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TMI Blog2015 (12) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... ions were made in AY 2008-09 and the said provision expenditure ahs been allowed by the AO in AY 2008-09. Thus, the addition proposed by the AO does not survive - Decided in favour of assessee. Relief granted by the DRP on account of provision for warranty - Held that:- On the ground that the assessee has made provisions of warranty on a consistent and rational basis, the dRP directed the AO to grant deduction. We find no infirmity in this finding. Hence this ground of the Revenue is dismissed. - Decided in favour of assessee. Disallowance made u/s 40(a)(ia) with respect to advertisement expenditure - DRP delted the addition - Held that:- The DRP recorded that the assessee had complied with the statutory requirement of deducting tax at source and hence the disallowance u/s 40(a)(ia) is not warranted. There is no infirmity in this finding and hence this ground of Revenue is dismissed.- Decided in favour of assessee. - ITA no.1115/Del/2014, ITA no.617/Del/2014 - - - Dated:- 5-11-2014 - SHRI J.SUDHAKAR REDDY, A.M. AND SHRI C.M. GARG, J.M. Appellant by:- Shri Nageshwar Rao Sh.Shailesh Kumar, Advs. Respondent by:- Sh. Yogesh Verma, CIT, D.R. ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter, he could not prefer another method, cannot be accepted. For this proposition he relied on the decision of Bangalore Tribunal in the case of SAP Labs India (P) Ltd. Vs. ACIT (2011) 44 SOT 156 (Bangalore). (e) The selection of the assessee of TNMM as the MAM is accepted. 2.5. There are certain adjustments given by the assessee, which were rejected by the TPO, the details of which we would be discussing when the occasion arises. 3. The DRP in its order considered the objections of the assessee to the adoption of TNMM as the MAM and at para 10.2 page 15 held as follows. 10.2. This DRP have considered the tax payer s contentions and TP study, as well as facts and evidences available on record and is of the view that the tax payer has rightly selected the TNMM as the MAM (refer page 22 of TP study) and TPO also is rightly of the view that TNMM provides more flexibility as compared to RPM where the tax payer himself selects the TNMM as the MAM therefore, this Panel refuses to interfere in this regard at this stage. Therefore, the objection raised in this regard deserves to be jettisoned. This is the first issue in the assessee s appeal. 4. The second issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cently been set up in Feb., 2008 and start up expenses have to be considered for adjustment. He specifically pleaded for the following adjustments. a. Employee cost adjustment b. Marketing adjustment c. Foreign exchange adjustment 7.3. On the second issue of transfer pricing adjustment of AMP, he submitted that the judgement in the case of L.G.Electroncis was not available either with the TPO or to the DRP and hence the issue should be set aside to the file of the TPO for fresh adjudication. On the issue of interest u/s 234B he admitted that it is consequential in nature. 8. The Ld.CIT, D.R. Mr.Yogesh Verma on the other hand opposed the contentions of the assessee and submitted that it was the assessee which had in the transfer pricing study adopted TNMM as the MAM. He argued that the TPO has not only accepted TNMM proposed by the assessee as the MAM but has also accepted all the comparables given by the assessee without any modification. He vehemently contended that such flip flop on the part of the assessee should not be accepted. He referred to para 5.02.5 of the TPO study and the analysis of the assessee in the study for coming to a conclusion that TNMM is the MA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Bench of the Tribunal in the case of Mattel Toys(I) Pvt.Ltd. in ITA no.2476/Mum/2008 held as follows. 41. Now coming to the argument of the Ld.DR that once the assessee itself has chosen TNMM as the MAM in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting proper determination of ALP or the assessee can demonstrate a particular method to justify its ALP. Thus, even if the assessee had adopted TNMM as the MAM in the TP report, then also it is not precluded from raising the contentions/objections before the TPO or the appellate Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the TP is to examine whether the price or the margin raising from an international transaction with the related party is at ALP or not. The determination of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as succeeding AY to the AY under consideration to substantiate that RPM is the most appropriate method to determine ALP. He submitted that the assessee made adjustment for marketing and selling expenses to the profits to make it comparable to the comparable companies profits. We agree with the Ld.CIT(A) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold to unrelated parties, RPM is the most appropriate method. In the case before us, there is no dispute to the fact