9911796707
TMI Blog2023 (1) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant, the advertisements are aimed at promoting the sales of the product sold under trademark LG manufactured by the assessee and not towards promoting the brand name of the AE. In such circumstances, the alleged excess AMP expenditure does not result in an international transaction and the assessee cannot be expected to seek compensation for such expenses unilaterally incurred by it from the AE - Thus we direct the Assessing Officer /TPO to delete the impugned adjustment. Excessive AMP expenses have been incurred by the assessee so as to benefit AE - HELD THAT:- Nothing has been brought on record by the Revenue to demonstrate that there is a direction from LG Korea to incur certain minimum level expenditure on AMP. Therefore, we are of the considered view that the said Article in TLA does not provide for or result in rendering of any service in relation to AMP expenses incurred by the assessee as an independent full risk-bearing manufacturer/ distributor of the products manufactured/distributed in the Indian market. Reimbursement of certain advertisement expenses by LG Korea - HELD THAT:- As mentioned elsewhere, in terms of Article 20, LG Korea did not have any obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has derived any benefit from incurring such expenditure is, according to us, irrelevant consideration for the purpose of determination of ALP. There is no dispute that the brand LG is owned by LG Korea but such expenses are incurred for undertaking marketing or promoting sale of the group companies which includes the assessee. Therefore, it can be safely concluded that the same has been incurred for the purpose of the business of the assessee in ordinary course of its business. As already decided the quarrel relating to the aggregate bench marking while deciding Ground No. 4 relating to AMP expenses and the same reasoning would fully apply here also. Allocation of expenses in proportion to sale - HELD THAT:- We find that the same is supported by the decision of the Hon ble Madras High Court in the case of Manjushree Plantations Ltd [ 1979 (2) TMI 11 - MADRAS HIGH COURT ] which has been approved by the Hon ble Apex Court in the case of Consolidated Coffee [ 2000 (11) TMI 136 - SUPREME COURT ] and also supported by the Hon ble Delhi High Court in the case of EHPT India Pvt Ltd [ 2011 (12) TMI 49 - DELHI HIGH COURT ] Thus we do not find any merit in the transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he controlled transaction to undertake/provide benefit in one controlled transaction to compensate for the benefit received in the other controlled transaction. Accordingly, benefit received should be set off against the benefit provided. Clubbing of closely linked transactions has also been upheld in the case of Sony Ericsson Mobile Communications [ 2015 (3) TMI 580 - DELHI HIGH COURT ] wherein the Hon ble Jurisdictional High Court held that clubbing of closely linked, including continuous transactions, is permissible in appropriate cases. In the same breath, the Hon ble High Court held that once the Revenue accepts the TNMM as the most appropriate method, then it would be inappropriate for the Revenue to treat a particular expenditure as a separate international transaction. We do not find any merit in the TP adjustment in respect of international transaction of payment of design and development charges. We, accordingly, direct the Assessing Officer/TPO to delete the same. TP adjustments in respect of amount outstanding in the account of AE written off during the year under consideration - HELD THAT:- Dehors whether the impugned transaction can be termed as an international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground is allowed. Treatment of sales tax subsidy as taxable revenue receipt - HELD THAT:- The findings given by this Tribunal in Assessment Year 2009-10 [ 2019 (2) TMI 2062 - ITAT DELHI] as held neither the certificates issued by Greater Noida Industrial Development Authority nor the Notification issued by the State Govt. authorises the assessee to collect sales tax from its customers. The assessee has been exempted from collecting the sales tax from customers on the sales made with effect from 27th March, 1998 The assessee had included the element of sales tax in the dealers price as a sale price of the product. In the States other than Uttar Pradesh, the sales tax so collected as a part of dealers price has been paid to respective State Governments, whereas in the case of the assessee, since the assessee was not liable to pay sales tax, as exemption has been provided to the extent of 200 per cent of fixed capital investment, the sales tax element which is embedded in the sale price have been retained by the assessee as excess sales consideration. At the year end the assessee has allocated the sales tax element from dealer s price and has claimed the same as capital subsidy. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act']. 2. The representatives of both the sides were heard at length, the case records carefully perused alongwith the written submissions filed by the assessee and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. 