9911796707
TMI Blog2020 (10) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... SA. 3. We shall first take up the appeal filed by the assessee for the assessment year 2007-08, wherein the assessee is challenging the validity of reopening of assessment. Facts relating to this issue are stated in brief. The original assessment in the hands of the assessee for assessment year 2007-08 was completed u/s 143(3) r.w.s. 144C of the Act on 10.10.2011. Subsequently, the A.O. reopened the assessment by issuing notice u/s 148 of the Act on 26.3.2014 i.e. after expiry of 4 years from the end of the assessment year. In response to the same, the assessee requested the A.O. to treat the return originally filed u/s 139 of the Act on 31.10.2007 as the return filed in response to the notice issued u/s 148 of the Act. The assessee also requested the A.O. to furnish the reasons recorded for issue of notice u/s 148 of the Act. In response to the same, the A.O. furnished reasons to the assessee, which are extracted below: "The assessee company M/s. Nike India Pvt. Ltd., is engaged in the business of importing footwear, Apparel, Sports Equipment & accessories for wholesale trading in India. The assessee has filed return of income declaring a loss of Rs. 24,70,79,533/-. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that there was change of opinion and accordingly confirmed the validity of the reopening of the assessment. 6. Before us, the Ld. A.R. submitted that the A.O. has reopened the assessment after expiry of 4 years from the end of the assessment year without mentioning that there is failure on the part of the assessee to disclose truly and correctly all material facts necessary for assessment. Further, in the reasons recorded for reopening, the A.O has clearly mentioned that the reopening was necessitated on account of the decision rendered by Income Tax Appellate Tribunal in the case of assessee for assessment years 2005-06 & 2006-07. The Ld. A.R. submitted that the assessee has submitted all the details relating to 'reimbursement of expenses" before the A.O/TPO during the course of assessment proceedings and the same has been accepted to be at arms length. However, the A.O. has reopened the assessment only on account of a subsequent decision rendered by the Tribunal, meaning thereby, the AO has changed his opinion on the issue of reimbursement of expenses and accordingly reopened the assessment. However, there was no failure on the part of the assessee to disclose all materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings. However, the AO has reopened the assessment for considering the very same issue, in view of the subsequent decision rendered by the Tribunal against the assessee in assessment year 2005-06 and 2006-07. Hence, it is a clear case of change of opinion and reopening is not permissible as held by Hon'ble Supreme Court in the case of Kelvinator India Ltd. (2010) 320 ITR 561. Accordingly, the Ld. A.R. submitted that the reopening is bad in law and accordingly, the impugned assessment order is liable to be quashed. 8. On the contrary, the ld. D.R. submitted that the reopening was done by the A.O. on account of fresh facts coming to his notice as a result of order passed by the Tribunal against the assessee in assessment year 2005-06 & 2006-07. The Ld. D.R. submitted that the TPO has held the reimbursement of expenses to be at arm's length in the original assessment proceedings based on the explanations given by the assessee that these expenses are related to the business of the assessee. However, in assessment years 2005-06 & 2006-07, the TPO had noticed that these expenses are not related to the business activities of the assessee. The view of the TPO was upheld by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Shri Shakti Textiles Ltd. (supra) that the A.O. should have recorded in the reasons for reopening that there was failure on the part of the assessee to make true and full disclosure. The A.O. has not recorded that there was failure on the part of the assessee in the reasons for reopening. When there is no failure on the part of the assessee, the reopening after expiry of four years is bad in law as held by Hon'ble jurisdictional Karnataka High Court in the case of Karnataka Bank (supra). 11. In any case, we notice that the TPO/AO has taken a conscious decision on this issue on the basis of explanations furnished by the assessee. Having taken a conscious decision, it is not permissible for the AO to take a different view on the basis of subsequent decision of the Tribunal, after expiry of four years from the end of the relevant assessment year. The decision rendered by Hon'ble Bombay High Court in the case of Sesa Goa Ltd (supra) supports the case of the assessee. 12. Accordingly, we find merit in the contentions of the assessee that the reopening is bad in law for more than one reason and hence the assessment order is liable to be quashed. Accordingly, we allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement received from AE and made T.P adjustment of remaining amount. 