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TMI Blog2015 (8) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided in favour of the Assessee and against the Revenue. Whether subsidy received by the Assessee has to be excluded from AMP expenditure at the threshold before making any TP adjustments - Held that:- The said question would be inextricably linked with the manner in which ALP of the relevant international transaction is determined. This court has remanded the issue as to the determination of ALP to the Tribunal in terms of the decision of this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. (2015 (3) TMI 580 - DELHI HIGH COURT). In our view, it would be premature to consider this issue in isolation and without reference to the determinative exercise to be conducted by the Tribunal or the concerned Income Tax Authority. The question whether subsidy has to be reduced from the AMP expenditure incurred by the Assessee at the threshold or by way of a later adjustment would depend on various factors including the comparables selected for the purposes of determining the ALP as also the methodology adopted. Needless to mention, it would be open for the Revenue as well as the Assessee to take all available contentions with respect to this aspect before the concerned author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO concluded that the part of the AMP expenditure was incurred by the Assessee on building/promoting the brand Canon and the corresponding benefit of such excess expenditure had been passed on to the Assessee s holding company - CSPL. The TPO, accordingly, made transfer pricing adjustments ( TP adjustments ) and directed the AO to add ₹ 33,25,04,380/- and ₹ 52,19,78,244/- to the taxable income of the Assessee for the AY's 2007-08 and 2008-09 respectively. 5. On the basis of the TPO s report, the AO issued draft Assessment Orders dated 10th December, 2010 and 28th December, 2011 for AYs 2007-08 and 2008-09 respectively. These were objected to by the Assessee before the DRP. However, the Assessee was unsuccessful and the TP adjustments made on account of AMP expenditure were upheld by the DRP. Resultantly, the AO passed the final assessment orders dated 25th October, 2011 and 29th October, 2012 for AYs 2007-08 and 2008-09 respectively, making the additions as directed by the DRP. 6. In addition to the above, the AO also added ₹ 7,62,58,434/- which was unutilised subsidy, to the total income of the Assessee for the AY 2007-08. Similarly, the AO added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the ITAT, Chandigarh Bench, in the matter of M/s Glaxo Smithkline Healthcare Limited, while the nature of expenses adjudicated by ITAT, Chandigarh Bench, in the matter of M/s Glaxo Smithkline Healthcare Limited (supra) were completely different and dealt with (i) Discount Sales; (ii) Market Research; (iii) Sales Promotion; (iv) Selling and Distribution and (v) Service Charge(s) paid to Selling Agent(s); C. Whether the character of the subsidy has to be determined w.r.t. the purpose for which the subsidy is given and therefore, the total subsidy received by Canon India from Canon Singapore was liable to be treated as Revenue Receipt and therefore the unutilized portion of the subsidy in the hands of Respondent/Canon India was liable to be added back to the income of the Respondent/Assessee; 10. Mr. Srivastava submitted that question (A), to the extent that it relates to subsidy, and question (C) would require consideration. Mr. Srivastava submitted that although the quantum of subsidy received would have to be considered at the time of making TP adjustments but the same could not be reduced from the AMP expenditure at the threshold to arrive at the net expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 27,10,87,594/- and ₹ 50,16,13,022/- from CSPL during the years relevant to AYs 2007-08 and 2008-09 respectively. It was pleaded by the Assessee that these subsidies were received for meeting specific advertisements and sales promotion expenditure that had been pre-approved by CSPL. During the period of the previous year ending 31st December 2007, the Assessee had utilised a sum of ₹ 19,48,29,160/- for advertisements and sales promotion activities and this amount had been directly reduced from the relevant expenditure. The balance amount of ₹ 7,62,58,434/- remaining after incurring the expenditure was reflected as Current Liabilities by the Assessee in its books. Out of the said sum, a further amount of ₹ 39,161,177/- was utilised towards advertisements during the period from January to March 2007 and this amount had been directly debited to Current Liabilities . According to the Assessee, the remaining amount of ₹ 37,097,257/- continued to be reflected as Current Liabilities in its books as on 31st March, 2007. In the subsequent year i.e. the Previous Year relevant to the AY 2008-09, the Assessee received an amount of ₹ 50,16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific purposes, the revenue could be recognised only on the application of the subsidy for the specified purposes. In other words, the Assessee could credit the Profit Loss Account with the quantum of subsidy only if the corresponding expenditure was also debited to the Profit and Loss Account maintained by the Assessee. 20. We are, therefore, unable to accept the Revenue s contention that the unutilised subsidy is required to be recognised as income of the Assessee in the year of its receipt. This would be contrary to the matching concept, which is the substratal principle for computing income during a relevant period. It is necessary that income be recognised along with the corresponding expenditure incurred for earning the income. Thus, where an Assessee follows the Accrual/Mercantile system of Accounting as in this case income can be recognised only when the matching expenditure is also accounted for irrespective of the cash outflows/inflows during the year. It would thus, not be correct to recognise the subsidies received for incurring specific expenditure as income without accounting for the corresponding expenditure. 21. In the circumstances, we find no infir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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