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TMI Blog2014 (8) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... for warranty based on actuarial or scientific method or not - Advertisement charges to be treated as deferred revenue expenditure or not - Advance service charges – Held that:- The calculation is based on neither actuarial valuation nor any other scientific method - the material available on record and the peculiar facts and circumstances of the case and the orders of the Tribunal in the assessee’s own case, it is not clear as to on what basis the AO has held the expenditure to be deferred Revenue expense - The factum of incurring the expenditure has not been doubted by the Revenue - the AO is directed to allow the expense as a Revenue expenditure - For income to accrue, it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, and a debt must have come into existence and he must have acquired a right to receive the payment - there is nothing to suggest that the assessee has fully contributed to its accruing by rendering services so as to entitle him to receive the entire amount – Decided in favour of Assessee. - I.T.A .No. 5178/Del/2011 & 263/Del/2013 - - - Dated:- 31-7-2014 - Smt Diva Singh And Shri. T. S. Kapoor,J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant as a limited risk distributor. 3.4 The Ld. TPO/AO erred in disregarding that all the key decisions and functions with respect to AMP expenses incurred by the appellant for sale are taken by appellant and all related risks and reward, are to be borne by the appellant and not by the AE. 3.5 That the Ld. AO/TPO on the facts and the circumstances of the case erred in not adhering to the principles of comparability and in using inappropriate comparables to determine the bright line limit. 3.6 That Ld. AO/TPO erred on the facts and circumstances of the case in characterising the appellant as a services provider and in applying a mark-up on the excess AMP spend, and also failed to take cognizance of the disallowance of AMP expenditure made under the normal provisions of the Act. 4. The Ld. AO (following the directions of the Ld. DRP), erred on facts and in law disallowing the provision for warranty amounting to ₹ 31,00,166/- on the ground that same was a contingent liability. 4.1. While making the aforesaid disallowance, the Ld. AO erred on facts in observing that provision for warranty is not based on actuarial or scientific method, 4.2. While confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). The mere fact that arguments of the Ld. AR were recorded therein, namely that the assessee being a distributor who had withdrawn as an intervenor from L.G. Electronics case, as such should not be bound by a decision where the principal applicant was a licensed manufacturer and a contrary view in the circumstances was canvassed, does not mean that all arguments recorded have been accepted. 3.1. The needless controversy appears to have arisen apparently due to certain observations made in order dated 13.12.2013 in ITA No.-6135 5611/Del/2011 in ACIT vs M/s Casio India Company wherein in para 5 and 6, the Co-ordinate Bench appears to be guided by the arguments addressed by the Ld. AR in that case who, relying upon the order in the case of BMW India Pvt. Ltd., advanced arguments apparently on the basis of headnotes of the order in BMW India Pvt. Ltd instead of reading the complete order and submitted that BMW India Pvt. Ltd. be followed in preference to the Special Bench in L.G. Electronics. The observations in para 5 and 6 of the order appears to completely overlook the fact that the material finding in BMW India Pvt. Ltd. actually considered and followed wherever applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner of business models were considered together for which purposes acknowledging its humane limitations the Special Bench was constrained and candid to admit the obvious fact that it is not possible to have a straight jacket formula for all eventualities. The fact remains that in parameter one of para 17.4 the distinction in business models of distributorship and licensed manufacturer was considered to be a necessary factor requiring examination. In BMW India Pvt. Ltd. this examination qua the assessee was done the decision is fact specific and it is a well accepted fact that the decisions in transfer pricing are fact strewn and fact specific. The view taken in BMW India Pvt. Ltd. was that a distributor remuneration model is distinct and peculiar. Thus the view taken was in conformity with the decision of the Special bench and concurring with the view taken, we hold that this view does not override the Special Bench. The fact that the distributor remuneration model is distinct is a well accepted fact for which no authority need be cited, however for the sake of addressing lingering doubts if any we refer to the order dated 30.08.2013 in ITA No-6283/Del/2012 in Nokia India Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the DRP in the absence of any fact on record cannot be disbelieved especially since the evidences filed before the DRP itself were filed during the fag end of the proceedings. However while doing so, we are inclined to agree with the arguments advanced on behalf of the Ld. CIT DR that the evidences sought to be placed on record are not sufficient and complete to justify the claim of expenditure wholly and exclusively for business purposes as justification for the book entry by way of Price Protection policy of the assessee by way of agreements with the distributors/dealers accepting liability for the said purposes by the assessee needs to be filed. The amounts claimed qua the distributors/dealers need to be supported by details of dates/period and models for which price protection is calculated which needs to demonstrated by some internal audit of stocks lying unsold whose prices have dropped due to competition. The necessary evidences need to be made available to justify the claim especially since discounts and commissions are anyway stated to be made available and paid to the distributors/dealers. Accordingly while admitting fresh evidences filed before us the AO is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judges in the particular case, tailored to a given set of facts and circumstances, and only the proposition of law which constitutes ratio decidendi is binding on the same set of facts. The words used in the Acts of Parliament as is well known on the other hand on account of the careful drafting-presumably with reference to analogous statutes; the multiple readings to which it is subjected in the legislature and the discussions which go behind the making of a statute inject a degree of sanctity and defiteness to the meaning of the words used by the Legislature. The same cannot necessarily be always said of a decision which deals with a certain given set of facts for answering the specific question posed to the Judges. The Judges while deciding the same may dwell on various possibilities without the benefit of the facts in those cases and consequently arguments thereon which they may deliberate and at times without the benefit of specific arguments on those facts. The observations which may have been made in passing in these deliberations do not form the ratio decidendi of the decision. It would be too much to ascribe and read precise meaning to words in a decision which the judges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de complete audio video solutions to the customers. 