9911796707
TMI Blog2022 (3) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... , we set aside the order of the AO/TPO/DRP and direct the AO/TPO to delete the addition. Assessee has also raised various sub-grounds challenging the order of DRP in sustaining the TP addition made by the AO/TPO. Since we have deleted the addition by following the Rule of consistency in assessee s own case for earlier years under similar facts and the business model remaining the same, the other sub-grounds are not being adjudicated being academic in nature. The first issue raised by the assessee in the grounds of appeal are accordingly allowed. Addition on account of sundry creditors - HELD THAT:- Hon ble Punjab Haryana High Court in the case of Kulwinder Singh, [ 2017 (7) TMI 957 - PUNJAB AND HARYANA HIGH COURT] has held that provisions of section 68 are not attracted to amount representing purchase made on credits.Hon ble Allahabad High Court in the case of Zazsons Export Ltd. [ 2017 (5) TMI 1222 - ALLAHABAD HIGH COURT] has held that credit purchases reflected in the books of account of the assessee of raw hide from petty dealers even if not confirmed would not mean that it was concealed income or deemed income of the assessee, which could be subjected to tax under section 68 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trde mark TNMM 743,886,716 1. Annual Maintenance fee for CODA software license fee TNMM 2,206,682 1. Recovery of expenses CUP 15,167,163 1. Reimbursement of other expenses CUP 658,781 1. Reimbursement of other expenses CUP 982,552 1. Reimbursement of affiliate support charges CUP 2,464,041 1. Reimbursement of other expenses CUP 8,041,888 1. Reimbursement of promotion and product events CUP 35,579,742 1. Purchase of finished goods TNMM 1465,821,890 3. The TPO noted that the tax payer has benchmarked most of the transactions, international transactions as well as specified domestic transactions by using entity level aggregation approach and using TNMM method as the most appropriate method. 4. According to the TPO, this approach of the tax payer is not correct since TNMM is less reliable when applied to the aggregate activities of a complex enterprise engaged in various different transactions or functions. Moreover, the method of TNMM is not generally applied on a company wide basis if the company is involved in a number of different controlled transactions which is the case with the assessee. Relying on various decisions, the TPO rejected the aggre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMP expenses. The TPO accordingly proposed an upward adjustment of Rs.68,74,84,700/- being the ALP of the international transaction entered into by the assessee. 6.1 The AO, in the draft assessment order, made addition of the same. The AO, in the draft assessment order also made addition of Rs.26,72,67,895/- on account of sundry creditors due to inability of the assessee to furnish any details/justification/supporting evidence in this regard. 7. The assessee approached the DRP and the DRP vide order dated 23rd October, 2021, upheld the action of the TPO in holding that AMP expenses incurred by the assessee is an international transaction. So far as the protective adjustment using BLT and considering advertisement, selling and distribution and marketing support as part of the AMP expenses, the DRP directed the AO to verify correct operating margins of the assessee and recompute the adjustment after considering the comparables as directed by it. The relevant observations of the DRP read as under:- " 3.1.1.17 In Ground number 1 (i) to l(m) the assessee has contested protective adjustment using BLT and considering advertisement, selling & distribution and marketing support as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odicare Ltd. As per information in public domain Modicare is one of India's leading Direct Selling Companies and is a major player in an industry selling nutrition and healthcare products. As FAR is broadly similar it should be retained as a comparable. 3.1.1.21 The AO/TPO is directed to verify the correct operating margins of the assessee and re-compute the adjustment after considering the comparables as directed above, by the Panel." 7.1 So far as the addition on account of sundry creditors is concerned, the DRP upheld the action of the AO by observing as under:- " 3.1.2.2 The Panel notes that in the draft order u/s 143(3) of the Act dated 15.12.2019 the AO gave complete opportunity in the form of several show cause letters to the assessee to furnish complete evidences for the claim of on the issue of sundry creditors, (para 5 of AO: show cause on 08/11/2019; on 12/12/2019). The Panel also notes that the AO did scrutinize the part details of sundry creditors presented before him by the assessee and did allow the same to the extent of Rs. 66.34 crores as the same was attributable to royalty payable to an AE of the assessee. To this extent the Panel finds the accusation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Year 2015- 16 rendered on identical facts and circumstances of the matter. 4. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the TPO erred by not following his own order dated 04.10.2019 giving effect to the Hon'ble DRP order dated 11.09.2019 for the immediately preceding Assessment Year in assessee's own case rendered on the identical facts and circumstances of the matter. 5. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the TPO erred by not following his own orders for the A.Y. 13-14 and A.Y 14-15 where a considered view holding AMP expenditure to be not an international transaction was taken and in spite of there being no difference whatsoever in the facts and circumstances of the matter. 6. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the AO /TPO erred in not following the rules of consistency and judicial discipline. 7. Ld DRP has erred on facts and in law in not following its own order for AY 2015- 16 without giving any reason for the same especially when no difference in facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease in the creditors cannot be made when there is not even an allegation that corresponding purchases/supplies/services were suspicious or doubtful. 17. The Ld. DRP has erred on facts and in law in not allowing the contention of the appellant that the addition INR 26,72,67,895/ on account of alleged increase in the creditors cannot be made when regular books of accounts were duly maintained and audited by the appellant and accepted by the AO. 18. The Ld. DRP has erred on facts and in law in dismissing various grounds raised by the appellant by a non-speaking order without even considering various case laws submitted by the appellant with regard to the same. 19. Ld. DRP has erred on facts and in law in not considering the submission of the appellant that no addition u/s 68 of the Act can be made on account of alleged increasing in the sundry creditors during the year under consideration. 20. Ld. DRP has erred on facts and in law in confirming the adjustment of Rs. 26,72,67,895/- in spite of the AO having nothing adverse with regard to the submissions made by the appellant. 21. Ld. DRP has erred on facts and in law in stating that several show-cause notices were issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O Order at Paper Book Page No. 524) 2013-14 Adjustment of Rs. 512,47,66,707/- was proposed in Show cause notice dated 21.10.2016 (Show Cause at Paper Book Page No. 532)on account of AMP adjustment but after considering the reply of the assessee and the facts and circumstances of the matter which are identical to the facts and circumstances for the year under consideration no addition was made in order passed by Ld. TPO (TPO Order at Paper Book Page No. 536) 2014-15 …………..do …………… (TPO Order at Paper Book Page No. 251) 2015-16 Adjustment of Rs. 216,39,19,833/- was made on protective basis and adjustment of Rs 226,12,38,588/- was made on substantive basis by the Ld. TPO .(TPO Order at Paper Book Page No. 279) Hon'ble DRP considered the entire facts and circumstances of the matter in exhaustive details and deleted both the substantive and the protective additions. (DRP Order at Paper Book Page No. 431). The Ld. TPO passed the order giving effect to the order of Hon'ble DRP and in the final order passed by the Ld. TPO no adjustment on account of AMP was made. (TPO appeal effect Order at Paper Book Page No.497) 12. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, therefore, no addition during the year is warranted. 15. The ld. DR, on the other hand, heavily relied on the order of the TPO/DRP. He submitted that the principle of res judicata does not apply to income-tax proceedings and each year is different and distinct. He submitted that if the DRP has not followed its earlier order, the matter may be set aside to the DRP with a direction to pass a speaking order. The ld. DR submitted that the ownership of the brand lies with the foreign AE, therefore, the huge advertisement expenses made by the assessee helps towards brand building of the foreign AE. Further, the assessee is paying huge royalty to the AE. He submitted that any non-routine capital expenditure is adding to the value of the brand held by the foreign AE. Since as per the provisions of section 92B such expenditure is an international transaction, he submitted that the addition made by the AO/TPO/DRP being in accordance with law has to be upheld and the grounds raised by the assessee on this issue are to be dismissed. 16. We have considered the rival arguments made by both the sides, perused the orders of the AO/TPO/DRP and the paper book filed on behalf of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f lNR lakh) Total AMP 45,09,91,000 Sales 17,506,000,000 AMP/Sales 2.58% "As such the AMP/Sales ratio of the assessee is much less than 24.79% of the comparables. It is observed that the TPO has not used any comparable in substantive adjustment for computing excessive AMP. Therefore, there is no case for adjustment on account of AMP spend treating the same as 'International transaction even if the sales promotion expenses are considered as AMP expenditure in view of the fact that the Hon'ble Delhi High Court decision in case of Sony Ericsson(supra) has not been accepted and SLP has been filed before the Hon'ble Supreme Court with regard to validity of Bright Line Test as also on excluding selling and distribution expenses, discount and rebates, and other sales promotion expenses from the expenses relating to marketing intangibles for the brand owned by the AE." Therefore, after giving effect to the order of the Hon'ble DRP, the final adjustment on account of AMP expenditure is reduced to NIL." 18. From the various details furnished by the assessee in the paper book, we find no adjustment on account of AMP was made for AY 2009-10 although the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO/TPO. However, since we have deleted the addition by following the Rule of consistency in assessee's own case for earlier years under similar facts and the business model remaining the same, the other sub-grounds are not being adjudicated being academic in nature. The first issue raised by the assessee in the grounds of appeal are accordingly allowed. 19. The second issue raised in the grounds of appeal relates to the addition of Rs.26,72,67,895/- on account of sundry creditors. 