14.3 The workings made by the TPO in various years have been extracted below:- (A) Assessment Year 2010-11:- (a) AMP expenses incurred by the assessee - Rs. 69,26,82,429 (b) Reimbursement received on account of BCCI - Rs. 19,59,48,094 (c) Average spend on AMP by comparable companies - 0.76% (d) Average margin earned by companies in business Marketing support services - 24.80% 1. Allowable Expenditure 0.76% of Rs. 69,26,82,429** Rs. 52,64,386 2. Expenditure to be disallowed Less:- Rs. 69,26,82,429 52,64,386 Total (A) Rs. 68,74,18,043 3. Mark-up on Expenditure (B) (Rs. 68,74,18,043 * 24.86% Rs. 17,04,79,675 4. Reimbursement to be received with mark-up ((A) + (B)) Rs. 85,78,97,717 5. Reimbursement to be received Less:- Amount received Rs. 85,78,97,717 Rs. 19,59,48,094 T.P Adjustment Rs. 66,19,49,623 (** Appears to be a mistake. The TPO has taken AMP expenses instead of Sales amount) (B) Assessment Year 2011-12:- The TPO computed the T.P adjustment as under:- 1. Allowable Expenditure 1.02% of Rs. 231,12,21,724 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to "AMP expenses- BCCI" is being contested in AY 2010-11 and 2011-12. 14.5 With regard to the first category, the co-ordinate bench has decided the issue in favour of the assessee in AY 2009-10 (supra) with the following observations:- "9. As regards the other local AMP expenses apart from BCCI we find that such expenses are incurred by the assessee for promotion of its advertisement and promotion of its products and there is no agreement or arrangement either in writing or otherwise with the AE as nothing has been brought on record to indicate that apart from the expenses of BCCI the assessee and its AE has any understanding or agreement for incurring of AMP expenses by the assessee. Therefore, except the BCCI expenses of Rs. 34.04 Crores the rest of the expenses of AMP cannot be considered as an international transactions in view of the decision of the co-ordinate bench of this Tribunal in the case of Essilor India Pvt. Ltd. Vs. DCIT (supra) wherein the co-ordinate bench of this Tribunal has discussed this issue in detail in paras 16 to 22 as under : "16. We have heard the rival submissions and perused the material on record. We shall now deal with grounds relating to T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that fresh bench marking/comparability analysis should be undertaken by the Transfer Pricing Officer by applying the parameters specified in paragraph 17.4 of the order dated 23.01.2013 passed by the Special Bench in the case of LG Electronics India (P) Ltd.?" 17. The conclusions of the Division Bench in Sony Ericsson (supra) are as under: (i) The Court concurred with the majority of the Special Bench of the ITAT in the LG Electronics case qua the applicability of 92CA(2B) and how it cured the defect inherent in 92CA(2A). The issue concerning retrospective insertion of 92CA(2B) was decided in favour of the Revenue. (ii) AMP expenses were held to be international transaction as this was not denied as such by the assessees. (iii) Chapter X and Section 37(1) of the Act operated independently. The former dealt with the ALP of an international transaction whereas the latter deals with the allowability/disallowability of business expenditure. Also, once the conditions for applicability of Chapter X were satisfied nothing shall impede the law contained therein to come into play. (iv) Chapter X dealt with ALP adjustment whereas Section 40A(2)(b) dealt with the reasonabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions shall be done only if exceptions laid down in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Del) are justified. Re-categorisation and segregation of transactions are different exercises; former would require separate comparables and functional analysis. (xi) Economic ownership of a brand would only arise in cases of longterm contracts and where there is no negative stipulation denying economic ownership. Economic ownership of a brand or a trade mark when pleaded can be accepted if it is proved by the Assessee. The burden is on the Assessee. It cannot be assumed. (xii) After the order of the Supreme Court in the Maruti Suzuki case, the judgment of the Delhi High Court does not continue to bind the parties. This position was misunderstood by the majority of the Special Bench in the LG Electronics Case. (xiii) The RP Method loses its accuracy and reliability where the reseller adds substantially to the value of the product or the goods are further processed or incorporated into a more sophisticated product or when the product/service is transformed. RP Method may require fewer adjustments on account of product differences in comparison to the CUP Method because m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (xix) An order of remand to the ITAT for de novo consideration would be appropriate because the legal standards or ratio accepted and applied by the ITAT was erroneous. On the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The ITAT, in the first instance, would try and dispose of the appeals, rather than passing an order of remand to the AO /TPO. An endeavour should be to ascertain and satisfy whether the gross/net profit margin would duly account for AMP expenses. When figures and calculations as per the TNM or RP Method adopted and applied show that the net/gross margins are adequate and acceptable, the appeal of the assessed should be accepted. Where there is a doubt or the other view is plausible, an order of remand for re-examination by the AO/TPO would be justified. A practical approach is required and the ITAT has sufficient discretion and flexibility to reach a fair and just conclusion on the ALP. Impugned