3. Ground Nos. 1 to 3 are general in nature and, therefore, need no adjudication. 4. Ground No. 4 with all its sub-grounds relates to Transfer Pricing adjustment amounting to Rs. 10,44,88,67,112/- in relation to Advertisement, Marketing and Sales Promotion Expenses [AMP] incurred by the assessee. 5. Briefly stated, the facts of the case are that the assessee is engaged in the trading, manufacturing, marketing and sale of electronic home appliances and I.T. products. It is also engaged in the import of finished goods i.e. Colour Television, Air Conditioners and Refrigerators from its holding company and associated group companies and selling the same in the local market. 6. In its telecommunication division, the assessee is engaged in the provision of after sales support services f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by him in earlier years following the decision of the Special bench of this Tribunal and at page 14 of his order, the TPO has categorically mentioned that there is no change in the nature of transaction in the year under consideration and, therefore, the stand taken by the department in earlier years followed. 9. The TPO was of the firm belief that the assessee company has incurred expenses for creating and improving marketing intangibles on behalf of its foreign Associated Enterprises [AE]. As the AE is nonresident and such transactions are in the nature of services, it is considered to be as an international transaction under which the assessee incurred AMP expenses towards promotion of brand/ marketing intangibles owned by the non-resident AE. 10. Thereafter, the TPO referred to the BLT and determination of cost/value of the transaction drawing full support from the decision of the Special Bench of this Tribunal. The TPO, for applying BLT, accordingly compared AMP expenditure incurred by the assessee as percentage of total turnover at 10.48% with average AMP expenditure of 1.82% of the following comparable companies: Name of the Company AMP/sales Allied Photographics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciated by this Tribunal, in as much as, by the time Suzuki Motor Corporation acquired controlling interest in Maruti Suziki, Maruti brand had already built a huge reputation. 15. Again pointing to the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Whirlpool of India Ltd, the ld. DR stated that while delivering the judgment in earlier Assessment Years, this Tribunal has followed the decision of the Hon'ble Delhi High Court in the case of Whirlpool of India and pointed out that there is a tangible material in the form of Article 20 of the license agreement to demonstrate the existence of international transaction. 16. Referring to the Transfer Pricing study of the assessee, the ld. DR stated that the assessee has undertaken combined bench marking analysis by aggregating several international transactions whereby ALP determination of several international transactions have not been undertaken. 17. The ld. DR further stated that operating margin of the assessee is 3.70% as against 4.70% of the comparable companies which means that the profit margin of the assessee was lower than that of the comparable companies and, therefore, international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances, the alleged excess AMP expenditure does not result in an international transaction and the assessee cannot be expected to seek compensation for such expenses unilaterally incurred by it from the AE." 21. As mentioned elsewhere, the TPO at page 14 of his order has himself categorically mentioned that there is no change in the nature of transaction in the year under consideration and, therefore, the stand taken in earlier years is followed. 22. In our considered opinion, it is not open to the Tribunal to deviate from the findings recorded in earlier years in the absence of change in facts or position in law. In other words, this Tribunal is bound by earlier decisions. 23. We draw full support from the decision of the Hon'ble Madras High Court in the case L.G. Ramamurthi 110 ITR 453 wherein the Hon'ble Madras High Court held that unless new facts are brought on record, the Tribunal shall not take a view which is different from the view taken by another bench for the earlier years. The relevant findings read as under: "19. ………. Even assuming that this court "on the earlier occasion had not given any finding with regard to the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Tribunal so that he could have referred the case to a Full Bench of the Tribunal, consisting of three or more members for which there is provision in the Act itself. 29. Under these circumstances, we are clearly of the opinion that the Tribunal completely erred in coming to the conclusion it did, at variance with and opposed to the conclusion of the Tribunal on the earlier occasion, namely, that the gifts in the present cases constituted real gifts and not sham ones." 24. In light of the above, and respectfully following the findings of the co-ordinate bench [supra] we direct the Assessing Officer /TPO to delete the impugned adjustment of Rs. 10,448,867,112/-. Accordingly, Ground No. 4 with all its sub-grounds is allowed. 