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TMI Blog2020 (8) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, the return was revised due to assessee claiming additional TDS credit. The case was selected for scrutiny and during the course of assessment proceedings, the assessee was directed vide order dated 28.03.2014 to get its account audited u/s 142(2A) of the Act (Special Audit). The assessee's case was also referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price in respect of the international transactions entered into by the assessee during the year under consideration. The draft assessment order was passed wherein the assessee's income was proposed to be assessed at Rs. 97,87,82,85,371/- as against the returned income of Rs. 6,94,99,29,995/-. Against the draft assessment order, the assessee filed objections before the Ld. Disputes Resolution Panel (DRP) and subsequent to the directions of the Ld. DRP the final assessment order was passed against which the assessee is now in appeal before this Tribunal. 2.2 It is also to be noted that a survey u/s 133A of the Act was conducted on the assessee at the Gurgaon Corporate Office and the Chennai factory premises on 08.01.2013 and it was noted during the course of survey that ever since the commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a)(i) of the Act. 5. The Ld. TPO / Ld. AO/ Hon'ble DRP have erred on facts and in law in enhancing the income of the appellant by INR 2,88,12,58,598 by making a transfer pricing adjustment on account of 'alleged excessive' / 'non-routine' Advertising, Marketing and Promotion ("AMP") expenses incurred by the appellant. The sub-grounds in this respect are as under: 5.1 The Ld. TPO / Ld. AO / Hon'ble DRP have erred in not accepting the arm's length analysis carried out by the appellant, for the NMP Sales segment as a whole, by applying Transactional Net Margin Method ("TNMM") and carrying out separate benchmarking in respect of AMP expenses. 5.2 The Ld. TPO / Ld. AO / Hon'ble DRP have erred in concluding that the AMP expenses incurred by the appellant amount to international transaction under Section 92B of the Act. 5.3 The Ld. TPO / Ld. AO / Hon'ble DRP have erred in presuming the existence of an agreement between the appellant and its Associated Enterprise ("AE"), Nokia Corp, in respect of AMP expenditure incurred by the appellant. 5.4 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in re-characterizing the AMP expenditure incurred by the appellant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -up. 6. The Ld. TPO/ Ld. AO/ Hon'ble DRP have erred in disallowing a portion of the expense incurred by the appellant amounting to INR 450,259,687/- in respect of software purchased from Nokia Corp. by treating it to be excessive under the transfer pricing regulations. The subgrounds in this respect are as under: 6.1 The Ld. TPO / Ld. AO / Hon'ble DRP have erred in not accepting the arm's length analysis undertaken by the appellant, for the NMP Sales segment as a whole, by applying TNMM and in separately benchmarking the purchase price of software 6.2 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in not appreciating that due to its compensation model, the appellant has already been reimbursed in respect of the alleged excessive software expenses, if any, along with an arm's length mark up. 6.3 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in making an adjustment on the basis of the assumption that software payments made by the appellant were a tool to shift profits outside India using information obtained by the tax authorities during survey proceedings which provided information / data pertaining to a different year i.e. Financial Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant, on the basis of incorrect reasons and introducing certain additional, inappropriate, comparables while determining the ALP. 7.8 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in accepting comparables engaged in diverse activities even though sufficient segmental information is not available. 7.9 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in not making an adjustment to account for differences between the risk profile of the appellant and comparables, while determining the ALP. 7.10 The Ld. TPO / Ld. AO / Hon'ble DRP have erred on facts and in law in not making an adjustment to account for difference in depreciation rates charged by the appellant vis-a-vis the comparables, while determining the ALP. 7.11 The Ld. TPO / Ld. AO / Hon'ble DRP have erred in treating 3 line items in the financials of comparables (i.e. foreign exchange gain and loss, provision for bad and doubtful debts and bank charges) as non-operating while computing operating margins of the comparables, for determining ALP. 7.12 Hon'ble DRP has erred in disposing off the various objections raised by the appellant in a summary manner, without providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR that in addition to filing the appeal before this Tribunal, the assessee had also filed an application under Article-24 of the India Finland Double Taxation Avoidance Agreement for initiation of Mutual Agreement Procedure (MAP) before the Indian and Finnish Competent Authorities on the following issues: (i) Disallowance u/s 40(a)(i) of the Act on the issue of withholding tax on payments made to Nokia Corporation towards purchase of end user operating software and purchase of finished Mobile Phones. (ii) Transfer Pricing Adjustment on account of contract research and development activities, advertising marketing and promotion expenditure (AMP) and excessive software purchase price. 