20. Facts of the case, in brief are that during the course of assessment proceedings, the AO asked the assessee to furnish complete party-wise details of sundry creditors along with explanation and justification for increase in sundry creditors and reduction in business income as compared to preceding year. Since the assessee could not furnish any details/justification/supporting evidence in this regard, the AO analysed the balance sheet filed by the assessee company and noted that there is huge increase in creditors amounting to Rs.93,07,00,000/-. He, therefore, gave a final opportunity to the assessee to furnish the details vide show cause notice dated 12.12.2019. The assessee, vide reply dated 13th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to nearly Rs.66.34 crores attributable to the royalty payable to an associate concern of the assessee but added the remaining difference of nearly 26.73 crores on account of increase in sundry creditors. He submitted that while making the addition of Rs.26.73 crores, the AO forgot to consider the increase of Rs.13.95 crores that had happened on account of transaction with associate concerns as well. He submitted that the provisions of section 68 cannot be applied to increase in outstanding sundry creditors. Referring to the provisions of section 68 he submitted that for making an addition under the above provision, the mandatory conditions that are required to be fulfilled are: (a) the sum has to be a cash credit; and (b) the assessee offers no explanation about the nature and source of any sum found credited in his books or the explanation given is not found acceptable to a judicious mind. He, submitted that the AO never sought details such as address, PAN, etc. as alleged in the draft assessment order while invoking provisions of section 68. There is inherent contradiction in the approach of the AO when he makes additions for the increase in creditors but alleges that PAN et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from the AO on remark, report and the assessee also sought further appropriate direction/instruction, if any from the DRP. (Paper Book Page No. 672) 21.10.2020 to 10.12.2020 Still no response from the AO 10.12.2020 Third reminder to AO by the DRP for submission of Remand Report on or before 17 .12.2020 and copy to appellant .(Paper Book Page No. 673) 10.12.2020 to 30.12.2020 Still no response from the AO. 30.12.2020 Fourth reminder to AO by the DRP for submission of Remand Report on or before 08.01.2021 and copy to appellant. (Paper Book Page No. 674) 02.01.2021 As the assessee was extremely concerned another email to DRP was written informing no communication received from the AO on remand report. It was also submitted before the DRP that lack of action on part of the Ld. AO with regard to the remand directions of the Hon'ble DRP should not be construed adversely a, mist the assessee. (Paper Book Page No. 675) ] 02.01.2021 to 11.01.2021 No response from the AP 11.01.2021 Fifth reminder to AO by the DRP for submission of Remand Report on or before 21.01.2021 and copy to appellant .(Paper Book Page No. 676) 11.01.2021 to 10.02.2021 No response from the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty payable to the AE and the assessee could not substantiate with evidence to his satisfaction regarding the remaining creditors. We find, after the order of the DRP, the AO, in the final assessment order made addition of the same which is under challenge before the Tribunal by the assessee. It is the submission of the ld. Counsel for the assessee that the AO while passing the draft assessment order, without giving sufficient time, made the addition which is not correct and against the principles of natural justice. Further, despite full details given before the DRP, the DRP also ignored the submissions made by the assessee and made the addition even after not getting any response from the AO after 5-6 reminders by them. It is also his submission that the provisions of section 68 cannot be applied to increase in sundry creditors. It is also his submission that no addition has been made on account of increase in sundry creditors in past or subsequent assessment years. 27. We find sufficient force in the above arguments advanced by the ld. Counsel for the assessee. From perusal of the details furnished by the assessee, we find the AO issued show cause notice dated 12th December, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and considering the fact that the assessee has given sufficient details regarding the details of sundry creditors, no such disallowance has been made by the AO in the orders passed u/s 143(3) in the subsequent two years and inaction by the AO to reply to the various reminders of the DRP for submission of the remand report, we are of the considered opinion that the addition made on account of increase in sundry creditors is not justified. Further, as mentioned earlier, the provisions of section 68 cannot be attracted to amount representing purchase made on credits or outstandings payable. In view of the above discussion, we set aside the order of the AO and direct him to delete the addition. The second issue raised by the assessee in the grounds of appeal are accordingly allowed. 31. So far as the grounds relating to interest u/s 234A, 234B and 234C are concerned, the same being consequential in nature are dismissed. 32. Ground relating to levy of penalty u/s 271(1)(c) being premature at this juncture is dismissed. 33. The appeal filed by the assessee is accordingly partly allowed. 34. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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