4.2. Based on the detailed functional, asset and risk profile of the company documented in the Transfer Pricing study the assessee has been characterized as buy sale distributor which assumes normal risk associated with such business. The assessee has selected Resale Price Method (hereinafter referred to as RPM ) to benchmark its transactions of support services income and purchase of finished goods and parts. The AMP expenses of ₹ 58,77,80,494/- were not bench marked. 5. Considering the TP documentation and the submissions on behalf of the assessee, following conclusions were arrived at by the TPO:- i) The AMP/Sales of the company was much higher than the AMP/Sales of companies selected as comparables in the TP study. ii) The company was a limited risk distributor: iii) Based on the above, the AMP spend of the company was for benefitting the AEs by developing marketing intangible for the AE for which it should have obtained some compensation. Accordingly, this was an international transaction, no reported by the assessee in its Form 3CEB. This was based on the 'substance' of the transaction than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profile as that of the assessee, were analyzed for a similar extent and intensity of value added activities. Based on the above analysis, the assessee presented a list of comparable during the assessment proceedings that are engaged in distribution activities similar FAR profile as that of the assessee, using data available in the databases as on date. 5.2. The DRP upheld the draft assessment order pursuant to which the order under challenge was passed. 5.3. The Ld. AR in the light of the submissions advanced inviting attention to the chart of issues filed submitted that incurring of excessive AMP expenses has been held as an international transaction and qua the jurisdiction of the TPO in considering the same suo moto the issues are covered in favour of the Revenue. Similarly the applicability of bright line as a tool of methodology also has been upheld by the Special Bench as such the assessee would not be arguing those grounds. However it was his submission that the TPO may be directed to consider the issue afresh in the light of the decisions relied upon as various aspects have not been taken into consideration namely: a) Appellant is having a long-term distributorsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the AMP expenses by excluding the selling expenses as they do not from part of AMP basket of expenses as has been hold by a catena of decisions following the decision of L.G. Electronics (Special Bench). 6.3. The TPO shall also decide the application of mark-up by way of a speaking order in accordance with law following the precedent laid down in L.G. Electronics case where principally the issue of mark up has been upheld. 6.4. Accordingly in terms of the above directions the issues are restored back to the TPO with the direction to decide the same in accordance with law by way of a speaking order after giving the assessee a reasonable opportunity of being heard. 7. Ground No.-2 3 of the assessee are partly allowed for statistical purposes. 8. Addressing Ground No-4, 5 6, Ld. AR invited attention to the synopsis filed on the corporate tax issues addressing these grounds. Addressing ground No-4 it was submitted that the DRP has considered the same at page 8 para 5. It was submitted that the issue has been considered by the ITAT in its order dated 01.10.2012 in ITA No-83/Del/2011 alongwith C.O- 35/Del/2011 filed by the department and the assessee respectively in 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue it is seen from a reading of paras 7 to 7.2 of the DRP the assessee assailing the action of the AO in allowing 1/5 of the expenses claimed and maintaining addition to the extent of ₹ 4,70,24,396 (4/5th of the expenditure claimed) had placed reliance on the order dated 29.09.2009 in ITA No-297/Del/2009 for 2003-04 A.Year wherein the Tribunal had dismissed the appeal of the Revenue holding the expenditure to be revenue in nature. However the claim was not allowed by the DRP as the issue was challenged by the Revenue before the Hon ble High Court. Still aggrieved the assessee is in appeal. 9.1. Ld. AR referring to the aforementioned order of the Tribunal in 2006-07 assessment year and in particular to specific para 13 submitted that following the order of the Tribunal in assessee s own case wherein the Tribunal was pleased to dismiss the Revenue s ground. Reliance was also placed upon the aforesaid order of the Tribunal pertaining to 2003-04 assessment year specific para 7 and it was submitted the said orders had been confirmed by the Hon ble High Court. 9.2. Ld. CIT DR places reliance on the orders of the authorities below. Herein also no distinguishing fact, circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt treated as deferred revenue is to be taxed in the year in which services are rendered or recognized as income of the assessee. For income to accrue, it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, and a debt must have come into existence and he must have acquired a right to receive the payment. In the present case, there is nothing to suggest that the assessee has fully contributed to its accruing by rendering services so as to entitle him to receive the entire amount in the year under consideration. In view of the foregoing, especially when the Revenue have not placed before us any material nor brought to a contrary decision so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.4 in the appeal of the Revenue is dismissed. 10.3. On a consideration thereof and taken note of the fact that there is no change in fact, circumstance or law, we find no good reason to deviate from the view taken. The AO is directed to grant necessary relief, respectfully following the order of the Tribunal as facts remain the same, Ground No.-6 of the assessee is accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept of 'intra-group services' without a due understanding thereof and without demonstrating that services has been rendered for the benefit of the AEs or any tangible benefits have been received by the AEs for which a return needs to earned by the assessee; 3.5.2 in applying a mark-up of 15.00% in respect of the assessee's alleged excessive AMP expenses, without any basis for the same whatsoever and without giving the assessee adequate opportunity to analyze, present its contentions on the same; 3.6 holding a contradictory view that in the absence of specific business arrangement between the appellant and the AEs, the contention that the AMP expense has sufficiently been remunerated by AEs through the transfer price of goods purchased. 3.7. not appreciating/ ignoring that the AMP expenses incurred by the appellant represent purely domestic transaction(s) undertaken with third parties, not covered under the purview of Section 92 of the Act. 4. That the Ld. AO (following the directions of the Ld. DRP) erred in disallowing an amount of ₹ 62,639,528 (being 4/5th of the total expenditure) paid towards advertisement charges by treating the same as deferr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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