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TMI Blog2018 (4) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld CIT(Appeals) has erred in both law and on facts in confirming the disallowance of expenditure incurred on management service fees amounting to Rs. 18,38,562, on the ground that the same is a capital expenditure and in not accepting the appellant's claim that it is in the nature of revenue expenditure. ii. The Ld CIT(appeals) has grossly erred in doing so, as this amount has been consistently allowed as a revenue expenditure in all the preceding years; 3. 3.1. That the Ld CIT(Appeals) has erred in both law and on facts in confirming the disallowance of expenditure incurred on software and EDP charges amounting to Rs. 10,46,963 paid to Swarovski Hong Kong Ltd. on the ground that the same is a capital expenditure and in not accepting the appellant's claim that it is in the nature of revenue expenditure. ii. The Ld CIT(appeals) has grossly erred in doing so, as this amount has been consistently allowed as a revenue expenditure in all the preceding years. 4. That the Ld CIT(Appeals) has erred in both law and on facts in disallowing two third of expenditure incurred on advertisement and publicity expenses (incurred on various items such as sponsorships of events, newspape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee appeared from time to time and filed necessary details and other related documents/evidences which were placed on record by the Assessing Officer. The Assessing Officer made total addition of Rs. 1,87,12,849/- towards disallowance of management service fee, software & EDP charges and Advertisement & Publicity expenses. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. AR submitted that there is no Transfer Pricing issue in the present appeal. As relates to Ground No. 2, the Ld. AR submitted that this year is the first year of dispute. In earlier years and subsequent years, the expenditure incurred on management service fees was accepted by the Revenue department. The Ld. AR submitted that in subsequent years, the CIT(A) vide order dated 28.01.2017 held in para 6.1.3.3 that " In my considered opinion, from the above it can be construed that the underlying purpose of the appellant in incurrence of management fee expenditure is to acquire the managerial support services for the day-to-day operations of the appellant's business on an on-going basis, for which quarterl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s however, made clear no further deduction for 2/3rd of the total expenditure for the earlier years be granted as the same will lead to double deduction. If such a deduction has already been allowed, then the same should be reversed to that extent. This ground of the Revenue is not allowed." 8. As relates to Ground No. 5, 7, 8, and 9, the Ld. AR submitted that the same are consequential. 9. As relates to Ground No. 6 the same is not pressed by the Ld. AR. 10. The Ld. DR submitted that ground No. 2, nature of services is vague. The Ld. DR relied upon the orders of the CIT(A) and Assessing Officer. As relates to Ground No. 3, the Ld. DR submitted that computer peripherals are capital expenditure and rightly disallowed by the Assessing Officer. As relates to Ground No. 4, the Ld. DR relied upon the order of the Assessing Officer and the CIT(A). 11. We have heard both the parties and perused all the record. As relates to Ground No. 1, the same is general and therefore not adjudicated herein. Ground No. 2 is relating to disallowance of expenditure incurred on management service fees amounting to Rs. 18,38,562/-. The CIT (A) treated the said expenditure as capital expenditure and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is quoted hereinunder: ITA Nos.5621 & 5496/DEL/2014 "14.2 After considering the rival submissions and perusing the relevant material on record, we find that this issue is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in CIT vs. Citi Financial Consumer Fin. Ltd. (2011) 335 ITR 29 (Del) in which it has been held that the entire expenditure on publicity and advertisement is allowable fully in the year in which it is incurred. We, therefore, uphold the impugned order on this score. Similar view has been taken by the Tribunal in the assessee's own case for A.Y. 2002-03. It is however, made clear that no further deduction for the remaining 2/3rd of the total expenditure, directed to be allowed by the AO in subsequent two years, be granted as the same will lead to double deduction. If such a deduction has been allowed, then the same be accordingly reversed pro tanto. This ground of the Revenue is not allowed." ITA Nos.5622 & 5497/DEL/2014 "6.2 Both the sides are in agreement that the facts and circumstances of this ground are, mutatis mutandis, similar to those for the A.Y. 2004-05. Following the view taken in our order for the A.Y. 2004-05, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant by construing that the Appellant and its overseas AE had an arrangement, understanding or acted in concert. 5. On facts and in law, the Ld. AO and the Ld. TPO erred in holding, and the Ld. DRP erred in confirming the action of Ld. AO / Ld. TPO in holding that by incurring excessive AMP expenses, the Appellant led to creation of a marketing intangible in India (the legal ownership of which vested with the overseas AE), and that a direct benefit arose to the overseas AE on account of the same, for which an appropriate compensation to the Appellant from overseas AE was necessary. 6. On facts and in law, the Ld. AO and Ld. TPO erred in failing to apply, and the Ld. DRP erred in confirming the action of Ld. AO / Ld. TPO in failing to apply any of the methods prescribed under section 92C(1) of the Act as the 'most appropriate method' for benchmarking the alleged international transaction of AMP expenses incurred by the Appellant. 