25. For the sake of completeness, we would like to address to the specific issues raised by the ld. DR. 26. Firstly, the ld. DR has referred to Article 20 of Technical License Agreement which reads as under: "The licensee agrees to provide and make arrangements for advertisement, marketing and sales promotion in the licese territory for L.G. products manufactured by the licensor and those by the licensee at their cost." 27. In our understandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear why a presumption should be drawn that since an incidental benefit might enure to the brand of Whirlpool USA, a proportion of the AMP expenses incurred must be attributed to it." 33. Nothing has been brought on record by the Revenue to demonstrate that there is a direction from LG Korea to incur certain minimum level expenditure on AMP. Therefore, we are of the considered view that the said Article in TLA does not provide for or result in rendering of any service in relation to AMP expenses incurred by the assessee as an independent full risk-bearing manufacturer/ distributor of the products manufactured/distributed in the Indian market. 34. Another point raised by the ld. DR relates to reimbursement of certain advertisement expenses by LG Korea. 35. As mentioned elsewhere, in terms of Article 20, LG Korea did not have any obligation whatsoever to indicate or reimburse advertisement expenditure in relation to sale of products by the assessee in India. It appears that the said reimbursement of AMP expenses have been made by LG Korea voluntarily and without any legal binding and by way of support the assessee. We find that similar reimbursement has been received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and authenticity of the arm's length determination is affected or corrupted. XXXXX 101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above, lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the interlinked transaction. This would be also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizonta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible." 33. Considering the aforementioned findings of the Hon'ble Jurisdictional High Court of Delhi In the case in hand, the operating profit margin of the assessee is at 5.01% in the manufacturing segment and 4.52% in the distribution segment and the same is higher than that of the comparable companies at 4.04% in the manufacturing segment and 4.46% in the distribution segment. TNMM has undisputedly been satisfied. Since the operating margins of the assessee are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted." 40. The contention of the ld. DR that profit margin of assembly segment of the assessee is 3.70% whereas the same for compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufacture Royalty Rates Domestic Royalty Rates- Export Duration of the agreement (Years) Toshiba Corporati on Japan Videocon International Limited Sep-99 Colour Television Receivers 4% 3% 7 Hitachi Limited Volta Limited Nov-99 Steam fired vapour 5% 5% 5 Eatco Williams Group Blue Star Limited Jan-03 Invicts PAC usage of Air Conditioning 5% 5% 5 Kenwood Design Corporation Videocon International Limited Mar-99 Television 5% 5% 5 Samsung Electronics Co. Limited Videocon Appliances Limited Mar-99 Showcase of Reach-in-type and open type reach-incooler and open freezer 5% 5% 5 Victor Company of Japan Mirc Electronics Limited Apr-03 Colour Television Receiver Set and Subassemblies 5% 5% 7 SRS Labs Inc Salora International Limited Apr-03 Speaker 5% 3 Vilter Manufacturing Corporation Frick India limited Jan-03 Refrigeration Compressors 5% 8% 5 37. Out of the aforesaid 8 comparables, DRP/TPO considered only 3 comparables engaged in manufacture of colour television, viz., Toshiba Corporation, Japan, Kenwood Design Corporation and Victor Company of Japan and disregarded the remaining 5 comparables. Accordingly, the TPO arrived at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undergoing the process of finding a tenant every now and then, fear of the property remaining vacant for some time after the exit of the first tenant and incurring costs at the time of each let out. Difference between the rent charged by the landlord or paid by the tenants in the afore discussed two situations is nothing but a discount allowed to a tenant of longterm on the available market rate of rent. This analogy can be applied to the present facts by considering the discount which a licensor with a perpetual license may allow or the premium which a licensor with a fixed term license may charge. It can be seen that the TPO downgraded 2% on this score and reduced the unadjusted comparable rate of 3.5% to the adjusted 1.5%. To put it differently, the TPO treated the premium charged by the comparable licensors on account of fixed term licenses at 57% (2/ 3.5*100), or in other words, the discount at such rate to the prevalent market rate on account of perpetual license. However, the DRP treated such discount for perpetual license at 22% (1/4.5*100). Considering the entirety of the facts and circumstances of the instant case, we find that the rate of premium on the license with fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly contended that since there was a mark-up of 5% over and above the cost, therefore, the same was required to be benchmarked applying the most appropriate transfer pricing method. 