9911796707
TMI Blog2015 (6) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... X of the Income Tax Act, 1961 (hereinafter referred as "the Act"). 4. That on facts and in law the AO/TPO/DRP erred in not appreciating that once while applying the Transactional Net Margin Method (TNMM) as recognized by the provisions of the Act, the accepted Profit Level Indicator (PLI) of the assessee was 28.39% whereas the accepted mean PLI of comparable companies was 13.81% no further adjustment on account of advertising, marketing and promotional expenditure (hereinafter referred to as "AMP") was called for. 4.1 That on facts and in law the AP/TPO/DRP erred in not appreciating that benchmarking on the basis of expenses incurred by an assessee is not permissible while applying TNMM as per the provisions of the Act. 5. That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding/observing that: (i) the assessee had incurred AMP expenditure totaling to Rs. 55,13,71,181/- on promotion of proprietary marks and for development of a marketing intangible for the benefit of AE. (ii) the AMP expenditure of Rs. 55,13,71,181/- incurred by the assessee is an "International Transaction" u/s 92B of the Act; (iii) the expenditure of Rs. 51.19 cr. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration, the assessee entered into International Transactions with Associated Enterprises (AEs) within the meaning of Section 92C of the Act. The details of the said transactions were mentioned in Form No. 3CEB filed alongwith the return of income. Therefore, the case was referred to the Transfer Pricing Officer (TPO) who suggested to make an adjustment of Rs. 5,06,86,319/- attributable to Arm's Length Price of the International Transactions entered by the assessee with AEs. The AO asked the assessee to show cause as to why an adjustment of the aforesaid amount to its income should not be made being the difference in Arm's Length Price as determined by the TPO vide his order dated 17.10.2011. The AO was not satisfied from the submission of the assessee and passed a draft assessment order by making an addition of Rs. 5,06,86,319/- in the income of the assessee being difference between the Arm's Length Price. 5. Being aggrieved the assessee filed the objections against the draft assessment order with the Dispute Resolution Panel, New Delhi on 27.01.2012 against the proposed addition on account of Transfer Pricing by taking the following objections: "1. That on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. 7. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that the identical issue having similar facts was a subject matter of the assessee's appeal for the preceding assessment year in ITA No. 4584/Del/2011 wherein the adjustment made for incentive amounting to Rs. 54.75 crores was directed to be deducted from the total AMP expenses of Rs. 58.66 crores and the remaining expenses to the tune of Rs. 3.91 crores were directed to be considered for fresh determination of AMP in terms of guidelines issued by the Special Bench of the ITAT Delhi Benches in the case of LG Electronics India Pvt. Ltd. Vs ACIT reported at (2013) 140 ITD 41. It was pointed out that the department challenged the said order dated 06.03.2014 before the Hon'ble Jurisdictional High Court wherein the decision of the ITAT with regard to Rs. 54.75 crores was upheld and for the balance amount of Rs. 3.91 crores, the matter was remitted for fresh consideration to the AO to be decided by keeping in view the judgment of the Jurisdictional High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. Vs CIT-III (ITA 16/2014 decided on 16.03.2015). The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing, marketing and promotional expenditure, i.e. AMP expenses. An adjustment of Rs. 52,33,73,988/- was proposed. The assessee's appeal to the DRP succeeded partly, in that the judgment reduced the amount to Rs. 33,52,43,720/-. The revenue appealed to the ITAT, which in the light of the Special Bench decision in LG Electronics (supra) allowed the assessee's contentions and held that the expenses to the tune of Rs. 54.75 crores should be deducted from the total AMP expenses of Rs. 58.66 crores. The ITAT, however, directed that the balance Rs. 3.91 crores should be considered by the AO for fresh determination of AMP in terms of the guidelines in LG Electronics (supra). The decision of the LG Electronics (supra) and all the questions concerning the tax implications and transfer pricing arising there from in AMP related matters was considered by the Division Bench judgment of this Court in Sony Ericsson Mobile Communications India Private Limited Vs CIT-III (ITA 16/2014, decided on 16.03.2015). In the said decision, direct selling expenses such as the one which are the subject matter of these proceedings - including incentives paid to distributors and dealers for services rendered ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately succeeding accounting year the consequent Gain/Loss is recorded by credit/debit to the account for exchange fluctuation, therefore, the Gain/Loss debited in the "exchange fluctuation account" relates to the entirely export activity of the assessee. It was submitted that the exchange fluctuation amounting to Rs. 40,34,827/- included in the export turnover was entirely derived from the exports made by the assessee. 14. The DRP after considering the submissions of the assessee observed that exchange rate fluctuation was undoubtedly part of export business and it could not have been said as not derived from export activity. It was further observed that export turnover itself was defined as amount of export turnover brought to India into convertible, therefore the exchange rate difference was nothing but part of export turnover. The DRP pointed out that the issue has been decided in favour of the assessee in the following cases: Sanyo LSI Technology Ltd. (ITAT) (Bang) ACIT, Cir. 16(1) Vs Headstrong Services India Pvt. Ltd. order dated 31.07.2012 (ITAT) (Del) CIT Vs Pentasoft Technology Ltd. (HC)(Bom) The DRP directed the AO to consider the exchange fluctuation as eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt authority nor any permission letter has been obtained. Even the application has been made beyond the period prescribed under the Act. In the case cited above, the assessee had applied for extension within a period of six months as specified under the Act. vi) The observation of Mumbai ITAT in the above case that the mere fact that the bankers are allowed to deal with foreign exchange does not make it to be a competent authority is quite relevant here as the assessee has applied to a bank and not RBI for extension of time. vii) Even till date the assessee has not submitted any evidence that it has applied for extension of time before RBI as no evidence in this regard has been submitted. viii) Even the form 56F submitted by the assessee calculates the deduction after excluding the unrealized portion of sale proceeds at Rs. 17,82,09,148/-. Hence, the contention of the assessee in this regard is rejected and deduction u/s 10A of the I.T. Act is recalculated after excluding the sum of Rs. 1,26,20,436/- from the Export turnover in later part of this order." The AO followed the directions of the DRP while passing the assessment order dated 27.11.2012. 17. Now the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advantage Services reported in 202 Taxamn 40 (Mum) CIT Vs Ajanta Electricals 215 ITR 114 (SC) 18. In his rival submissions the ld. DR strongly supported the order of the AO and further submitted that the RBI Circular referred by the ld. Counsel for the assessee was not furnished either before the AO or the TPO and the plea has been taken first time. It was further submitted that the matter may be remanded back to the AO for proper verification. The ld. Counsel for the assessee also agreed for remanding the matter back to the AO for proper verification and adjudication. 19. After considering the submissions of both the parties and the material available on record, it appears that the RBI Circular No. 25 dated 01.11.2004 which allow the eligible units to realize and repatriate the full value of export proceeds within a period of 12 months from the date of export subject to extension of the period for relaxation by the competent authority. In the present case, the assessee applied for extension and also claimed that the export remittances were realized within 12 months. We, therefore, considering the totality of the fact deem it appropriate to remand this issue back to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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