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TMI Blog2019 (1) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... to as 'DRP') under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ('Act'), is bad in law, violative of principles of natural justice and void ab-initio. 1.1 That the assessing officer erred on facts and in law in determining income of the appellant at Rs. 4,455,589,972 against returned total income of Rs. 1,941,316,860. Transfer Pricing Matters: 2. That the assessing officer erred on facts and in law in making addition of Rs. 243,85,14,991 on account of alleged difference in the arm's length price of international transactions resulting from the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) of the Act. 2.1. That the assessing officer erred on facts and in law in holding that the (i) associated enterprise is the beneficiary of the efforts of the appellant and (ii) the assessee is creating a marketing intangible in favour of the associated enterprise. 2.2. That the DRP erred on facts and in law in holding that the appellant has been developing local marketing intangibles for its associated enterprise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant, a full risk bearing manufacturer/distributor. 2.10. That the DRP/TPO erred on facts and in law in re-characterizing the appellant, a full risk bearing manufacturer/distributor, as a limited risk service provider entitled to cost plus remuneration for its marketing efforts. 2.11. Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that since the AMP expenses incurred by the appellant ought to have been benchmarked by aggregating the same with other closely linked transactions undertaken by the appellant 2.12. Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that since the operating profit margins of the appellant were higher than margins of the comparable companies, the appellant was adequately compensated for the allegedly excess AMP expenses incurred by the appellant. 2.13. That the DRP/TPO erred on facts and in law in holding that the entity in control of the intangible asset is treated as the owner, not appreciating that the appellant, by performing the critical decision making functions is controlling the intangible, and accordingly shall be considered as owner of such intangible. 2.14. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d promotion expenses, without appreciating that BLT is beyond the provisions of Chapter X and has no mandate under the Act. 2.23. Without prejudice that the DRP/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM and aggregating the AMP expenses with other closely linked transactions undertaken by the appellant. 2.24. That the DRP/TPO erred on facts and in law in not excluding the Rebate Discount/Pricing adjustment of Rs. 204,55,83,442 from the quantum of AMP expenditure, allegedly holding that " the question being investigated is 'marketing intangible' and not just 'brand promotion' alone in the instant case. 2.25. That the DRP/TPO erred on facts and in law in holding that commission on sales or sales discount etc. help the company to create loyalty among distributors not appreciating that such expenses are incurred only for effecting the sales and not for promoting the brand. 2.26. That the DRP erred on facts and in law in holding that selling expenses are incurred by the appellant for promotion of the brand through creation of a net work of dealers and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on facts and in law in making an addition of Rs. 8,87,611/- allegedly being undisclosed income, on the basis of difference in the TDS claimed by the appellant and amount of TDS reported in the individual transaction statement/AIR information. 9. That the Assessing Officer/DRP erred on facts and in law in making an addition of Rs. 3,60,76,000 invoking the provisions of section 40(a)(ia) of the Act, allegedly on account of shortfall in tax deducted at source on the basis of the individual transaction statement /AIR information. 10. That the Assessing Officer/DRP erred on facts and in law in making disallowance of Rs. 3,25,50,000/- being provision for expenses of package tour holding the same to be contingent in nature. 11. That the Assessing Officer erred on facts and in law in levying interest under section 234B, Section 234C and Section 234D of the Act. 12. That the Assessing Officer erred on facts and in law in initiating penalty proceedings under section 271(1)(c ) of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal." Asst: Yr:2010-11 2. Brief facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Ld.TPO upon verification did not make any changes in addition proposed in draft order. Thereafter, upon receipt of such intimation from Ld.TPO, Ld.AO passed final assessment order by determining the total income of assessee at Rs. 4,45,55,89,972/-, as against returned income of Rs. 1,94,13,16,860/-. 4. Aggrieved by order of Ld. AO, assessee is in appeal before us now. 5. At the outset, Ld. Counsel submitted that Ground No. 1 raised by assessee is general in nature, and therefore do not require any adjudication. Accordingly the same is dismissed. 6. Ground No. 2 to 2.29 has been raised against adjustment made by Ld.AO on account of alleged excessive AMP expenses amounting to Rs. 243.85 crores. It has been submitted by Ld. Counsel that said issue now stands squarely covered in assessee's own case by order of this Tribunal in ITA No.426/Del/2013 for Assessment Year 2008-09 vide order dated 13/01/14 reported in (2014) 42 taxmann.com 553, which is upheld by Hon'ble Delhi High Court reported in (2015) 64 taxmann.com 324 . At this juncture, Ld.Sr.DR submitted that against order of Hon'ble Delhi High Court, revenue preferred appeal before Hon'ble Supreme Court which is pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the addition of Rs. 180,73,10,769 made by the AO/TPO on account of AMP expenses under Section 37 of the Act?" is answered in the negative, i.e. in favour of the Assessee and against the Revenue. 