50. The ld. DR further questioned why charges are being paid for brand management services when brand belonged to LG Korea and not to the assessee and therefore, questioned the requirement of marketing, planning and training services. The ld. DR vehemently stated that the evidences which have been brought on record do not pertain to the F.Y. 2009-10 relevant to the year under consideration. 51. The ld. DR further questioned the allocation of expenses in ratio of domestic sales as it results in higher allocation of the expenses to the Indian company and further questioned the allocation of president cost and general overheads of the AE. 52. Referring to earlier years decision of this Tribunal, the ld. DR stated that in earlier Assessment Years, factum of rendition of services was not disputed by the Revenue, but this year, the same is being challenged. 53. We have given thoughtful consideration to the rival contentions. In our considered opinion, the assessee is free to conduct business in the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he associated enterprise 7 Email dated May 8, 2009 regarding strategy training workshop organised by the associated enterprises 2319-2328 (Vol 6) Email dated May, 8, 2009 8 Copy of Detailed presentation on 'Developing Strategy and problem solving' 2329-2518 Detailed presentation on strate. development - May 22nd and 23rd, 2009 9 Email communication between Corporate marketing team of the associated enterprise and the employees of the appellant 2519-2523 (Vol 6) Email dated 05-04-2009 10. Brand in depth study - Report dated October,2009 2524-2588 (Vol 7) In depth study to diagnose the current status of brand and to identify influencing factors for brand preference 11 Presentation on global communication campaign 2630-2677 (Vol 7) Report/presentation discussing marketing strategy for creating market awareness about innovative products offered by LG and to increase sales in Asian countries. Campaign was undertaken during April to December, 2009 with budget of USD 7.60 million (page 2632) 12 Marketing presentation on VC/AP (Air purifier) launch in India 2678-2698 (Vol 7) Report/presentation on launch of new products in India - July, 2009. Report contains Marketi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking market research, market performance analysis, conducting consumer interviews engaging the services of third party consultants for undertaking market/industry analysis, provision of supply chain management services, provision of after sale services etc. and such activities cannot be termed as share holder activity. 51. We find that the assessee engaged a third party consultant to determine the arm's length price of the services provided by the RHQ. The consultant determined ALP at Rs. 6,521/- per hour as against the comparable uncontrolled price of Rs. 11,670/- per hour. Since the hourly rate charged by RHQ is lower than comparable hourly rate of third parties transaction of regional head quarter charges meets the arm's length test. 52. The Revenue has made the adjustment holding that the assessee was not required to incur such expenditure which are duplicative in nature. In our considered view, the assessee is free to conduct business in the manner that assessee deems fit and the commercial or business expediency of incurring any expenditure has to be seen from the assessee's point of view. 53. The Hon'ble Delhi High Court in the case of CIT vs Reebok India Co L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that it was not necessary for the assessee to incur the expenditure. The Hon'ble Court held as under: "16. On the question of addition made by the AO on account of ALP for the payment of royalty, learned counsel for the Assessee has rightly referred to the decision in Commissioner of Income Tax v. Sony Ericsson Mobile Communication (2015) 374 ITR 118 where the determination of the ALP of the royalty paid as Nil was not approved. The Court's attention has also been drawn to the decision in Commissioner of Income Tax v. EKL Appliances Limited (2012) 345 ITR 241 wherein it was held that Rule 10B (1) (a) did not authorize disallowance of any expenditure on the ground that it was not necessary for the Assessee to have incurred such expense. It was observed that though the quantum of expenditure could be examined, the entire expenditure could not be disallowed on the ground that it was not necessary." 