9911796707
TMI Blog2023 (3) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... he convention expenses in the case of the assessee for the aforementioned preceding years viz. A.Y. 2011-12, A.Y. 2012-13 and A.Y. 2013-14. We have perused the orders of the Tribunal for the said respective years and find that the said alternative adjustment on appeal was vacated by the Tribunal. Accordingly, finding ourselves to be in agreement with the view taken by the Tribunal in respect of the issue under consideration in the aforementioned preceding years, we vacate the said alternative adjustment made by the TPO/DRP. TP Adjustment on account of reimbursement of expenses - primary contention for the assessee is that the TPO had made adjustment - TPO had made adjustment of Rs.1,22,62,124/-, however, the DRP enhanced the adjustment to Rs.4,04,53,708/-. It is contended that before enhancement no show cause notice was issued to the assessee - HELD THAT:- Taking into consideration entirety of facts we deem it appropriate to restore this issue back to the file of AO for denovo consideration after affording reasonable opportunity of hearing to the assessee, in accordance with law. Consequently, ground of the appeal are allowed for statistical purpose. Working capital adjustment whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as 56 grounds and one additional ground assailing Transfer Pricing Adjustment( TP adjustment) and the additions made under regular provisions of the Act by the Assessing Officer. For the sake of convenience of deciding multiple grounds raised in the appeal, the grounds raised by the assessee are grouped under the heads in which additions have been made. 3. The assessee is a subsidiary of Medtronic International Ltd. Hong Kong, a Group Company of Medtronic Inc. USA. The parent company is a global leader in medical technology and is engaged in the business of manufacturing wide range of products and therapies. The assessee is engaged in the business of marketing and distributing products of group companies relating to Cardiac Rhythm Disease Management(CRDM), Neuro-modulation, Spinal and Biologics, Diabetics, Cardio-vascular, Surgical technologies and Physio-control. During the period relevant to the assessment year under appeal the assessee entered into following international transactions with its AE: Sr.No. Nature of International Transactions Amount (Rs.) Method Adopted 1 Purchase of finished goods for Resale 3,914,881,870 TNMM 2 Purchase of capital assets 115,064,57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided on 17/01/2018. 5. Per contra, Shri Yogesh Kamat representing the Department vehemently defended the findings of Assessing Officer and DRP. However, the ld. Departmental Representative fairly stated that the issue raised in present appeal has been considered by the Tribunal in assessee's own case in the Assessment Year 2010-11. 6. Both sides heard. We find that the TPO made adjustment in respect of AMP alleging that AMP expenses incurred by assessee are excessive and benefited the group entities, hence, the assessee should have been compensated by the Associated Enterprise (AE) for incurring AMP expenses. The DRP relying on the direction of DRP in Assessment Year 2014-15 held that AMP is an international transaction and upheld the adjustment. We find that the issue is perennial. The adjustment on account of AMP expenses has been made in case of assessee since Assessment Year 2008-09. In each of the Assessment Years since assessment year 2008-09 the issue travelled to the Tribunal. The Tribunal consistently decided the issue in favour of the assessee. The assessee referred to the order of Tribunal for Assessment Year 2010-11, wherein identical issue has been examined. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia the assessee was benefitting a brand name of TCUK. 8.3.1.First of all,we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses.The Hon'ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT.Probable incidental benefit to the AE would not make such a transaction an IT.The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged 'internationality' of the transacttion.In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE,it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT.Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and cannot come in picture.Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi).Similarly the existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated 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 anyone 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 Section 92B(1) an 'international transaction' means- (a) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 928 (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 Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred 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 vs. 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 the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki dia Ltd. (supra) as under: xxxxxx 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s excessive,thereby evidenc - ing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire 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 928 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 forno other purpose; in the- context of a domestic transaction involving two or more related par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in- Sassoon -J David-(supra)- "the- -fact that- somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". With reference to the submissions of the DR,we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods, so the question of slicing of expense in two portions would not arise. However, the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon'ble High Court, we would like to mention that matter can be restored back in certain conditions only. Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants. It is not advisable to prolong the judicial proceedings in the name of fair play. It is not a case where new evidences have been placed on record by the assessee, that were not made available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diately preceding assessment year i.e. assessment year 2014-15 has decided this issue by observing as under: " 9. We shall now advert to the claim of the ld. A.R that the DRP had erred in partly confirming the secondary adjustment made by the TPO by holding that in case the adjustment of AMP expenses is not sustained by the appellate authorities, then the convention expense to the extent of 92.03 percent i.e INR 33,44,95,973/- should be considered to be in the nature of expenses incurred towards brand building and business promotion, and, thereby an adjustment should be made as regards the same. It was submitted by the ld. A.R that the „convention expenses‟ incurred by the assessee in the normal course of its business had wrongly been held by the TPO/DRP as AMP expenses. It is the claim of the ld. A.R that the convention expenses incurred by the assessee were in the nature of selling expenses and could not have been considered as part of its AMP expenses. In order to buttress his aforesaid contention, it was submitted by the ld. A.R,that the aforesaid claim of the assessee had been accepted by the Tribunal in the assesses own case for A.Y 2011-12 viz. India Medtronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee is that the TPO had made adjustment of Rs.1,22,62,124/-. After the directions of the DRP there was enhancement in adjustment. The Assessing Officer in compliance of the direction of DRP made adjustment of Rs.4,04,53,708/-. The ld.Authorized Representative for the assessee submitted that the enhancement was made by DRP without issuing show cause notice, hence, the adjustment is against the principles of natural justice. The ld.Authorized Representative for the assessee referred to the chart at page 1754 of the paper book to contend that the total reimbursement during the period relevant to the assessment year under appeal are only to the tune of Rs.36,78,644/-. The assessee is ready for the examination of the aforesaid amount. The remaining amount has already been examined by the TPO. The DRP has made enhancement on the remand report of the TPO. Before enhancing the adjustment, no show cause notice was issued to the assessee by the DRP. The ld.Authorized Representative for the assessee further submitted that the expenses are reimbursed on cost to cost basis and there was no mark-up. The ld.Authorized Representative for the assessee submitted that the issue can be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue back to the file of TPO. While giving effect to the order of Tribunal, the Assessing Officer allowed working capital adjustment after seeking comments from the TPO. The ld.Authorized Representative for the assessee referred to the Order Giving effect dated 05/07/2021 by the Assessing Officer at page 1499 of the paper book. 14. The ld.Authorized Representative for the assessee made statement at Bar that he is not pressing ground No.28 to 32. Accordingly the said grounds are dismissed as not pressed. 15. The assessee in ground No.33 of the appeal has prayed for granting working capital adjustment while computing operating margin of comparable companies. We find that similar issue was considered by the Tribunal in assessee's own case in assessment year 2014-15. The Tribunal restored the issue back to the file of Assessing Officer /TPO by observing as under: "25. We shall now advert to the claim of the assessee that the TPO/DRP had erred in not granting working capital adjustment while computing the operating margin of the comparable companies for the purpose of determining the ALP of the international transactions of import of goods by the assessee from its AEs during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital i.e accounts receivable, inventory and accounts payable between the assessee i.e the tested party and the comparable companies. Also, the assessee had in the course of the proceedings before the lower authorities submitted that as working capital yields a return resulting from viz. (i). higher sales price; or (ii). lower cost of goods sold, therefore, the same would have an impact on the operational result. Accordingly, we are unable to accept the observation of the TPO/DRP that the assessee had failed to make out a case as to how the working capital adjustment would affect the net profit margin in the open market. Apart there from, the assessee has also assailed the correctness of the observation of the DRP that ther was a cessation of the agency business of the assessee in December, 2012. We thus are of the considered view that the matter in all fairness requires to be revisited by the DRP for afresh adjudication on the issue pertaining to working capital adjustment in the hands of the assessee. Needless to say, the TPO in the course of the „set aside‟ proceedings shall afford a reasonable opportunity of being heard to the assesse who shall remain at a liberty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by Hon'ble Supreme Court of India in the case of Apex Laboratories Pvt. Ltd. vs. DCIT, (supra). Without commenting on merits of the issue raised in grounds No.36 to 51, they are restored to the file of Assessing Officer for adjudication in accordance with the decision rendered in the case of Apex Laboratories Pvt. Ltd. vs. DCIT(supra). Consequently, grounds No.36 to 51 of the appeal are allowed for statistical purpose. 19. In ground No.52 of appeal, the assessee has assailed disallowance of depreciation on buildings. The ld.Authorized Representative for the assessee submitted that this issue is squarely covered by the decision of Tribunal in assessee's own case in ITA No.7555/Mum/2012 for assessment year 2008-09 decided on 04/05/2018. 20. We find that in the impugned assessment year, the assessee's claim of depreciation of building Rs.58,298/- has been disallowed by Assessing Officer for the reason that the building was not put to use during the period under assessment. The stand of the assessee is that building in question forms part of the block of assets and continue to exist even after manufacturing was discontinued. We find that for similar reasons in assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner (Appeals). While deciding the appeal, though, the Tribunal upheld the decision of the Departmental Authorities in holding that the payment made towards non-compete fee is capital expenditure, however, it also held that the assessee is eligible to claim depreciation on such expenditure as it is an intangible asset. Accordingly, depreciation was allowed to the assessee on the expenditure incurred towards noncompete fee. Consequential effect in terms of depreciation on the WDV of non-compete fee was allowed to the assessee in the assessment year 2003-04 and 2004-05. Even, while deciding the appeals for the assessment years 2008-09, 2011-12, 2012-13 and 2013-14, assessee's claim of depreciation on non-compete fee was allowed while entertaining the additional ground raised by the assessee. 44. We have considered rival submissions and perused material on record. At the outset, we must observe that the issue raised in the additional ground can be decided without making investigation into fresh facts. Therefore, we are inclined to admit the additional ground raised by the assessee. Undisputedly, in the year of payment of non-compete fee i.e., A.Y. 2002-03, the assessee had clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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