49. The impugned order of the ITAT and the corresponding orders of the DRP and the TPO, on the above issues are hereby set aside. The appeal of the Assessee, ITA No. 228 of 2015 is allowed and the appeal of the Revenue, ITA No. 610 of 2014 is dismissed in the above terms, but in the circumstances with no orders as to costs." 7.3. On perusal of orders passed by Ld.TPO/AO/DRP for year under consideration, it is observed that AMP expenditure has been considered to be international transaction by applying bright line test, whereby Ld.TPO proposed an adjustment of 243.8 crores. 7.4. Ld.Sr.DR preferred adjournment application on the ground that issue involved in present appeal is in respect of AMP adjustment. He submitted that consistent stand has been taken by revenue before this Tribunal to request for adjournment in all appeals, where AMP adjustment has been disputed by either parties on ground that Hon'ble Supreme Court is ceased with the matter. 7.5. During the course of argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26/11/18. 8.2. However, we appreciate the concern raised by Ld.Sr.DR that decision of Hon'ble Supreme Court will be binding upon assessee as well as revenue. We are therefore, inclined to set aside this issue to Ld.AO/TPO to pass fresh order considering decision of Hon'ble Supreme Court. Needless to say that proper opportunity shall be granted to assessee of being heard. Accordingly Grounds 2 to 2.29 stand allowed for statistical purposes. 9. Amongst corporate grounds raised by assessee, Ld.Counsel submitted that Ground Nos. 3, 4, 5, 6, 8, 9 has been raised due to mismatch in 26 A-S. He submitted that at the time of assessment, all details regarding claim raised in these grounds were not available with assessee due to which reconciliation could not be drawn. However Ld.Counsel submitted that now assessee has all relevant information to file reconciliation statement in respect of same. He submitted that these grounds may be set-aside to Ld.AO for due verification on basis of submissions advanced by assessee. 9.1. Ld.Sr.DR does not object to plea advanced by Ld. Counsel. 9.2. We have perused submissions advanced by both sides in light of records placed before us. 9.3. Perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made towards expenses were not actual expenses incurred which has been crystallised during year under consideration and therefore same is not allowable. 11.3. We have perused submissions advanced by both sides in light of records placed before us. No doubt, unless expenditure is actually incurred, or it is accrued during relevant year, it would not be allowed as deduction. Liability has to be in praesenti. However at the same time, in present scenario where assessee's employees or dealers achieved sales target, assessee offered foreign tours, expenses of which were accounted for in subsequent year, which is consistent with Accounting Standards and these accounting standards also lay down the norms indicating the particular point of time when the provisions for all known liabilities and losses has to be made, the making of such a provision by assessee appears to be justified, more so when assessee has actually made payment to such employees/ dealers and provision has been made. The only difference is that, expenses were accounted for in subsequent financial year. It is undisputed that expenditure incurred by assessee is admissible deduction. The only dispute that Revenue seeks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has been reiterated by Hon'ble Delhi High Court in the case of CIT v. Shri Ram Pistons & Rings Ltd. Reported in [2008] 174 Taxman 147, as under : "Finally, we may only mention what has been articulated by the Bombay High Court in Commissioner of Income Tax, Delhi, Ajmer, Rajasthan and Madhya Pradesh v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 as follows : In the reference that is before us there is no doubt that the Assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment year 1983-84 with which we are concerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expand so much time and energy only to determine the year of taxability of the amount." Ld. AO/TPO shall keep in mind the underlying ratio rendered in the above referred decisions while deciding the allowability of claim of assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes. 12. Ground No. 11 is in respect of levy of interest under section 234B, 234C and 234D of the Act which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned through this decision that, if an R&D centre is not recognised, it is not entitled to deduction under section 35 (2 AB) of the Act. He placed reliance upon decision of Hon'ble Gujarat High Court in case of CIT vs Claris Lifesciences Ltd., reported in 326 ITR 251, which has been referred to and relied upon by Hon'ble Delhi High Court while deciding the case of Maruti Suzuki India Ltd (supra). 14.3. Considering legality of issue involved that has been clarified by Hon'ble Delhi High Court, we deem it fit and proper to admit additional ground so raised by assessee. 14.4. While arguing upon issue in additional ground, Ld.Counsel placed reliance upon various documents which was not before Ld.AO for his consideration and verification. 14.5. Ld.Sr.DR therefore submitted that the issue may be set-aside to Ld.AO for verification and consideration on basis of documents filed by assessee. 14.6. We have perused submissions advanced by both sides in light of records placed before us. 14.7. This issue has been raised by Ld.Counsel for first time, before us, and considering legality of claim, raised in additional ground it has already been admitted hereinabove in preceding paragraphs. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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