7. On facts and in law, the Ld. TPO erred in applying the bright line limit as a statistical tool for determining routine and non-routine expenditure in respect of the alleged AMP expenditure, thereby contravening the provisions of Chapter X of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to creation of marketing intangible: Nature of Expenses Amount (in Rs.) Commission on sales 25,342,705 Discounts (other than cash discounts) 13,577,321 Point of Purchase Materials 11,591,693 Catalogue/Newspaper/Calendar/Bill 8,394,607 Board/Hoarding/Signage/Visuals/Graphics Distribution expenses 2,573,983 Miscellaneous expenses (printing expenses, travelling/boarding/lodging expenses, sampling expenses, market research expenses, courier expenses etc.) 1,803,745 Total 63,284,054 13. On facts and in law, the Ld. AO and Ld. TPO erred in imputing, and the Ld. DRP erred in confirming the action of Ld. AO / Ld. TPO of imputing (in an arbitrary and adhoc manner), a profit mark-up of 12.25% on the allegedly excessive AMP expenses incurred by the Appellant, thereby disregarding the provisions of Rule 10B of the Rules. Corporate tax adjustment 14. On the facts and circumstances of the case and in law the learned Assistant Commissioner of Income tax, Circle 22(2), New Delhi ('AO') under directions issued by the Hon'ble Dispute Resolution Panel- II ('DRP') has erred in disallowing expenditure incurred on software and EDP charges advertisement and publicity expenses, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cability to the facts of the case. 21. Without prejudice to the above that advertisement and publicity expenses shall not be disallowed, the AO / DRP has erred in not allowing the consequential deduction or depreciation on advertisement and publicity expenses which was disallowed in earlier years 22. The AO has erred in proposing and the DRP has further erred in confirming the disallowance of interest paid on late deposit of service tax of Rs. 9,601 under section 37(1) and 40(a) of the Act. 23. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act as per the impugned order consequential to the above disallowances. 24. On the facts and in law, the Ld. AO erred in levying an interest of Rs. 4,1781,114 under section 234B of the Act. 25. On the facts and in law, the Ld. AO erred in levying an interest of Rs. 193,257 under section 234D of the Act. 2010-11 17. During the year under consideration, the assessee company is engaged in the business relating to import, manufacture, sale and export of all kind of high end crystal components for jewellery, fashion accessories and home dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, providing VPN access including security authentication, documentation and data management, antivirus management and security checks etc. to the assessee which are of the similar nature as provided by D. Swarovski & Co. in the last year as well. The assessee contended that such expenses should be allowed as business expenditure under section 37(1) since the above expense is incurred towards carrying out business operations of the assessee more efficiently and there is no capital asset or benefit of enduring nature which is acquired by the company. The Assessing Officer held that these expenses are squarely covered under capital asset as computer and software. In this case reliance was placed on the decision of CIT Vs. Arawali Construction Co. Pvt. Ltd. 259 ITR 30 wherein Hon'ble Rajasthan High Court held that the expenditure on acquiring computer software is an expenditure of capital in nature and has upheld the decision of AO to allow the depreciation thereon. Thus, the Assessing Officer disallowed Rs. 1,69,49,032, as revenue expenditure and allowed depreciation @60% on it. Consequently, an addition of Rs. 67,79,613 was made to the income of the assessee. 18. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. The assessee spent substantial amount out of its own resources for increasing popularity, awareness and visibility of the Swarovski brand though various ways and means both within India. The representatives of the assessee contended that the efforts leading to increased awareness and visibility of Swarovski brand will benefit the assessee company in the form of increased sales and turnover and thereby the expenditure justifiable. In the detailed submission on the issue the assessee basically contended that the expenditure was incurred on visual medium like lifestyle magazines, catalogues, mailers, public relation exercise, etc as in the earlier years. The submission made by the assessee was rejected by the Assessing Officer and inclined to accept the position taken by earlier Assessing Officer in the preceding years wherein it was upheld that the above advertisement and publicity expenses will benefit the entire product range of Swarovski products i.e. the holding company based in Austria. There are several crystal items apart from the main p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05,02.2014 assessee submitted the detail of the above expenses and the Assessing Officer observed that assessee paid interest of Rs. 28070/- on late payments of service tax, WCT and TDS. The submission of the assessee were duly considered but the Assessing Officer did not find the same as satisfactory. The Assessing Officer held that in the case of Bharat Commerce & Industries v. CIT (1998) 230 ITR 733 (SC) the Hon'ble Supreme Court held that interest on late payment of TDS or any tax is as good as payment of taxes. Accordingly, interest on tax cannot be taken out of preview of tax. This decision was also followed by the Ahmedabad Bench of ITAT in the case of Income Tax Officer v. Royal Packaging which has held that interest for late payment of direct taxes is not deductible. The Assessing Officer further observed that the DRP vide order dated 14/11/2014 observed that Rs. 18,469 being interest on delay in deposition of TDS was already added to the computation of income by the assessee, the remaining Rs. 9,601 was upheld. Therefore, following the direction of DRP, sum of Rs. 9,601/- was disallowed u/s 37(1) and 40(a) of the Income Tax Act, 1961 and added back to the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Vs. DCIT [ITA No. 6314/del/2015, A.Y 2011-12,] wherein the Tribunal held as under: "19. We have heard the rival submissions and perused the relevant material on record. The ld. AR tried to harp on certain agreements and other documents to buttress his point that there was no international transaction on account of AMP expenses in terms of the judgment in the case of Whirlpool (supra). On perusal of the order of the TPO, it emerges that there is no discussion about any of these documents. Since the TPO held AMP expenses to be an international transaction, he did not have any occasion to consider these documents in the light of the judicial view now available for consideration. Respectfully following the Tribunal orders of co-ordinate benches, placed on record by the ld. DR, we are of the considered opinion that it would be in the fitness of things il the impugned order is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter will end there and then, calling for no transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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