55. Further, the Hon'ble Delhi High Court in the case of CIT vs Cushman and Wakefield (India) Pvt Ltd. ITA 475 of 2012 has held that the authority of the TPO is to conduct a TP analysis to determine the ALP and not to determine whether the tax payer derives a benefit from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Price ("CUP") method was sought to be applied. Here, this court concurs with the assessee that having accepted the TNMM as the most appropriate, it was not open to the TPO to subject only one element, i.e payment of technical assistance fee, to an entirely different (CUP) method. The adoption of a method as the most appropriate one assures the applicability of one standard or criteria to judge an international transaction by. Each method is a package in itself, as it were, containing the necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee; the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too." 58. Considering the facts in totality in the light of the judicial decisions discussed hereinabove, the adjustment computed by the TPO/DRP on account of allocation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese markets. It is not in dispute that the assessee has no office set up or infrastructure outside India to undertake exports and it is also not disputed by the Revenue that the assessee is able to secure orders for exports in the overseas market through the network and basis the established brand name of LG Korea. 67. In any case, in our considered view, the Assessing Officer shall examine the additional evidence and decide the issue afresh as per the directions of this Tribunal given in ITA No. 953/DEL/2014 for Assessment Year 2009-10. Ground No. 7 is allowed for statistical purposes. 68. Ground No. 8 relates to the adjustment to the service warranty charges received by the assessee by apportioning a margin of 32.95% on such cost of reimbursement. 69. Facts on record show that the TPO has made an adjustment of Rs. 19,17,39,195/- in respect of reimbursement of warranty service charges received from the AE on cost to cost basis. According to the TPO, the assessee is providing a service to the AE by servicing the warranty claims and, therefore, the assessee ought to have earned a mark-up of 32.95% on cost incurred for provisions of such services. 70. The ld. counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment. Ground No. is 8 allowed. 76. Ground No. 9 relates to the TP adjustment of Rs. 43,46,50,613/- in respect of international transaction of payment of design and development charges. 77. Facts on record show that the assessee has paid a sum of Rs. 43.46 crores on account of payment for design and development services rendered by the AE. The TPO was of the firm belief that design and development services are covered under the royalty agreement and, therefore, determined ALP of this international transaction at NIL. 78. Before us, it was strongly submitted that R&D department for each product of the assessee determines the need for carrying out changes in the design or specifications of the product and seeks assistance from the AE in case it does not have the technical know-how to carry out such modifications and on such service, the technical team of the AE undertakes the development of the product in consultation with the assessee and in light of the specifications provided by the assessee. 79. It is the say of the ld. counsel for the assessee that design and development fee specification relates to the customization of products specific to the assessee. The ld. counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o arrive at the most precise approximation of arm 's length conditions, the arm's length principle should be applied on a transaction-by-transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. Examples may include I. some long-term contracts for the supply of commodities or services, 2. rights to use intangible property, and 3. pricing a range of closely-linked products (e.g. in a product line) when it is impractical to determine pricing for each individual." 86. Similar guidance is given by the US and Australian TP Regulations on this issue and the same read as under: "The combined effect of two or more separate transactions (whether before, during, or after the taxable year under review) may be considered, if such transactions, taken as a whole, are so interrelated that consideration of multiple transactions is the most reliable means of determining the arm's length consideration for the controlled transactions. Generally, transactions will be aggregated only when they involve related products or services. The US regulations gives examples. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed with the arm's length computation methods, with a pre-conceived suppositions on singularity as a statutory mandate. Clubbing of closely linked, which would include continuous transactions, may be permissible and not ostracized. Aggregation of closely linked transactions or segregation by the assessed should be tested by the Assessing Officer/TPO on the benchmark and the exemplar; whether such aggregation/ segregation by the assessed should be interfered in terms of the four clauses stipulated in Section 92C(3) of the Act, read with the Rules. It would, among other aspects, refer to the method adopted and whether reliability and authenticity of the arm's length determination is affected or corrupted. XXXXX 91. 