9911796707
TMI Blog2023 (2) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration and therefore some value has been received by assessee as submitted by the Ld.AR against such destroyed products by the US customs which deserves to be bench marked. We direct the Ld.AO to reconsider the claim of assessee in the light of the evidences filed and to compute the margin of assessee in accordance with law by following the principles of transfer pricing regulations. Administrative service fee paid by the assessee - assessee has also furnished the total cost incurred by the AE towards the common group services and the basis of allocating some among various group entities - HELD THAT:- As decided in assessee own case [ 2015 (10) TMI 2794 - ITAT BANGALORE ] There is no dispute that the transaction has been reported by the assessee as international transaction which was also accepted by the AO and the TPO as an international transaction. Thus, once a particular transaction is admitted as international transaction then the same falls in the ambit of the provisions of X chapter of the Act which are specific provisions to deal with such transactions between the assessee and its AE. Therefore, once the transaction is undisputedly subject matter of Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y craves leave to prefer an appeal under section 253 of the Income-tax Act, 1961 ( the Act ) against the order dated 29 August 2017 passed by Commissioner of Income-tax (Appeals) , Circle - 3 [ CIT(A) ], Bangalore under section 250 of the Act on the following grounds: On the facts and circumstances of the case and in law, the Honorable CIT(A) erred in upholding the order of the learned Deputy Commissioner of Income Tax- Circle 12(1), New Delhi ( learned AO ) which has been passed after taking into account the order of the learned Additional Commissioner of Income tax (Transfer Pricing Officer - I), New Delhi ( learned TPO ) whereby the learned TPO and the learned AO have : A) Grounds of appeal relating to Transfer pricing (`TP') adjustment 1. Erred in making an addition of INR 12,59,12,420 to the total income of the Appellant on account of adjustment in the arm's length price with respect to the international transactions of the Appellant. International transaction relating to Export of Finished Goods to Associated Enterprise VAE ) 2. Erred in making an upward TP adjustment of INR 7,75,62,042 to the international transaction of Export of Fini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same was not arising out of the order of AO for AY 2003- 04. 14. Erred in not considering that CIT(A) has the right to consider additional grounds even if not raised before the AO 15. Adopting pedantic and hyper technical approach resulting in denial of substantial justice. 16. Erred in levying interest under the provisions of Income Tax Act, 1961. Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal. ITA No. 2068/Bang/2017 (AY: 2005-06) Based on the facts and circumstances of the case and in law, Herbalife International India Private Limited ( Herbalife India or the Company or the Appellant ) respectfully craves leave to prefer an appeal under section 253 of the Income-tax Act, 1961 ( the Act ) against the order dated 29 August 2017 passed by Commissioner of Income-tax (Appeals) , Circle - 3 [ CIT(A) ], Bangalore under section 250 of the Act on the following grounds: On the facts and circumstances of the case and in law, the Honorable CIT(A) erred in upholding the order of the learned Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act, 1961. Further, the Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal. 2. Brief facts of the case for AY 2003-04 are as under: 2.1 Assessee was incorporated in the year 1998 and started its manufacturing activity in the Indian market through third party contract manufacturers. It is submitted that the in its initial years of operations, it manufactured certain products which did not prove to be viable in the Indian domestic market. Considering that the Herbalife products have low shelf life and are perishable in nature, some products were written off in the AY 2002-03 In cases where the rework/reuse was perceived to be possible so as to be fit for human consumption. The same were reworked and sold to its AE, Herbalife International of America Inc., US, in the AY 2003-04. 2.2 It is again submitted that the assessee had a policy of accumulating finished goods inventory equivalent to 16 weeks' sale in anticipation of the growing demand of products. However, during FY 2001-02, the sales slumped significantly as opposed to the anticipated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing report benchmarked the international transaction as under: SI.No Nature of service AY 2003-04 Amount in USD (FPB 780 and 115) 1 Sales and Marketing Services 3,95,788 2 Distributor Services 1,09,071 3 Worldwide Distribution Operations 67,951 5 Financial and Accounting services 52,158 4 Information Systems Services 2,18,872 6 Corporate and Distributor Compliance 22,121 7 Other Services 1,85,260 Total 10,51,221 Restricted to USD 1 million (in line with RBI approval) 10,00,000 Amount paid in INR 4,83,50,378 2.6 The Ld.AO note that assessee specified CUP as its benchmarking method in Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the description of services rendered by AE and failed to demonstrate the rendition of services by the AE. He thus disallowed sum of Rs.4,83,50,378/- paid by assessee towards administrative service fee. 2.10 On receipt of the transfer pricing order, the Ld.AO passed the final assessment order on 14/03/2006 by making an addition in the hands of the assessee at Rs.12,59,12,420/-. Aggrieved by the order passed by the Ld.AO, assessee filed appeal before Ld.CIT(A). The Ld.CIT(A) on the issue of the determination of the ALP as well as administrative services, decided as under: 3. Before the Ld.CIT(A), assessee has also raised addition ground praying for allowing the write off of inventory during the year under consideration by observing as under: The Ld.CIT(A) has considered this issue by observing as under: 3.3 Vide letter dt 26.10.2016, the appellant has raised more additional grounds of appeal. The same relate to allowing of write off of inventory during the