order of the ITAT 21. The Assessee then filed appeals being ITA Nos. ITA No. 3861/Del/2010, 4924/Del/2011, 6580/Del/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the subject matter of appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court had categorically held that in the absence of agreement between Indian entity and foreign AE whereby the Indian entity was obliged to incur AMP expenditure of a certain level for foreign entity for the purpose of promoting the brand value of the products of the foreign entity, no international transaction can be presumed. It was further held that the fact that there was an incidental benefit to the foreign AE, it cannot be said that AMP expenditure incurred by an Indian entity was for promoting brand of foreign AE. One more aspect highlighted by the Hon'ble High Court is that in the absence of machinery provisions, bringing an imagined transaction to tax was not possible. While coming to this conclusion, the Hon'ble High Court had placed reliance on the decisions of the Hon'ble Apex Court in the cases of CIT vs. B.C.SrinivasaSetty (128 ITR 294) and PNB Finance Ltd. Vs. CIT (307 ITR 75). The Hon'ble Delhi High Court after referring to its earlier decision in the case of Maruti Suzuki India Ltd (supra) and Whirlpool of India (P) Ltd.,(supra) had considered the question of existence of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 56. Thus, under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means' part and the 'includes' part of Section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati 2010(6) MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard, with B&L, USA. A similar contention by the Revenue, namely, that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also ensure to the AE is itself sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP exercise in the present case. ......... 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. (supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". 21. Respectfully following the ratio of the decision of the Hon'ble Delhi High Court in the above cases, we hold that no TP adjustment can be made by deducing from the difference between AMP expenditure incurred by assessee-company and AMP expenditure of comparable entity, if there is no explicit arrangement between the assessee-company and its foreign AE for incurring such expenditure. The fact that the benefit of such AMP expenditure would also enure to its foreign AE is not sufficient to infer existence of international transaction. The onus lies on the revenue to prove the existence of international transaction involving AMP expenditure between the assessee-company and its foreign AE. We also hold that that in the absence of machinery provisions to ascertain the price incurred by the assessee-company to promote the brand values of the products of the foreign entity, no TP adjustment can be made by invoking the provisions of Chapter X of the Act. 22. Applying the above legal position to the facts of the present case, it is not a case of revenue that there e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transactions but the same would be part of other international transactions ." 14.6 With regard to the second category relating to BCCI expenses, the co-ordinate bench has restored the matter to the file of AO/TPO with the following observations:- 10. As regards the BCCI expenditure, it has to be ascertained whether there was any brand building and promotion expenses for the brand name "NIKE" as a result of the agreement between the assessee and its AE as well as with BCCI would amounts to an arrangement, understanding or agreement between the assessee and its AE for incurring AMP expenditure by the assessee to promote and enhance the brand value of NIKE. It requires to analyse the agreement between the assessee and BCCI and further the agreement between the assessee and its AE. The assessee has entered into an agreement dt.23.12.2005 with BCCI whereby the assessee secured rights to supply and sponsor the National Cricket Team of India through BCCI. The relevant terms and conditions as well as the purpose of the agreement enumerated in the Recital and other clauses are as under : RECITALS Clause 1 (b) "National Team(s)" shall mean the Men's Senior National Tea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irts as the case may be as per ICC guidelines [as per Exhibit C] to be provided and licensing rights granted by BCCI (as more fully described below) and of the other obligations undertaken by BCCI herein, NIKE shall pay BCCI compensation of an amount described below for the relevant Contract Year: 5. GRANT OF ENDORSEMENT RIGHTS & OFFICIAL SPONSORSHIP DESIGNATIONS. BCCI hereby grants to NIKE, and NIKE hereby accepts: (i) The designation as "the exclusive supplier of the athletic footwear, apparel and accessory products of BCCI and Cricket India; and (ii) The right to utilize (subject to the approval provisions of Paragraph 10 below) the Licensed Marks and/or Designations worldwide, in any media including, the worldwide web, CD-ROM and other interactive and multi-media technologies, in connection with the manufacture, advertising, marketing, promotion and sale of NIKE Products, and the NIKE brand, and in the creation and production of NIKE sports-themed games and broadcast programming, subject to Clause 10 below. (d) The right to