HCL Infosystems Ltd. to whom price protection charges were paid by the assessee. Copy of ledger account of the assessee in the books of HCL Infosystems Ltd. was also filed. The DRP after considering the price protection policy and other documents allowed the deduction in respect of price protection charges paid to HCL Infosystems Ltd. However, remaining price protection incurred by the assessee amounting to ₹ 62,91,22,970/- was confirmed by the DRP. Subsequent to the order of the DRP the assessee made efforts to obtain similar evidence from other distributors which were not obtained a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess use of the assessee only. Moreover, the ownership of these handsets remains with the assessee company. The handsets were not part of trading activities of the assessee company and have not been shown as part of purchase in the profit loss account but on account of these handsets, separate expenses under the head Marketing expenses have been claimed. Thus, handsets could only be considered as assets used for assessee's own business on which the assessee could have claimed depreciation. In response to query, it was submitted by the assessee that issuance of free of cost cell phones was necessary incidence in the assessee's business. The handsets issued to the dealers were necessary for various display and promotional purposes and were essentially in the nature of marketing expenses that were recurring in nature. If the addition on account of increase in the value of stock was made, then against increase in closing stock of such earlier year, a corresponding deduction by way of increase in the value of opening stock for the succeeding year to be allowed. The AO however observed that since ownership of these handsets remained with the assessee and they were not part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 the issue has been decided in favour of the assessee by ITAT vide order dated 24.11.2011. 12. We have heard both the parties and perused the material available on record. ITAT Delhi Bench 'E' in ITA No.551/Del/2011 for Assessment Year 2006-07 vide order dated 24.11.2011has held that the assessee was eligible for deprecation @ 60% on computer and peripherals in view of the decision of the Hon'ble Delhi High Court in the case of CIT v. BSES Yamuna Power Ltd. [IT Appeal No. 1267 of 2010, dated 31st August, 2010.] Since the issue is covered by the decision of ITAT in its own case for Assessment Year 2006-07, respectfully following the precedence it is held that the assessee will be eligible for depreciation @ 60% on UPS, WAN/LAN equipment, switches, network equipment etc. Accordingly, the AO is directed to allow depreciation @ 60% on computer and its peripherals. 13. Next issue for consideration relates to disallowance of ₹ 62,91,22,970/- on account of price protection expenses allowed to the distributors. During the course of hearing the assessee had filed additional evidence which has been admitted as discussed hereinabove. Since we have admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of DRP/AO vehemently. 17. We have heard both the parties. This is no dispute about the fact that the DRP had obtained information u/s 133(6) and had applied against assessee without opportunity of being heard. This is against the principles of natural justice. Since DRP has used information against assessee without confronting it, in our considered opinion, the assessment order needs to be set aside to the file of assessing officer who will refer the matter to D.R.P. for providing necessary opportunity of being heard. We order accordingly. 18. Next issue for consideration relates to not allowing the benefit of working capital adjustment to the assessee while computing the arm's length price in respect of its international transaction pertaining to the provisions of software development services to its associated enterprises. The relevant ground of appeal is reproduced as under:- 4.6 That on the facts and circumstances of the case and in law, the learned TPO/Hon'ble DRP has denied the working capital adjustment to the operating profit margins of the comparables stating that the correct working capital position of the appellant/comparables cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital adjustment while computing the arm's length price in respect of international transaction, we set aside the matter to the file of the Assessing Officer with the direction to examine the case of the assessee and decide the issue afresh in accordance with the provisions of law. The AO will provide necessary opportunity to the assessee of being heard. 22. Next issue for consideration relates to transfer pricing adjustment pertaining to advertisement, marketing and promotion expenditure incurred by the assessee. The AO in order to determine the arm's length price of international transaction with associated enterprise referred the matter to TPO u/s 93CA(3) of the act. The Transfer Pricing Officer, New Delhi after examination of the assessee's transfer pricing documentation and making analysis contained therein passed an order dated 29.10.2010 u/s 92CA(3) of the Act, wherein he determined the arm's length price on Advertisement, Marketing and Promotion (AMP) expenses amounting to ₹ 253,48,30,000/-and on software development services segment amounting to ₹ 21,81,44,277/-. During the course of assessment proceedings the assessee was issued show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed method u/s 92C of Indian Transfer Pricing Regulations. Further more, the Brightline principle was laid down under the US transfer pricing regulations which cannot be relied upon while adjudicating on the Indian TP regulations in the absence of specific legislation in India. It was also submitted that the TPO for the purpose of application of Brightline method included Bharti Teletech Ltd., Salora International Ltd. (Salora), Surana Telecom Power Ltd. (Surana) and HCL Infosystems Ltd. (HCL). These companies are engaged not only in the sales of mobile phones but also on large scale other products such as IT equipments, telecom equipments, cables, etc. It was therefore, very difficult to ascertain the amount of AMP expenditure incurred by such companies on the sale of mobile phones as sold by the assessee. In the absence of such information there was no acceptable or tenable comparison. Further, Surana, Salora HCL are second level distributors unlike Nokia India which is at the top of the distribution chain. In fact HCL is distributor of Nokia India only. Therefore, the AMP expenditure of such comparable could not be compared with the assessee. 24. The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sec. 92B of the Act with effect from 1.04.2002 according to which AMP expenses will fall under international transactions. Finance Bill has inserted Explanation after sub-sec.(2) of sec. 92B, clarifying the scope of expression International transactions and intangible assets . He therefore, submitted that the issue will be covered by the amendment which is proposed by the Finance Bill, 2012. 26. During the course of hearing the learned AR of the assessee however, submitted that in view of the amendment proposed by Finance Act, 2012, the mater should go back to the AO with the directions to decide the issue in line with the proposed amendment. 27. We have heard both the parties and gone through the material available on record. There is no dispute about the fact that Finance Act, 2012 has proposed amendment in the provisions of sec. 92B by insertion of Explanation clarifying the term International transactions . Since both the parties agreed for setting aside the issue and decide the same in the light of the amended provisions of sec. 92B by the Finance Act, 2012, we set aside the matter to the file of the AO with the directions to decide the issue afresh after a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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