that the assessee buys products from its AEs and sells to unrelated parties without any further processing. (iii) In the case of Danisco (India) Pvt.Ltd. vs. ACIT, Circle 10(1), New Delhi (ITA no.5291/Del/2010), it is held as follows: 22. Considering the above submissions we find that the assessee established in 1998 as a 100% subsidiary of Danisco A/S Denmark. Danisco India is engaged in the business of manufacturing and trading of food additives. The manufacturing business in respect of food flavours and the trading business is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TNMM method applied by the TPO suffers from the same inherent aberrations as mentioned above. In these circumstances we are of the view that Assessee's methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld. Thus the ALP working returned by the assessee is upheld. The Assessee's TP grounds are allowed. (v) Textronic India Pvt.Ltd. vs. DCIT (ITA no. 1334/Bang/2010), it is held as follows: We have considered the rival submissions. The dispute is with regard to the ALP in respect of international transactions whereby the assessee imports equipment from its AE and resells them without any value addition to the Indian customers. In similar circumstances, Mumbia Bench of the Tribunal in the case of L Oreal India Pvt.Ltd. (supra) has taken the view that the RPM would be the most appropriate method for determining the ALP. The Mumbai Bench of Tribunal in this regard, has referred to the OECD guidelines wherein a view has been expressed that RPM would be the best method when a resale takes place without any value addition to a product. In the present case, the assessee buys products from the AE and sells it without any value addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as the cost for distribution activities. 3. Whether on the facts and circumstances of the case and in law, the Ld.Members of DRP has erred in allowing the relief of ₹ 6,66,938/- on account of prior period expenses. 4. Whether on the facts and circumstances of the case and in law, the Ld.Members of DRP has erred in allowing the relief of ₹ 17,52,000/- on account of provision of warranty. 5. Whether on the facts and circumstances of the case and in law, the Ld.Members of DRP has erred in allowing the relief in respect of provisions of section 40(a)(ia). 6. That the order of the DRP is erroneous and is not tenable on facts and in law. 7. That the appellant craves leave to add, alter, amend or forgo any grounds of appeal either before or at the time of hearing of the appeal. 14. After hearing rival contentions we hold as follows. 15. On the issue of treating foreign exchange loss as an item of non operating expenditure, the sole objection of the Revenue is against the directions of the DRP is to apply safe harbour rules. The contention of the Revenue is that safe harbour rules have to be prospectively applied. 15.1. The Ld.Counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Tax compliance fees ₹ 171,776 In this regard, the following accounting entries were passed by the assessee in AY 2009-10: (A) Breakup of entry passed for Reversal of provision (B) Particulars Debit Amount (Rs.) Credit Amount (Rs.) Provision for expense 993,683 To Audit fees (tax audit fees for 2007-08) 129,992 Audit Fees (For tax compliance of Expat and TP study and TP report FY 2007-08) 171,776 To Audit fees (other expenses reversed) (Being provision reversed) 691,915 Further, in AY 2009-10, the assessee received invoice for expenses amounting to ₹ 171,776 and ₹ 129,992 from the parties. (C) Booking of invoice (D) Particulars Debit Amount (Rs.) Credit Amount (Rs.) Legal and professional (Dr.) (only nomenclature of expense head changed from audit fees) 129,992 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 15.6. Ground no.4 is on the issue of relief granted by the DRP on account of provision for warranty. The DRP at para 15.4, applied the decision of Hon ble Supreme Court in the case of Rotork Controls India Pvt.Ltd. vs. CIT, 314 ITR 62 and the Delhi High Court in CIT vs. Vinitec Corporation Pvt.Ltd. 278 ITR 337 and judgement of Hon ble Delhi High Court in the case of CIT vs. Ericsson Communications Pvt.Ltd. (2009) TIOL- 583-HC-Del-IT. On the ground that the assessee has made provisions of warranty on a consistent and rational basis, the dRP directed the AO to grant deduction. We find no infirmity in this finding. Hence this ground of the Revenue is dismissed. 15.7. Ground no.5 is on the disallowance made u/s 40(a)(ia) with respect to advertisement expenditure. The DRP recorded that the assessee had complied with the statutory requirement of deducting tax at source and hence the disallowance u/s 40(a)(ia) is not warranted. There is no infirmity in this finding and hence this ground of Revenue is dismissed. 15.8. Ground nos. 6 and 7 are general in nature. 16. In the result the appeal of the Revenue is allowed in part. 17. In the result the appeals by Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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