use, without additional cost (unless otherwise provided), in connection with the advertisement and promotion of NIKE Products and the NIKE brands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e national cricket team of India as very high and NIKE India, as a new participant in the market, is unable to support those costs unaided. Understanding that the BCCI Agreement will generate considerable retail sales for NIKE assist NIKE India with the costs of the BCCI Agreement for a limited period of time until NIKE India can support the costs of its relationship with BCCI independently. NIKE India agrees to use best efforts to expand the NIKE business in the Territory through the BCCI Agreement, and to maximize sales of NIKE Products through its relationship with BCCI, thereby maximizing royalty sales to NIL and enhancing the value of the NIKE brand within the Territory. In consideration for the benefits that the NIKE brand will receive through NIKE India's association with BCCI through the BCCI Agreement, NIL agrees to pay to NIKE India fifty percent (50%) of the costs of the BCCI Agreement in accordance with the terms of this Section 3." As it is clear from the conjoined regarding of the two agreements that the expenditure in respect of securing world rights to supply and sponsor the Indian Cricket Team was for the purpose of promotion of the brand of NIKE by use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s part of the operating cost." Accordingly, following the decision rendered by the co-ordinate bench in AY 2009-10 in the assessee's own case, we decide the issue relating to first category in favour of the assessee in AY 2010-11, 2011-12, 2012-13 and 2014-15. We restore the issue relating to second category to the file of AO/TPO with similar directions in AY 2010-11 and 2011-12. 15. The next issue urged by the assessee relates to T.P adjustment in respect of reimbursement of expenses. The details of expenses and the year in which they are being contested are given below:- (a) Purchase of trade samples - AY 2010-11, 2011-12 (b) Payment of salary to expatriates - AY 2010-11, 2012-13, 2014-15 (c) Expenses incurred on sporting events - AY 2010-11, 2011-12 (d) Expenses relating to freight and insurance - AY 2010-11. The view taken by TPO in respect of each of the item are discussed below. (a)In respect of "Purchase of samples", the AO noticed that the assessee has purchased samples from its AE and also incurred freight charges relating to samples. The TPO took the view that the samples supplied to the retailers would benefit the AE only. Accordingly, he determined the ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion scheduling happens well in advance, display of samples to third party distributors would enable NIPL to receive sales order from the third party distributors for the coming seasons. Accordingly, NIPL incurs incidental Air freight cost / Warehousing Cost in relation to the sales samples which is required in NIPL's ordinary course of business to derive its sales revenue. The learned TPO adopted the approach followed in the earlier years for the treatment of the cost incurred with respect to samples from NIKE Inc. The Appellant has clearly demonstrated during the submissions made before the learned TPO that these expenses were incidental in nature and did not construe an expense incurred in relation to payment for the samples. Given this, the Assessee finds no reason for these expenses not to be considered at arm's length as these are only freight and related costs in relation to the samples which are absolutely relevant for NIPL to receive sales order from third party distributors and thus derive sales revenue. Further, the assessee wishes to submit that the learned TPO erred in holding that the person placing the order on the third party factory supplier is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for sponsoring events like Human race, NSW product launch and Manchester United Cup. Expenses relating to freight and insurance Assessment year Reference to paper book 2010-11 Page 88 In this respect, the assessee wishes to submit that freight and insurance cost is incurred in respect of samples obtained from AE. In other words, these costs are incurred by Nike Inc., US and thereafter cross-charged to NIPL." 15.2 However, we notice that an identical issue has been examined by the co-ordinate bench in the assessee's own case in IT(TP)A Nos.653 & 654/Bang/2011 relating to AY 2005-06 & 2006-07 - Order dated 10-05-2013. We further notice that this issue has been decided against the assessee with the following observations:- "5.5.1 We have heard both the parties and carefully perused and considered the rival contentions and the material on record. The main issue for consideration before us is whether or not the expenses incurred by the parent company, Nike Inc., USA can be attributed solely and totally to the business of distribution undertaken by the assessee. It is the contention of the assessee that these expenses incurred towards cross payment charges in the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that; i) NIKE Group, the parent company, does certain marketing brand promotion initiatives, with some administrative support from the assessee; ii) The assessee is merely a wholesale distributor and is only an intermediary between Nike Group and the ultimate customer. It is only a