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TMI Blog2025 (4) TMI 1436X X X X Extracts X X X X X X X X Extracts X X X X ..... netton India Private Limited ('the Appellant') respectfully submits the following additional ground of appeal for admission before your Honours: Ground 1 - The directions issued by the Hon'ble Dispute Resolution Panel ('DRP') are liable to be quashed as being violative of CBDT Circular No.19 of 2019. On the fact and the circumstances of the case and in law, the directions issued by the Hon'ble DRP dated 2 May 2022 u/s 144C of the Income Tax Act, 1961, is in violation of CBDT Circular No. 19 of2019 dated 14 August 2019 and hence is liable to be quashed as invalid. Consequently, the resultant final assessment order issued u/s 143(3) r.w.s. 144C(13) of the Act is also invalid and non-est. The said ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add or alter, by deletion, substitution, modification or otherwise or amend or withdraw the Additional Ground of Appeal herein and to submit such statements, documents and papers as may be considered necessary either before or during the hearing of the appeal." 3. We also observed that the Assessee has raised additional ground stating that the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss royalty earned by the assessee from its authorized sub licenses. For the purpose of determining the Arm's Length Price for payment of royalty, the assessee has adopted CUP method. Three comparable agreements were selected for royalty payment which averaged out to be 6.08%. Since the effective royalty paid by the assessee during the year under consideration was 4.81% on sales, the transaction was held to be at Arm's Length. 12. The Ld. TPO has applied Transactional Net Margin Method (TNMM) on entity level and disregarded Comparable Uncontrolled Price (CUP). The TPO also included amount of third party AMP Expenses while computing the amount of adjustment for royalty, applied the TNMM Method and determined the Arm's Length Margin at 5.42%. The said action of the TPO has been confirmed by the DRP/A.O vide order impugned. 13. The Ld. Counsel for the assessee submitted that the Ld. TPO/AO/DRP have treated selling and distribution expenses as part of advertising and marketing expenses, incorrectly associated profitability with payment of royalty. The ld. Counsel further submitted that the authorities have erroneously found that marketing was responsibility of the A.E an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ITA No. 4329/Del/2014 and 4229/Del/2014), in A.Y. 2011-12 (ITA No. 31/Del/2017), in A.Y. 2012-13 (ITA No.1091/Del/2018), wherein the payment of royalty was held to be at arm's-length by coordinate benches of this Tribunal. 17. In the present year, the TPO added advertisement expenses (including a mark-up of 10%) to the payment made by assessee in accordance with the Trademark and Know-how License Agreement ("License Agreement"), in addition to the royalty payment. This was done because Clause 13 of the License Agreement, quoted below, mandates the assessee to advertise the licensed products. "13. Advertising 1. The LICENSEE shall continuously advertise the Licensed products in a way attractive to the consumers and in keeping with the trends of the market, by way of photo reportage, pictures, scripts, texts, other materials and services made available by the LICENSOR with a view to both assuring as uniform as possible a world-wide image of the Licensed Trademarks and the Benetton Group and allowing the LICENSEE to avail itself of the worldwide terms and arrangements for the time being in force between Benetton Group and its advertising agencies 2. The LICENSEE shall previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of different segments of assessee's international transactions with associated enterprises. In our view, Assessee's functions, risk and assets FAR considerations, which are given in the above table, deserves to be merited. TPO did not appreciate the Assessee's transactions correctly and applied entity level benchmarking on TNMM method by combining Assessee's all international transactions with associated enterprise without justification. 7.3. Our view is supported by ITAT judgments - Mumbai Bench in the cases of UCB India (P) Ltd. Vs. ACIT (supra); and ACIT v. Star India Ltd. (supra); and Kolkata Bench in the case of Development Consultants (P) Ltd. (supra). All these cases clearly lay down that ALP would be determined based on the nature of service provided by assessee for each class of transaction based on various factors and analysis. In the case of Star India Ltd. (supra), also the TPO treated all the activities of the assessee as one and determined the ALP at entity level without appreciating that one cannot compare the FAR of a principal and agent on same footing. 