TMI Blog2013 (10) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... action in the facts and circumstances of the present case - Following decision of LG Electronics India Pvt. Ltd., Noida vs. ACIT [2013 (6) TMI 217 - ITAT DELHI] - Decided against assessee. Transfer pricing adjustment of AMP expenses - Held that:- expenses in connection with the sales do not lead to brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost/value of the international transaction. In view thereof, we direct the Assessing officer to exclude the expenses incurred by the assessee in connection with the sales totaling ₹ 5500.86 lacs as the same do not fall within the ambit of AMP expenses and hence not to be considered for computing the cost/ value of international transaction - expenditure relating to sales do not lead to the brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost / value of the international transaction - Following decision of Glaxo Smithkline Consumer Healthcare Ltd. Versus Additional Commissioner of Income-tax, Range-IV, Chandigarh [2012 (4) TMI 279 - ITAT CHANDIGARH] - Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of distribution of consumer durables, e.g., air conditioner, refrigerator, washing machine, television etc. In the previous year relevant to assessment year under consideration, the assessee has entered into certain international transaction. The Assessing Officer made a reference to the Transfer Pricing Officer (TPO) u/s. 92CA(1) of the Act. In its transfer pricing report the assessee has shown only following international transaction with the associated enterprises. i) Purchase of finished products from the overseas associated enterprise ( the AE ) HAH (HK) Company Ltd.,Hong Kong amounting to ₹ 41.66 crores for the purpose of distribution / resale in India. ii) Purchase of capital items of ₹ 1,95,97,166/-. The TPO found the above two international transactions in order. On verification, the TPO noticed following further international transactions with its AE were not reported in From 3CEB and transfer pricing report:- i) Capital Grant Received ₹ 131,147,568/- ii) Share Application Money Received ₹ 149,837,600/- iii) Expenses Recovered ₹ 7,779,611/- 4.2 After show causing the assessee the TPO proceeded to determine the ALP i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions in light of the material produced. Ld. Counsel of the assessee submitted in this regard that the Special Bench of the Tribunal was constituted in the case of LG Electronics India Pvt. Ltd., Noida vs. ACIT, Circle-3, Noida bearing I.T.A. No. 5140/Del/2011 to decide as to whether the Assessing Officer /TPO was justified in Transfer Pricing Adjustment in relation to the Advt., marketing and promotion expenses incurred by the Assessee. The Assessee also intervened before the Special Bench. The Special Bench recently pronounced its order dated 15.1.2013. The Special Bench in principle held that benchmarking of AMP expenses expense being an international transaction was permissible under the TP regulations. The matter was sent back to the TPO to re-adjudicate the ALP in light of the factors enumerated in the order. 6.1 Ld. Counsel of the assessee has further submitted that the Special bench has concluded that expenditure in connection with sale, which do not lead to brand promotion cannot be brought within the ambit of AMP expenses for determining the cost / value of international transaction. It has further been submitted that expenses amounting to ₹ 55,63,47,480/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onveniently reproduced for the sake of brevity. The issue of retrospective application, jurisdiction, AO/TPO's powers etc. etc. have been decided in favour of revenue and against the assessee in L.G. Electronics India Pvt. Ltd. by following observations: 7.19. Here it is relevant to note that the Finance Act, 2012 introduced sub-sec. (2C) along with sub-sec. (2B) of section 92CA. Whereas sub-section (2B) has been made retrospectively applicable from 1.6.2002, sub-section (2C) has been given effect from 1-7-2012. The reason is obvious when we see the contents of both the provisions. Under sub-section (2C), the power of the AO to make assessment or reassessment U/S 147 or pass order U/S 154 to enhance the assessment completed before 1-7-2012, has been curtailed to the extent the subject matter is covered by sub-section (2B). It shows that abundant caution has been taken by the legislature in not disturbing the finality of the assessment due to retrospective operation of sub- section (2B) in cases set out in sub-section (2C). The acceptance of the contention of the ld. AR to consider sub-section (2B) as prospective, would not only make sub-section (2B) but sub-section (2C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise of power by the TPO on other international transactions is concerned, the requirement of seeking approval from the CIT will be lacking, rendering the assumption of jurisdiction by the TPO over such other international transactions as invalid. Here again we find ourselves in respectful disagreement with the submission. What sub- sec. (1) requires is that the AO should seek previous approval of the Commissioner in respect of the transactions for which he is making reference to the TPO. There is no requirement of previous approval of the Commissioner in respect of the international transactions which come to the notice of the TPO during the course of proceedings before him. The prerequisite of seeking approval of the Commissioner is incorporated in sub-sec. (1) alone and the same cannot be read into sub- secs. (2A) and (2B) by the doctrine of incorporation. Our view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Pawan Kumar Laddha [(2010) 324ITR 324 (SC)). 7.22. Now we take up the contention raised by the Id. counsel for some of the interveners on harmoniously interpreting sub-section (2B) by limiting its scope only to such transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs all types of international transactions in respect of which the assessee has not furnished report, whether or not these are international transactions as per the assessee's version. The contention of the ld. counsel in this regard is thus sans merits and is hereby rejected. We want to clarify that the above discussion has been made only to deal with the contention raised on behalf of some of the interveners. But for that, it is only academic in so far as we are concerned with the present appeal involving the A.Y. 2007-08, which is a period anterior to A.Y. 2012-13. The extant case is fully and directly covered under sub- section (2B) of section 92CA. In that view of the matter, it becomes evident that no fault can be found with the jurisdiction of the TPO to process the transaction under reference. .......... 