year under consideration. The appellant has prayed for the admission of the same. On perusal of record it is observed that these grounds are not arising out of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the relevant page numbers. For the sake of convenience, the same is scanned and reproduced as under: 5.3 The Ld.AR thus submitted that though the goods were exported to AE, the same were not consumed by AE as they were considered as unfit for human consumption even before it could enter AE s premises. He thus submitted as under: Considering the perishable nature of the products; these goods were sold to AE for sale in the US market as the option only realistically available. From the commercial perspective, the intent of this transaction was to recoup the manufacturing costs, rather than scrapping the products and incurring a loss on the cost of production (PB Pg 68). Hence, the ALP of the subject international transaction would be Nil. 5.4 The Ld.AR also drew support from the OECD guidelines wherein in para 4.9, it is stated that the taxpayer s commercial judgment regarding the application of arms length principle needs to be taken into account by the tax authorities so that the transfer pricing analysis is tied to the business realities. 5.5 Assessee in its TP study submitted that in its TP report, compared its entity level margin of 12% with the comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of allocating some among various group entities, he placed reliance on various decisions of this Tribunal in assessee s own case where the issue has been remanded to the Ld.AO for denovo verification. ITAT order for AY 2008-09 (PB Pg No. 783 to 8051- remanded by the Hon'ble ITAT to Ld. TPO and adjustment subsequently deleted entirely by the Ld. TPO TP Order for AY 2004-05 (PB Pg No. 200 and 201) - All international transactions including payment of administrative fee concluded to be at arm's length TP Order for AY 2011-12 (PB Pg No. 689 to 707) - All international transactions including payment of administrative fee has been concluded to be at arm's length TP Order for AY 2012-13 (PB Pg No. 897 to 898) - All international transactions including payment of administrative fee has been concluded to be at arm's length 6.1 On the contrary, the Ld.DR submitted that the issue may be remanded to the Ld.AO to be verified in accordance with the observations by the Tribunal in assessee s own case as relied by the Ld.AR. We have perused the submissions advanced by both sides in the light of records placed before us. We note that Tribunal in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by Cisco India to the assessee are in the nature of Financial and Accounting services, legal and tax related issues information system and related issues, Treasury services, Asset Management/residual value analysis, credit analysis and deal execution. The AO has not doubted the rendering of services by Cisco India to the assessee but has restricted the allowable expenditure to 5% of the operating expenses which means that he has only doubted the reasonableness of the quantum of payment. But to invoke the provisions of sec.40A(2) of the Act, as rightly pointed out by the learned counsel for the assessee, the AO cannot make an ad hoc disallowance u/s 40A of the Act but has to determine the expenses which are excessive and unreasonable. The AO, in the case before us, has failed to point out any particular expenditure which according to him, is excessive or unreasonable but has made an ad hoc disallowance which is not sustainable. Further, as rightly pointed out by the learned counsel for the assessee, disallowance u/s 40A(2) can be made only if the alleged excessive and unreasonable payment is made to any person enumerated under clause (b) of sub-sec.(2) of sec.40A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 3.60,73,411). The said claim was disallowed during the assessment proceedings. AO observed that the inventories were written off as per the authorization memo between 21 October 2002 to 24 October 2002, i.e., six days before filing return of income. Accordingly, the AO expressed the view that the assessee. if at all is required to write off the inventory should have written off in the succeeding year, i.e., in the financial year 2002-03 relevant to the AY 2003-04. On appeal against the assessment order, the learned CIT(A) had upheld the disallowance with the below noting: Therefore, I agree with the conclusion of the assessing officer that the deduction for inventory write off was not allowable in the present assessment year. The allowability of inventory write off could only have been considered in the following assessment year relating to financial year 2002-03. 7.2 On further appeal, Hon'ble ITAT vide in order for AY 2002-03 dated 4 February 2022 had upheld the disallowance observing that the disposal notes which form basis of write off of inventory is received on 24 October 2002 i.e.. in FY 2002- 03 (AY 2003-04). 7.3 Based on the noting in the order of CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes. 8. Ground no. 15 is general in nature and therefore do not require adjudication. 9. Ground no. 16 is consequential. Accordingly the appeal filed by assessee for A.Y. 2003-04 stands allowed as indicated hereinabove. Assessment Year 2005-06: 10. The facts being identical as submitted by both sides, the Ld.AR submits that only one issue arises out of the present appeal is in respect of the disallowance of administrative fee by considering its transaction value to be at Nil by the Ld.TPO. He relied on the arguments that was raised by him for A.Y. 2003-04 which is recorded hereinabove. The Ld.DR also submitted similarly. The Ld.AR has also filed an application for admission of additional evidence being a certificate in relation to the fee paid towards administrative services issued by Chartered Accountant dated 29/10/2021. He submitted that the said certificate has been obtained from an independent Chartered Accountant and may be considered while adjudicating the issue. We have perused the submissions advanced by both sides in the light of records placed before us. 11. As we have already remanded the issue back to the Ld.AO for deno ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