91. In case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNM Method on entity level basis. The focus of this method is on net profit amount in proportion to the appropriate base or the PLI. In fact, when transactions are inter-connected, combined consideration may be the most reliable means of determining the arm's length price. There are often situations where closely linked and connected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment for AMP expenditure was warranted. This is also in consonance with Rule 10B which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned, its operating profit margin is 11.19% which is higher than that of the comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure." 90. It would be pertinent to refer to the decision of the Hon'ble Delhi High Court in the case of Magneti Marelli Powertrain India Pvt Ltd ITA No..50/2014 for Assessment Year 2009-10 wherein the Hon'ble High Court held that having accepted TNMM as the most appropriate method in respect of all international transactions, it was not open to the TPO to subject only one element i.e. payment of technical assistance to an entirely different method. The Hon'ble High Court held as under: "17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and, therefore, does not require determination of ALP. 96. On the other hand, the ld. DR drew our attention to the findings of the TPO at Para 15 of his order and pointed out that bankruptcy occurred during FY 2010-11, which is subsequent to the year under consideration. 97. The ld. DR further stated that the entire transaction is doubtful and there was no need for giving the impugned advance and the impugned advance was given by the assessee only to support financially its AE and, being transaction between a related party, the same has to be determined at ALP as done by the TPO and there is no error or infirmity in such determination. 98. We have given thoughtful consideration to the orders of the authorities below. Firstly, it is incorrect to say that no objection was raised in respect of write off of advance paid to AE treating the same as an international transaction. We find that a specific ground was raised. We further find that the advance was paid to the AE for supply of monitors, when the AE was a going concern carrying on business. When the company closed its operations in the year under consideration and went into bankruptcy proceedings, the advance so given was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the ld. counsel for the assessee stated that there is no dispute that the expatriates were employees of LG Korea earlier and therefore, continued to have lien on their employment with LG Korea. But during the year under consideration were in total employment with, and were working under the direct control and supervision of the assessee. It is the say of the ld. AR that the assessee was legal and economic owner of such expatriates during the year under consideration. 106. The ld. counsel drew our attention to the employment letters and Form No. 16 issued by the assessee. The ld. counsel further stated that while employing these expatriates, the assessee has followed a strict, well defined recruitment process, headed by the HRD of the assessee and expatriates hired by the assessee had to go through recruitment process of the assessee and were selected on the basis of their skills and merits. 107. The ld. counsel further stated that the assessee shares the job description of the persons to be hired with its AE LG Korea which recommends the names of the people having requisite skills for the relevant job description. It was stated that the expatriates were employed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereafter HRD of the assessee shortlists the employees from pool of names suggested by LG Korea and conducts independent interviews and finally the assessee takes final decision of recruitment. 113. Considering the entire factual matrix, the only logical conclusion that can be drawn is that, such expatriates were employees of the assessee during the year under consideration and worked under the direct control and supervision of the assessee for the purpose of business of the assessee, and for such services they were paid remuneration directly by the assessee, on which tax was deducted at source as per the relevant provisions of the Act, which part has not been disputed by the revenue. 114. The decision of the Hon'ble Supreme Court in the case of Carborandum [supra] squarely apply on the facts of the case, in as much, as the assessee company had taken such expatriates on its payroll on the basis of various agreements of employment, and such expatriate employees worked under the direct control of the assessee company for day to day working. Considering the facts of the case in totality, it can be safely concluded that the expatriates were wholly and exclusively working for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification No. 1179 dated 31.03.1995 issued by the State Government of Uttar Pradesh. The State Govt. has provided sales tax exemption with an objective to promote the development of certain industries which have been set up or undertaken modernisation, diversification, backward integration by way of fixed capital investment of Rs.50 crores or more. The exemption of from sales tax or benefit of reduced rate of tax is available to those units which have started production or have carried out expansion or modernisation or backward integration etc. between 1.12.1994 and 31.03.2000. Para 2 of the notification specifies that the exemption or reduction in the rate of sales tax including the additional tax would not be more than 5 per cent of sale of goods. In case where tax rate was more than 