service provider, is compensated for its services and has absolutely no stake in the marketing and commercial intangibles, which belong only to the parent company. iii)- The business risk of product acceptability and performance in the market is borne by Nike Group, the parent company and the assessee does not own any interest in the same. 5.5.4 Admittedly, as per the submissions of the assessee, the cost of samples is incurred to increase and improve the product awareness, the responsibility for which vests with the parent company, Nike Inc., USA. In this factual matrix, there is no reason why a mere service provider, merely acting as an intermediary between the entrepreneur and the customer, should bear the expenses related to increasing the product awareness and product acceptability in the market. The submissions made by the assessee before us and before the authorities below have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, India Sales Director, Manufacturing leader, Category Business Director and the like. There is no plausible reason put forth to justify why a mere service provider, who is only an intermediary between the entrepreneur viz. Nike Inc., USA and the customer should incur costs related to manufacturing leader, category business director, etc. Also it is inconceivable why a third party unrelated entity would employ people from the entrepreneur to man such key senior positions in its organization. Further, we also find that the assessee has not furnished any evidence to substantiate its claim that these persons, indeed only work in the distribution activities which is the sole work undertaken by the assessee. The onus for providing evidence to substantiate its claim rests with the assessee which, in the facts and circumstances as discussed above, the assessee has not discharged. 5.5.6 In respect of the expenses amounting to Rs. 1,74,93,025 claimed in *Miscellaneous Expenses", the assessee has put forth only a general explanation that these represent couriering expenses, etc. No further details as to the nature of expenses, the purpose for which they were expended etc. has been forth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration do not support the case of the assessee. In fact, as explained earlier, the statements, averments, admissions made in the Transfer Pricing Study submitted by the assessee does not support the stand urged by the assessee before us. 5.5.8 In view of the facts and circumstances of the case, as discussed above, on the issue of payment of cross charges of expats costs and contractor charges claimed as reimbursements to the parent company, Nike Inc., USA, we are of the considered opinion that the TPO has been right in holding that: i) the nature of these expenses are such that they cannot be attributed to have been solely and exclusively for the distribution business of the assessee; ii) the claim of the assessee that it had derived tangible benefit from the expenditure has not been substantiated with evidence. iii) there is no evidence or likelihood of any independent entity dealing in similar circumstances bearing such expenditure. iv) We, therefore, uphold the finding in the orders of the authorities below in making the T.P. adjustment of Rs. 4,79,96,697 for assessment year 2005-06 and dismiss the grounds raised by the assessee." Accordingly, foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that this expenditure is not related to the business of the assessee and accordingly he has determined the ALP at NIL. Before us also, no further details were furnished. In view of the above, we are of the view that there is no infirmity in the order so passed by the TPO/AO. 17. The next issue relates to TP adjustment made in respect of payment of trade mark Royalty. This issue is being urged in assessment year 2010-11 and 2011-12. The TPO noticed that the royalty debited in P&L account is more than the royalty paid to the A.E. It was explained that the difference represented service tax payable on royalty. It was submitted that the assessee has borne the service tax component payable on the royalty. The TPO noticed that the clause 10.4 of the license agreement entered by the assessee with the A.E. provide for deduction of taxes, if any payable on royalty. Accordingly, the TPO took the view that the service tax payment is the liability of the A.E. and not that of tax payer. Accordingly, the TPO made transfer pricing adjustment to the extent of service tax component and the same was upheld by DRP also. 17.1 The Ld. AR submitted that the service tax was paid by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of equity. Accordingly he held that the ALP of interest payable on CCD at NIL. 18.3 The Ld DRP upheld both the views taken by TPO in the above said years. 18.4 The Ld A.R submitted that the TPO has considered the interest payment made in the year relevant to AY 2015-16 and held it to be at arms length. In this regard, the TPO has made enquiries with foreign authorities and it was ascertained that the interest paid by the assessee has been offered as income by the AE in its hands. 