3.1 The Ld. AR submitted that a resolution has been arrived at between Indian and Finnish Competent Authority on these issues which were also before the Tribunal in the present appeal. It was also submitted that the resolution under Article - 24 of India Finland DTAA has been accepted by the assessee vide letter dated 28th February, 2018. It was also submitted by the Ld. Authorized Representative that as per Rule-44H of the Income Tax Rules, 1962 (the Rules), the order given effect to the MAP reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses. The Ld. AO lias also erred in not allowed earlier years' depreciation in respect of the FOC phones, despite the Hon'ble DRP's directions in this regard. 6. The above grounds of appeals are independent and without prejudice to one another. 7. The appellant craves leave to add/withdraw or amend any ground of appeal as the time hearing." 6.0 Arguing for the surviving grounds after the MAP proceedings, it was submitted by the Ld. AR that ground No.2 challenges the disallowance made u/s 40(a)(ia) of the Act on account of trade offers amounting to Rs. 7,16,24,39,495/- provided to the distributors. The Ld. AR submitted that Department had held these trade offers to be liable to the provisions of withholding tax u/s 194H of the Act on the ground that they were in the nature of commission. The Ld. AR submitted that, however, this disallowance was identical to the disallowance made in Assessment Year: 2010-11 which has since been deleted by the ITAT in assessee's own case in ITA No.5791/Del/2015 in order dated 20.02.2020. Our attention was drawn to the relevant paragraphs of the said order placed on record and it was submitted that in view of the ITAT ruling in Assessment Year: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2010-11 by this Tribunal. 8.0 We have heard both the parties and have also perused the material on record. We have also perused the order of the Tribunal in the immediately preceding year in the assessee's own case for Asst. Year: 2010-11 in ITA No.5791/Del/2015 vide order 20.02.2020 and we are in agreement with the contention of the Ld. AR that the issues are squarely covered in favour of the assessee on the issues now surviving before us by the said order of the Tribunal. With respect to ground No.2 relating to disallowance 40(a)(ia) on account of trade offers amounting to Rs. 7,16,24,39,495/-, we find that this issue has been decided in favour of the assessee vide paragraph 8 of the said order and the same is reproduced herein under for a ready reference: "8. We have heard both the parties and perused all the relevant material available on record. It can be seen from Clause 2, 7, 8, 9, 14 and 19 of the "Agreement for the Supply of Cellular Mobile Phones" between HCL and the assessee that relationship between the assessee and HCL is that of principal to principal and not that of principal to agent. The discount which was offered to distributors is given for prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer vide submission dated 10.03.2014 trade scheme. In-fact, it was pointed out during the course of hearing that in Assessment Year 2008-09, even the Assessing Officer has allowed the deduction for the instant like expenditure. In Assessment Year 2008-09, the matter was remanded back to the file of the Assessing Officer, who has allowed the deduction with respect to the expenditure, where confirmations have been obtained from the recipients. In any case, so far as the instant year is concerned, we have already noted in the earlier paragraph that the requisite confirmations were filed before the Assessing Officer. Thus, this expenditure is allowable as revenue expenditure under Section 37(1) of the Act since it has been incurred wholly and exclusively for business and same cannot be questioned by the Assessing Officer. Ground No. 3 is allowed." 8.1.1 Respectfully the following the Tribunal's order for Asst. Year: 2010-11 in assessee's own case, we delete this disallowance also. 8.2 Ground No.4 relates to the disallowance of marketing expenditure incurred on account of issuance of handsets on free of cost basis and Ground No.5 relates to depreciation to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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