2016 (4) TMI 1146 - AT - Income Tax

Transfer pricing adjustment - addition on AMP expenses - Held that:- Considering the facts-like absence of an agreement between the assessee and the AE. s. for sharing AMP expenses, payment made by the assessee under the head AMP to the domestic parties, failure of the TPO prove that expenses were not for the business carried out by the assessee in India-and following the judgments of the Hon’ble Delhi High Court delivered in the case of Bausch and Lomb (India) Pvt. Ltd (2015 (12) TMI 1332 - DELHI HIGH COURT ), we are of the opinion that the transaction in question was not an international transaction and that the TPO had wrongly invoked the provisions of Chapter X of the Act for the said transaction. First effective ground of appeal (GOA1-16) is decided in favour of the assessee and the additions made by the AO are directed to be deleted.- Decided in favour of assessee

Linking of AMP expenses and recovery of AMP expenses on sales support service - TPO held that the assessee was rendering brand promotion services, that it should have recovered 94 crores plus markup from AEs in addition to sales support services - Held that:- While deciding the issue of adjustment on account of AMP expenses, we have held that expenditure incurred by the assessee under the head AMP was beyond the purview of section 92 of the Act, as it was not an international transaction. As no adjustment could be made with regard to AMP expenses, so, there is no justification for mark up of AMP and resultant adjustment on sales support services - Decided in favour of assessee

Adjustments on account of purchase of raw materials from the AE - Held that:- We find that the assessee had shown profit@4.37% for AE-transaction and had suffered loss @15. 73% on non-AE transaction, that the assessee was purchasing raw material for manufacturing whisky from the AE. s. , that for manufacturing other alcoholic beverages the raw material was procured locally from unrelated parties, that the TPO did not approve the segmented results, that he selected 15 comparables, that after considering the objections of the assessee, he selected ten comparables, that he adopted margin of 2. 13% and proposed an addition of ₹ 13. 56 Crores, that the DRP passed certain directions while dealing with the objections raised by the assessee, that it had directed the AO to recalculate the margin taking into account the adjustment on account of AMP expenses, that while passing the final order the AO had made no adjustment. As we have held that no adjustment can be made under the head AMP, so, the issue will revive. Considering the peculiar facts and circumstances of the matter, we are of the opinion that the matter needs further verification. Therefore, issue is restored back to the file of the AO for fresh adjudication - Decided partly in favour of assessee by remanding

Addition made on account of surplus stock - Held that:- We find that during the course of survey at the business premises of the assessee, variation in stock was found, that the assessee had submitted a letter from the excise official of the state government, that the AO and the DRP were of the opinion that the letter was of no help to the assessee to reconcile the difference, that the assessee was not provided the copy of the statements, that it also had no access to the documents that resulted in addition, that the DRP held that there was no infringement of the principles of natural justice. In our opinion, approach of the DRP was suffering from fundamental defect-it ignored the principles of natural justice. Non-supply of the copy of statements and documents that led to an addition of Rs. more than one crore, in itself is sufficient to set aside the order of DRP. Principles of natural justice have to be observed in letter and spirit especially when the assessee proves that the AO had not followed them and raised demand unilaterally. Considering the peculiar facts and circumstances of the case, we are of the opinion that in the interest of justice issue should be restored back to the file of the AO for fresh adjudication - Decided partly in favour of assessee by remanding

Disallowance of club expenditure - Held that:- his issue now stands covered in favour of the assessee in assessee’s own case for assessment year 2006–07, wherein identical issue raised by the assessee has been allowed by the Tribunal. We also find that the issue before us is also covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in CIT v/s Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High Court ). - Decided in favour of assessee

Disallowance of royalty - Held that:- We find that sales of brand Smrinoff for the A. Y. s 2007-08, 2008-09 and 2009-10 stood at ₹ 76. 31 crores, ₹ 107. 98crores and ₹ 115. 06 crores respectively, that the payment of royalty has not been doubted either by the AO or the DRP, that the assessee had suo moto had disallowed the royalty u/s. 40(a)(ia) of the Act, that TDS on royalty was deposited with the Government Treasury in the AY 2011-12, it was submitted by the assessee that royalty had to be allowed in the year in which TDS had been deposited i. e. 2010-11. As far as the year under consideration is concerned the expenditure has not been claimed. Whether it is allowable in the AY. 2011-12 has to be decided in that year. Therefore, the ground raised by the assessee is treated as infructous.