5 per cent including additional tax, the balance was to be paid by the unit. Para7 (2) of the notification provides for the exemption of sales tax to the extent of exemption or reduction in tax. Item (2) of the Schedule includes Greater Noida Industrial Development Area wherein exemption from sales tax to the extent of 200 per cent of capital investment has been provided. None of the clauses of the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax in the dealers' price as a sale price of the product. In the States other than Uttar Pradesh, the sales tax so collected as a part of dealers' price has been paid to respective State Governments, whereas in the case of the assessee, since the assessee was not liable to pay sales tax, as exemption has been provided to the extent of 200 per cent of fixed capital investment, the sales tax element which is embedded in the sale price have been retained by the assessee as excess sales consideration. At the year end the assessee has allocated the sales tax element from dealer's price and has claimed the same as capital subsidy. Therefore, the collection of dealers' price has been made in the ordinary course of trading activities. When the assessee is not permitted to collect the sales tax under the notification issued by the State Govt. the collection of sales tax as a part of dealers' price is nothing but constitutes a trading receipt…….." 79. In A.Y 2003-04, the coordinate bench in ITA No. 3729/DEL/2009 has held as under: "In view of the above, Ld. Departmental Representative claimed that the issue is squarely covered in favour of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in ITA No. 6253/DEL/2012 for assessment year 2008-09 vide Ground No. 10 of that appeal. The relevant findings of the co-ordinate bench read as under: "88. We find that the Tribunal in assessee's own case for A.Y. 2007-08 has decided this issue in favour of the assessee and against the Revenue. Respectfully following the findings of the coordinate bench, we direct the Assessing Officer to treat royalty payment of Rs. 85.75 crores as revenue expenditure. Ground No. 10 is allowed." 45. Respectfully following the precedent, we direct the Assessing Officer/TPO to delete the impugned disallowance. Ground No. 10 is allowed. 124. Respectfully following the decision of the co-ordinate bench, we direct the Assessing Officer to delete the impugned disallowance. Ground No. 13 is, accordingly, allowed. 125. Ground No. 14 relates to the disallowance of export commission of Rs. 3,58,37,127/- paid to LG Electronics Inc. Korea holding the same to be diversion of income. 126. Facts on record show that the assessee exports CTVs to LG Group entities in the Middle East and South Asian countries and to some unrelated distributors outside India. LG Electronics Korea assists the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which includes TP adjustment of Rs. 3,52,34,484/-. 19. The assessee has filed an application u/r 29 of the ITAT Rules for admission of additional evidence in support of payment of export commission to AEs. Similar application was filed in assessment year 2008-09 and the Tribunal, after considering the same, has remanded the matter to the file of the Assessing Officer to decide the issue after considering the additional evidence placed on record by the assessee. Relevant findings of the co-ordinate bench read as under: "91. It is not in dispute that in A.Y 2007-08 this issue was decided against the assessee by the Tribunal. The assessee has filed application u/r 29 of the ITAT Rules for admission of additional evidence in support of payment of export commission to its AE. In our considered opinion, such additional evidences need to be verified before deciding this issue. We, accordingly, restore this matter to the file of the Assessing Officer. The assessee is directed to furnish relevant documentary evidences and the Assessing Officer is directed to consider the same and decide the same afresh after giving reasonable opportunity of being heard to the assessee. Ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years in which their period of employment becomes equal to or more than 300 days. 95. Per contra, the ld. DR stated that the amendment brought in section 80JJAA is w.e.f. 1.4.2019 and, therefore, the same is not applicable for the year under consideration. 96. We have carefully considered the orders of the authorities below qua the issue. There is no dispute that he assessee satisfies all the conditions for claiming deduction u/s 80JJAA of the Act. For our convenience, section 80JJAA reads as under: "80JJAA. (1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed- (a) if the business is formed by splitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. Therefore, in the well known words of Judge learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh (82 ITR 570), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to made the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. This view has been accepted by a number of High Court. In the case of Commissioner of Income-Tax v. Chandulal Venichand ([1994] 209 ITR 7), the Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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