18.5 We notice that the TPO has been taking different stand in different years. While he accepted the CCD as debentures in AY 2012-13 and reduced the rate of interest only, the TPO treated CCD as equity in AY 2014-15. However, in AY 2015-16, the TPO has accepted the rate of interest of 12% to be at arms length. We notice that the TPO has made certain enquiries in AY 2015-16 and accordingly came to the conclusion that the interest payment is at arms length. The benefit of those enquiries was not available with the TPO in the two years under consideration. Since the issue is the same in all the years and further, in view of the conflicting stands taken by TPO, we are of the view that this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the agents, e-mail communications, summary of e-mail communications etc., before the TPO in this regard. He submitted that the TPO, however, did not examine these important evidences, but came to the conclusion that the agent has not provided services to the assessee. Accordingly he prayed that this issue may be restored to the file of TPO for examining it afresh by duly considering various evidences furnished by the assessee. 19.4 We heard Ld D.R. Having regard to the submissions made by Ld A.R, we are of the view that this issue requires fresh examination at the end of TPO. Accordingly we restore this issue to the file of AO/TPO for examining it afresh by duly considering the various evidences furnished by the assessee. After affording adequate opportunity of being heard, the AO/TPO may take appropriate decision in accordance with law. 20. The remaining issues are corporate issues and the additions have been made by the assessing officer. The first corporate issue urged by the assessee relates to the "disallowance of purchase of samples and incidental expenses". This issue is being urged in AY 2012-13 and 2014-15. 20.1 This expenditure was disallowed by way of Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the following observations:- "The onus for proving that the expense! incurred by the parent, Nike Inc, USA, are towards the sales of the products and not for the purpose of creating brand awareness is on the assessee, which onus is not discharged by the assessee. Also considering that the assessee itself has admitted that the parent, Nike Inc. USA has brand marketing and promotion initiatives in India, it is but natural to conclude that the expenses incurred by Nike Inc., USA are towards creation of brand awareness, for which the parent has the responsibility. In this view of the matter, the expenses on cost of samples, etc., have to be attributed to the parent, Nike Inc., USA and therefore it is not correct to conclude that these expenses have to be borne by the assessee." In our view, the view expressed by the co-ordinate bench can be taken as guidance for deciding the issue in the years under consideration also. There is no dispute that the parent company Nike Inc., has introduced new products and the samples are supplied to third party distributors in order to create awareness of new products amongst the public. The assessee herein is merely an intermediary between M/s Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the probable sales return on the basis of its own data. Accordingly, he held that the provision for sales return is not allowable as deduction u/s 37 of the Act. The Ld DRP also confirmed the same in both the years. 21.2 The Ld A.R submitted that the provision is created on the basis of reliable estimate made on scientific basis and hence it is allowable as deduction. In this regard, he placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd (2009)(180 taxmann 422) and the decision rendered by Hon'ble Karnataka High Court in the case of Apple India Private Ltd (ITA No.204/2008). He also relied upon the decision rendered by Hon'ble Karnataka High Court in the case of Wipro GE Medical Systems (ITA Nos. 438, 444/2002), wherein it was held that the provision for warranty is not a contingent liability and is allowable as deduction. He further submitted the assessee is required to provide for liability as per Accounting Standard 29 titled as "Provisions, Contingent liabilities and Contingent Assets". He submitted that if the provision is estimated by using substantial degree of estimation, the same is allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no past event, the question of "present obligation out of such past event" does not arise. Hence, we are of the view that the provision for sales return does not represent present obligation arising as a result of past event. Rather, it is an expected obligation that may arise as a result of a future event. Accordingly, we are of the view that the 'Provision for Sales return" would not fall under the category of "Present obligation as a result of past events". Hence various case laws relied upon by the assessee and the Accounting Standard 29 would not support the case of the assessee. Accordingly, we are of the view that the assessing officer is justified in holding the "Provision for sales return" as contingent liability. Accordingly we confirm the disallowance made by the assessing officer on this issue in both the years referred above. 22. The last issue urged by the assessee relates to the disallowance made u/s 40(a) of the Act and this issue arises for consideration in AY 2012-13. 22.1 According to the assessee, Provision for expenses made by it in the earlier was disallowed in earlier years for non-deduction of tax at source. During the year relevant to AY 2012- 13, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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