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TMI Blog2022 (5) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AO has erred in assessing the total income at Rs. 59,21,92,914 as against returned income of Rs. 54,48,429 computed by the Appellant; 2. The final assessment order issued by the AO under section 143(3) dated 28 January 2016 pursuant to DRP directions under section 144C is time barred and invalid in law; Grounds relating to transfer pricing matters On the facts and in the circumstances of the case and in law: 3. The learned Transfer Pricing Officer ("TPO") erred in making an addition of Rs. 52,57,31,896 to the total income of the Appellant on account of adjustment in the arm's length price of the international transactions entered by the Appellant with its associated enterprise; 4. The learned TPO and the learned AO have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules"), conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction, and holding that the Appellant's international transaction is not at arm's length; 5. The impugned order is violative o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature, then depreciation should be provided at appropriate rates as prescribed under the Act; 15. The learned AO has erred, in law and in facts. by disallowing foreign exchange loss of Rs.1,58,96,977 pertaining to restatement of trade receivables and payables on the basis that they are notional/ speculative losses; 16. Without prejudice to the above, the learned AO erred in ignoring the fact that the Appellant had offered to tax the unrealised foreign exchange gains on reinstatement of trade receivables and payables in earlier years and the same was accepted by the revenue. The learned AO has thus used inconsistent approach in disallowing the unrealised foreign exchange losses incurred for the current assessment year; 17. The learned AO has erred, in law and in facts, by disallowing stamp paper charges of Rs.64,200 on the basis that the same is not genuine, without providing opportunity to furnish details: 18. The learned AO has erred, in law and in facts, by disallowing notional interest of Rs. 2,34,000 under section 36(1)(iii) of the Act on the salary advance given to the employee on the basis that the transaction lacked business expediency: 19. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liates. Under this arrangement, LSIL assists in monitoring the progress of preproduction/ production activities of the identified suppliers and inspects the quality of the goods sourced from India. The assessee also received services from AE's during period of appeal. 2.2 The Ld.AO observed that, the assessee had international transactions with the associated enterprises exceeding Rs. 15 Crores, and accordingly, reference was made to the Ld.TPO to determine ALP of the international transactions. On receipt of reference u/s. 92CA, the Ld.TPO called upon the assessee to file economic details of the transactions between assessee and AE, in Form 3CEB. From the details filed, the Ld.TPO observed that assessee had following international transaction. Type of international transaction Particulars Purchase of garments 353400642 Provision of support services to Levi Strauss Asia Pacific Division Pvt. Ltd("LSAPD') 203174130 Use of support services rendered by LSAPD 108984547 Payment of royalty to LS & Co 131687582 Cost Reimbursement 107623641 2.3 The Ld.TPO observed that, the assessee benchmarked its four transactions independently, in the TP study, and therefore, a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that each international transaction should be benchmarked on transaction basis and that, the adjustment should be restricted only to the international transactions undertaken by assessee with its AE. 4.3 The Ld.AR submitted that, the assessee used RPM as the most appropriate method to benchmark the international transaction of import of finished garments and resale which has been rejected by the Ld.TPO by applying TNMM at an aggregate level. 4.4 The Ld.AR submitted that RPM is the method that is applied to test the transactions involving distribution functions that is, when the tested party purchases products from a related party and resale the same to independent parties. Therefore RPM is considered as the most appropriate method for computing the ALP of the finished garments imported by assessee. He placed reliance on decision of Hon'ble Bombay High Court in case of CIT vs. L'Oreal India Pvt. Ltd. reported in (2015) 53 taxmann.com 432 wherein the Hon'ble Court held that in case of distribution or marketing activities when the goods are purchased from the associated enterprises and are sold to unrelated parties without any further processing then, RPM can be adopted as the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles of natural justice. 4.10 On the contrary, the Ld.CIT.DR relied on orders passed by authorities below. 4.11 We have perused the submissions advanced by both sides in the light of records placed before us. 4.12 We note that the transactions between the assessee and the AE has been aggregated by the Ld.AO without any basis. We also note that the benchmarking of the transaction has been considered by the Ld.TPO at entity level, without segregating the non-AE transactions which is a requirement as per section 92B of the Act. As held by various Courts, no addition can be made to the local transactions under Chapter X of the Act, and that the Ld.AO/TPO is supposed to determine the arms length price in relation to the international transaction with the AE only and not with any third party. 4.13 This alone warrants to entire issue to be remanded back to the Ld.AO/TPO to reconsider the transfer pricing issues de novo. The Ld.TPO is directed to consider the transactions and apply the appropriate method as per section 92 r.w. Rule 10A of the Act, qua the facts of the assessee. The assessee is directed to file all requisite details in support of its contention to establish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, the Company has supplied various point of sales/ advertising materials to various distributors/franchisees, to ensure display of LEVI's branded products in uniform manner across various stores to attract customer's attention. Further it is submitted that these advertising materials have a very short term life and are to be routinely changed, since every season calls for different presentations which are based on the line of products .............each season. In this regard, the Appellant also produced sample copy of invoices to buttresses its claim that the above expenditure are normal, recurring and regular expenditure, considering the nature of business carried on by the Company. It is the assessee's stand that: such expenditure is not resulting in the creation of any new asset or advantage of enduring nature for the Company. And therefore, the expenditure incurred on the above point of sales materials is the nature of revenue expenditure. * The assessee's contentions were not accepted by the AO, primarily for the reason that, these expenditures were of a capital nature and therefore were not prima-facie allowable u/s 37 of the I.T. Act. It is observed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round nos. 15-16 is in respect of disallowing the foreign exchange fluctuation on restatement of receivables and payables. 6.1 The Ld.AR submitted that the assessee restated outstanding trade receivables and payables as at 31 March 2011 in accordance with Accounting Standard-11. During AY 11-12 Rs 60,409,168/- were debited to the profit and loss account towards foreign exchange loss, out of which, Rs.15,896,977/- pertains to loss incurred on restatement of outstanding trade receivables/payables as at 31 March 2011. 6.2 The Ld.AR referred to Coordinate Bench decision in assessee's case for A.Ys. 2012-13 and 2013-14 wherein this Tribunal has considered this issue as under: 6.3 For the sake of ready reference, we reproduce the relevant paras "9. We have given careful consideration to the rival submissions. We find that the foreign exchange loss claimed by the assessee was on account of reinstatement of the liability of the assessee as on the last date of the previous year. It is no doubt true that there has been no actual payment and at the time of ultimate settlement, there may not be a loss also. Nevertheless, AS - 11 of ICAI requires such liability also to be reflected in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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