7.4. In our view, in the assessee's case there are different segmental activities, which are independent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment expenses are supported by 100% third party back-to-back invoices. The Ld. TPO has also on perusing the document found that all the third-party invoices are in the name of associated enterprises. The TPO concluded that there is no evidence of receipt of service as the third party invoices should have been in the name of the assessee company if at all the payments were in the nature of reimbursement. The ld. DRP upheld this finding of the TPO. 24. Having considered the rival stands on this issue, we find that the lower authorities have misdirected themselves and not appreciated the factual matrix sought to be canvassed by the Assessee. Notably, the assessee submitted before the lower authorities that the expenses in question were incurred for promotion of products of the assessee and in order to meet the high quality advertisement and promotion material which are of global standards. Such expenses were met through the foreign AE. It was submitted that expenses incurred on year to year basis as per actual business requirement of the assessee. According to the assessee, the same were in the nature of pass through costs paid by its AE and thereafter reimbursed by assessee at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from its AE in the nature of Computer Assistance Designing Techniques including software like CAD, Orchidie, Iris, Citirix, Rtbenet etc. which were used by it in its manufacturing process. The AE charged BIPL for the use of the above software on cost-to- cost basis. The TPO determined the ALP of these intragroup services to be zero as the assessee could not provide any evidence of requisition or receipt or cost-benefit analysis. The ld. DRP upheld the order of the TPO. 28. Before us, the Ld. AR submitted that the Coordinate Bench in Assessee's own case for AY 2009-10 and CIT(A) for AYs 2007-08 and 2008-09 decided this issue in the Assessee's favour. Ld. DR relied on the order of the TPO. 29. We have gone through the record in the light of the submissions made on either side. Since the facts are similar and issue is identical, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee's own case for the Assessment Years 2009-10, we hold that the impugned addition cannot be sustained. We therefore direct the TPO/AO to delete the adjustment made on account of IT Cost Allocation. Consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the DRP upheld the action of the Assessing Officer. Ld. Counsel submits that in the draft assessment order it is observed by the Assessing Officer that as the claim of Income tax is not allowable deduction the Assessee suo moto disallowed the same during the AY 2012-13 and, therefore, the contention of the Assessee that the provision made on account of Income tax is no longer payable hence reversed the same during the year under consideration and if not allowed the same then would be double taxation is not tenable as the claim of Income tax is basically not allowable expenditure as per provisions of the Act. The Ld. Counsel for the assessee submits that the computation of income for AY 2012-13 at page 869 of the Paper Book clearly reflects that the said amount had been added back while computing the income for that assessment year. In the year under consideration since there was a reversal of the said provision in the books consequently while computing the total income such reversal was given effect to reduce from the total income, otherwise it tantamount to double addition. The Ld. Counsel submits that this was not an issue whether Income tax provision can be claimed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack in the computation of income. Since in the assessment year under consideration the provision was reversed in the books consequent adjustment was made in the tax computation otherwise it would have resulted in a double addition. 15. On the other hand, Ld. DR submitted that the issues may be restored to the Assessing Officer for verification. 16. Heard rival submissions, perused the orders of the authorities below. We find considerable merit in the submissions of the Ld. Counsel for the assessee. Therefore, the issues in ground nos. 5 & 6 are in principle allowed subject to verification by the Assessing Officer. The Assessing Officer while passing the consequential order may verify the contentions of the assessee before allowing claims of the Assessee. 17. Coming to ground no.7 Ld. Counsel submits that in the intimation issued u/s 143(1) of the Act, it was stated that amount of disallowance u/s 37 of the Act reported in tax audit report amounts to Rs. 3,93,94,745/- whereas amount of disallowance u/s 37 of the Act made in income tax return amounts to Rs. 2,03,74,846/- accordingly CPC has made an adjustment for the differential amount of Rs. 1,90,19,899/-. Further, it was also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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