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TMI Blog2023 (8) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the product manufactured by the assessee, does not come within the purview of international transaction - we direct the Ld.TPO to delete the adjustment made towards the AMP. Decided in favour of assessee. Disallowance of deduction claimed u/s. 80G - HELD THAT:- As relying on Sling Media (P.) Ltd [ 2021 (12) TMI 762 - ITAT BANGALORE] we direct the Ld.AO to verify the payments made by assessee towards CSE that also forms part of deduction u/s. 80G. AO then shall grant the deduction claimed u/s. 80G in accordance with law. - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri Percy Pardiwala, Sr. Advocate For the Revenue : Shri D.K. Mishra, CIT (DR) ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the final assessment order dated 27.07.2022 passed by the assessment unit for A.Y. 2018-19 on following grounds of appeal: The grounds mentioned herein by the Appellant are without prejudice to one another 1. On the facts and in circumstances of the case and in law, the assessment order framed under section 143(3) read with section 144C(13) and section 144B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sregarding the concept of economic ownership and construing the alleged AMP expense to be a service consequent to development, enhancement, management, protection and exploitation (DEMPE') functions performed by the Appellant, resulting in brand building for the AE and not appreciating that the alleged AMP expenses were incurred for the purpose of business of the Appellant in India and no benefit was intended to be passed on to the AE: 4.5. not providing any documents/ evidences on records to substantiate the findings relating to DEMPE functions of the Appellant and alleged AMP expenses as mentioned in para 4.4 above. 4.6. alleging the various non-marketing and advertising expenses such as selling expenses incurred by the Appellant to be AMP expenses; 4.7. making an adjustment using 'Other Method' as the most appropriate method ( MAM ) and adopting an approach similar to the Bright Line Test ( BLT ) without appreciating that no such method is prescribed under the Act or the Rules; 4.8. interpreting the functional, assets and risks ('FAR') profile as furnished in the TP documentation and misquoting the facts leading to erroneous conclusions fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble DRP / learned AO / learned TPO erred in: a. including companies that are not akin to a marketing service provider; b. excluding companies, which are akin to a marketing service provider thereby adopting a cherry-picking approach 4.17. not considering the submissions of the Appellant against the functional comparability of the companies selected by the learned TPO and the arguments supporting the comparable companies selected in the TP documentation rejected by the learned TPO (Tax Effect: INR 936,160,956) Grounds relating to other than TP matters 5 Disallowance of deduction under section 80G of the Act 5 1. On the facts and in the circumstances of the case and in law, the learned AO erred in disallowing the claim of deduction of INR 9,300,000 under section 80G of the Act by holding that amount paid out of Corporate Social Responsibility (CSR) expenditure is ineligible for such deduction. 5.2. On the facts and circumstances of the case, the learned AO failed to appreciate the fact that the disallowance cannot operate based on supposed intention and the Assessee has discretion to choose the project/programme for the purpose of donation as l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment to the Arm's length Price by Rs. 296,05,05,433/-. 2.3 Against the draft assessment order, the assessee filed objections before the Dispute Resolution panel The DRP passed order u/s 144C(5) of the Act on 03.06.2022 wherein certain directions were given to the Ld.TPO/AO in order to enable to complete the assessment order. Further, certain directions were also issued to Ld.TPO in the SWD and AMP Segment. The Ld.TPO passed order u/s 144C of the Act on 27.06.2022 giving effect on TP issues in the case of the assessee based on DRP directions. The assessment was then passed u/s. 144C(13) considering the directions issued by the DRP u/s 144C(5) dated 03.06.2022 and simultaneously incorporating the effect order u/s 144C of the Act dated 27.06.2022. The addition thus made in the impugned order was as under: AMP Adjustment Rs. 270,50,42,061/- Disallowance u/s. 80G Rs. 93,00,000/- 2.4 Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal. 3. At the outset, the Ld.Counsel submitted that ground no. 1 is general in nature and therefore do not require adjudicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the costs that would be incurred by unrelated parties. Hence, they argue that it should come under international transaction and should be included in the transfer pricing study. However, Indian subsidiaries contend that such expenditure is carried out for their own purposes to build the business in India and is not meant to contribute to the global business. 3.18. Indian authorities have also adopted the bright-line test to determine whether such transactions can be included in the transfer pricing. This test was laid down by the United States Courts. The test states that the AMP expenditure which is in excess of the expenses incurred by comparable companies in a controlled transaction has to be compensated to the overseas enterprise. The Indian authorities consider this excessive expenditure as an enhancement of the global branch and a step towards creating marketing intangibles. 3.19. This issue was been heavily contended for years. In 2010, in the case of Maruti Suzuki, reported in (2010)192 Taxman 317, Hon ble Delhi High Court had held that that the AMP expenditure amounted to an international transaction. A similar matter was then again heard by Hon ble Delhi S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the arm s length price. 3.21 Admittedly, in the present facts of the case, the assessee is a distributor and is functioning its activities under the MLM sales model. On perusal of the records and the activities carried out by the assessee described in the TP study reports, no action foised it as an international transaction. The entire sales of the assessee is effectuated in India and the entire profits are also assessee s own profit. The expenditure incurred by assessee is to carry out its day to day business activity of distribution and are directly linked with the business carried out by assessee in India. It is not disputed by the revenue that TDS has been deducted by the assessee on the royalty earning, production bonus u/s. 194H of the Act, and thus payouts are made only when the members / associates /distributors effectuate a successful sale. In any event, all these expenses have been considered by the assessee while computing the margin under the manufacturing segment which already has been held to be at arms length by the Ld.TPO in the transfer pricing order u/s. 92CA. 3.22 In this context, we draw specific reference to the observation of Hon ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nn.com 164 b) First American (India) (P.) Ltd. vs. ACIT in ITA No. 1762/Bang/2019 by order dated 29.04.2020 The Ld.DR placed reliance on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 5.1 We note that in the draft assessment order dated 25.09.2021, the Ld.AO disallowed the claim of 80G by holding it to be on account of CSR activities. Similar is the issue dealt with by this Tribunal in the decisions relied hereinabove by the Ld.Counsel. 5.2 We note that in the decision of First American (India) (P.) Ltd. vs. ACIT (supra) was relied by the Coordinate Bench of this Tribunal in Sling Media (P.) Ltd. vs. DCIT (supra) to decide identical issue. Following were the observations of the Coordinate Bench in case of Sling Media (P.) Ltd. vs. DCIT (supra). 6.1 We note that assessee has suo moto disallowed the expenditure towards the CSR responsibilities u/s. 37(1) of the Act and claimed deduction u/s. 80G to the extent of donations paid to eligible charitable institutions. The observations of co-ordinate bench of this Tribunal in case of First American (India) Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 21. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its calim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility. 6.2 Respectfully following the above view, we direct the Ld.AO verify the payments made by assessee towards CSR that also forms part of deduction u/s. 80G. Ld.AO shall then grant the deduction claimed u/s. 80G of the Act in accordance with law. Respectfully following the above view, we direct the Ld.AO to verify the payments made by assessee towards CSE that also forms part of deduction u/s. 80G. The Ld.AO then shall grant the deduction claimed u/s. 80G in accordance with law. Accordingly, these grounds raised by assessee stands allowed as indicated hereinabove. In the result, the appeal filed by the assessee stands al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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