14.21. Thus it is palpable that all the three necessary ingredients as culled out from a bare reading of section 92B are fully satisfied in the present case. There is a transaction of creating and improving marketing intangibles by the assessee for and on behalf of its foreign AE; the foreign AE is non-resident; such transaction is in the nature of provision of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for no fault of it. Ld. CIT(DR) also could not offer any adverse comment on the segregation and details of sales related expenses i.e. trade discount, volume rebate, cash discount, commission etc. So also, no adverse comments were offered in respect of subsidy received from Singapore to meet the AMP expenses. While dictating this order, we came across the ITAT Chandigarh Bench decision in the case of M/s Glaxo Smitkline Consumer Healthcare Ltd. for A.Y. 2007-08, which came across nearly similar type of situation, where such type of selling expense were excluded from the AMP expenses at the ITAT level itself. The relevant extract is as under: 27. The plea of the assessee before us was that expenses aggregating ₹ 5500.86 lacs are expense incurred in connection with sale and do not lead to brand promotion as held by the Special Bench. After excluding the aforesaid selling expenses aggregating to ₹ 5500.86 lacs, the remaining expense of ₹ 8679.75 lacs (consisting of 6.87% of the total sales) only is required to be considered for the purpose of benchmarking analysis as undertaken by the TPO. The learned DR for the Revenue placed reliance on the orders of the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' of the table, reproduced in para 4.23 above, are set aside back to the file of AO/TPO to decide the issue of AMP expenses by applying the proper comparables after hearing the assessee and keeping in view the Special Bench directions in this behalf. Thus, the grounds about TP adjustments in respect of AMP expenses are partly allowed for statistical purposes. 6.4 From the above, we find that the Tribunal in the case of Canon India Pvt. Ltd. vs. DCIT (Supra) and Glaxo Smitkline Consumer Healthcare Ltd. (Supra) has considered the Special Bench decision in LG Electronics (Supra). Respectfully following the Special Bench decision the legal grounds were decided against the assessee and as a consequence thereof the relevant ground raised in the memo of appeal, touching the legal grounds were dismissed. Following the same ratio, we also dismiss the legal grounds raised by the assessee in the memo of appeal. 6.5 It has further been deduced in the Tribunal decision in Canon India (Supra) and Glaxo Smithkline Consumer Healtcare Ltd. (Supra) that as per the above decision of the Special Bench, the expenditure relating to sales do not lead to the brand promotion and thus cannot be b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sun Shades 25,02,600 25,02,600 Travelling expenses 1,44,784 1,44,784 Misc. travelling expenses Expenses payable 3,72,74,365 - Total 26,17,81,049 14,68,01,551 7,77,05,133 - Trade discount and volume rebate 47,86,42,347 47,86,42,347 -- Total considered by TPO 74,04,23,369 A.Y. 2007-2007-08 Details of expenditure considered by the TPO for creation of marketing intangible: Head Total Advertisement / Brand Promotion expenses Sales promotion Remarks 0% Finance Scheme 3,612,175 3,612,175 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that in light of the Special Bench decision selling expenses are incurred in connection with the sales and do not lead to brand promotion. However, we note that observation about the veracity of the description and the amount involved in this case is not emanating from the orders of the authorities below. Under the circumstances, in our considered opinion, interest of justice will be served, if the matter is remitted to the file of the Assessing Officer /TPO with the following directions:- i) Expenditure in connection with the sales as mentioned above cannot be brought within the ambit of advertisement, marketing and promotions expense for determining the cost / value of the international transactions. However, the TPO shall examine the veracity of description and quantification of the amount of selling expenses and accordingly, allow the assessee's claim. ii) After deducting the selling price from the AMP expenses as mentioned above, the TPO shall decide the issue of AMP expenses by applying the proper comparables after hearing the assessee and keeping in view the Special Bench directions in this behalf. Thus, the Transfer Pricing Adjustment in respect of AMP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute, that expenses are revenue in nature because Assessing Officer himself has allowed deduction to the extent of 1/5th of the total expenses. The facts of decision of Hon'ble Delhi High Court in the case of Jayparabolic Springs Ltd. relied upon by the Ld. Counsel for the assessee are similar to that of the assessee. In that case assessee was engaged in the business of manufacture and marketing of spring and spring leaves required for the automobile industry. The assessee has incurred a sum of ₹ 19,48,125/- as expenditure on account of customer introduction charges as these were debited as deferred revenue expenses in the balance sheet. The expenditure was written off for a period of five years starting from the asstt. year 1990-91 and accordingly the assessee claimed deduction of ₹ 3,89,625/- in the return. This claim was allowed by the Assessing Officer. In appeal before the Ld. Commissioner of Income Tax (A) the assessee claimed entire deferred revenue expenses of ₹ 19,48,125/- in asstt. year 1990-91 itself. Ld. Commissioner allowed the appeal of the assessee. The revenue carried the matter in appeal before the ITAT. The ITAT has set aside the issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,02,335/- as fixed assets written off. Assessing Officer made enquiry in this regard. In reply, the assessee submitted that these assets were Glow Sign Boards which were capitalized in the books of accounts under the head 'furniture and fixtures. Since these Glow Sign Boards were damaged, the assessee company wrote off WDV of such Glow Sign Boards amounting to ₹ 1,01,02,335/- 13.1 Assessing Officer observed that the assessee's submissions were considered and found to be unacceptable. He observed that assessee should have applied the provisions of section 32(1)(iii) for treating these damages. Since the Assessee Company block of furniture and fixture is still appearing in its schedule of assets, this expenditure cannot be charged in the P L account. Therefore, this amount of ₹ 1,01,02,335/- was disallowed and added back to the income of the assessee. 14. Assessee's objections in this regard were rejected by the DRP. 15. Against the above order the Assessee is in appeal before us. 16. It has been submitted by the Ld. Counsel of the assessee that the Assessing Officer may be directed to restate the allowance of depreciation pursuant to the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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