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TMI Blog2012 (9) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the amounts recorded in its books in the earlier year and the expenditure booked for the current year for which BUK raised invoices in the subsequent year, then there cannot be any reason for disallowance in the current year, because, the assessee, being a company, has to follow mercantile system of accounting and guided by the accounting standards, wherein the assessee has to record its expenditure of commission/discount at the time of making its sales, irrespective of the date of raising of invoice by BUK. - As the assessee submission of reconciliation had not been submitted before the DRP it would be just and reasonable if the assessment order is set aside and the matter is restored to the file of the DRP with the directions to consider the reconciliation statement - in favour of assessee for statistical purposes. - IT Appeal No. 323 (Mum.) of 2012 - - - Dated:- 4-7-2012 - R.S. SYAL, VIVEK VARMA, JJ. M.P. Lohia for the Appellant. M. Murali for the Respondent. ORDER Vivek Varma, Judicial Member The appeal is filed by the assessee against the order of the AO dated 30/11/2011 passed under section 143(3) read with section 144C of the Act. 2. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with the assessee's objections and the findings of DRP. The facts recorded by the DRP are, "Braitrim UK, the AE of the taxpayer, is in the business of supplying world class hangers and has agreements with various retailers, whereby the retailers have nominated Braitrim UK its group companies as their preferred or exclusive global source for hangers and related products to be used by their garment suppliers (situated all over the world) Under preferred or exclusive arrangements with retailers, Braitrim UK is required to give a rebate / discount to the retailers, based on the volume / units of sales to garment suppliers, associated with the Braitrim group. This rebate/discount is stated as "Administration charges" by Braitrim, for its accounting purposes. Subsequently, the proportionate share of rebate / discount is recovered by Braitrim UK, from its group companies (including Braitrim India), based on the relative sales of those group companies. As a result of aforesaid arrangements between Braitrim UK and the third party retailers, the assessee sells hangers to the Indian garment suppliers of the said retailers, it is stated that the retailers then charge the agreed rebate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the said retailers and Braitrim UK. The retailers demand the rebate payments from Braitrim UK as an incentive to nominate the Braitrim group as their preferred or exclusive global supplier of hanger systems. The effect of the nomination by the retailers to require the use of Braitrim products by the garment manufacturers in India and other parts of the world generates substantial business for the Braitrim group. Braitrim UK has merely recharged the costs (i.e. discounts / rebates) incurred by it on behalf of the assessee. Braitrim UK does not recover any commission from the assessee for the facilitation provided to the assessee The assessee does not incur huge marketing expenses for the promotion of its business on account of the facilitation services provided by Braitrim UK. The teamed TPO has not applied any method while determining the arm's length price of the international transaction of administration charges". 8. On consideration and recording the reasons, the DRP held as under: "10.The DRP has carefully considered the order of the TPO, submissions of the tax payer and objections of the tax payer. The main issue here is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd valued at arm's length When the benefit is accrued to the taxpayer in India in commensurate with the payment made, then erosion of tax base in India is not a relevant factor as all payments made outside India erodes Indian tax base. Further, the TPO's argument that this discount should have been passed on to sound logical. It is the Braitrim UK, which is negotiating with the retailers to use their hangers and not the Indian garment manufacturers. As part of the arrangement between Braitrim UK and the retailers. Braitrim UK agrees to pass on benefit to the retailers in the form of incentive computed at the rate of 1% of sale value of hangers used by the retailers. Thus, in this transaction, there is no role to pay for Indian garment manufacturers. In view of the above discussion, we are satisfied that the discount given by the At, Braitrim UK to the retailers is helping the taxpayer to get business without much marketing effort, of the tax payer is reimbursing the AE at the rate of 1% of sale of hangers in India, which was ultimately passed onto the retailers by the AE. 11. Having accepted that benefit was accrued to the taxpayer, the second issue is the determination of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities and pleaded that no adjustment is called for. During the course of hearing, the A.R. took us through the agreement, called as Cost Reimbursement Agreement entered into between BUK and BIL and sample copy of agreement entered into between BUK and retailers Peacock Stores Ltd, to show that BUK has entered suppliers agreement with brand retailers like BHS, The Peacock Group PLC, Debenhams PLC, Dunnes Stores, Asda Stores, Matalan Stores, to be their world wide providers of the goods to customer companies and suppliers. Vide this agreement, BUK is required to pay administration charges to the customer companies, and consequently these administration charges in respect of the goods supplied to the suppliers by BUK or directly by BIL, would ultimately be recovered by BUK from BIL. In accordance with Article 3 of the agreement, it is agreed between BUK and BIL that BIL shall bear its share of the administration charges in respect of the goods supplied by BIL and shall compensate BUK with the administration charges already paid/payable by BUK to the customer companies. The A.R. then pointed out that the payment terms are elucidated in Article 5 of the agreement where by BUK shall rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the DRP. The AR submitted that the computation arrived at by the DRP is based on variation of amounts relating to one period or other. We have seen from the reconciliation, that the assessee has recorded its expenditure on the basis of sales made by it to the manufacturers, whereas BUK has recorded them on the basis of invoices raised by them on the assessee, which is at a later date/time. It has been pointed out by the AR that the deduction allowed by the AO is on the basis of the direction of the DRP, which had based its findings on the amounts recorded in its books in the earlier year and the expenditure booked for the current year for which BUK raised invoices in the subsequent year. If this is correct, then there cannot be any reason for disallowance in the current year, because, the assessee, being a company, has to follow mercantile system of accounting and guided by the accounting standards, wherein the assessee has to record its expenditure of commission/discount at the time of making its sales, irrespective of the date of raising of invoice by BUK. It is on this argument, that the AR relied upon to explain the basis of the reconciliation that has been prepared by it. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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