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2018 (10) TMI 1752 - AT - Income TaxTP Adjustment - adjustment to ALP of AMP expenditure - selection of comparables for determination of ALP of AMP expenditure - Entire AMP expenditure has been incurred and paid only to third parties and not to AEs - assessee pleaded that the same had been incurred for the purpose of its business and for its products and hence the same are not eligible to be compensated by the AEs. HELD THAT:- We find that the revenue had only assumed that the assessee had promoted the brand of the AE by incurring AMP expenditure in India thereby warranting any compensation. In this regard, we find lot of force in the arguments of the ld AR that the assessee had not paid any royalty or trademark fee to its AEs and had been benefitted by the excess premium return in the sale price of goods. The AMP expenditure is duly factored into the said pricing fixed by the AEs. In the instant case, we find that the international transactions with AEs of purchase of raw materials, purchase of finished goods, sale of finished goods and recovery of expenses have been duly accepted to be at Arm’s Length. Then the AMP expenditure also is required to be accepted at Arm’s length as it is already factored in the pricing. We also find that the ld TPO and ld DRP had sought to include the selling expenses incurred in SLE REPS PROMO – PRINT and EDUINFOSPEAKER HO/ as part of AMP expenditure and the same has been included to bench mark the ALP of AMP expenditure. In this regard, we find that these expenditures are purely related to products of the assessee and not for any brand. We also find that the assessee while incurring the total expenditure towards AMP and Selling Expenses, had duly bifurcated the same by identifying at the time of incurrence itself whether the said expenditure constitutes AMP expenditure or Selling Expenses. This bifurcation of expenditure had been ignored by the revenue in the instant case. We find that if these two items are excluded, then the AMP expenditure incurred by the assessee is at Arm’s length even after the mark up of 5%. Hence no separate discussion is required herein with regard to the validity of mark up of 5%. Hence in any case, there cannot be any adjustment to ALP of AMP expenditure in the instant case. Addition on account of ‘Scientific Session Charges’ - HELD THAT:- In the draft assessment order, the ld AO had proposed the disallowance of entire scientific session charges and journals as not incurred for the purpose of business and whereas the ld DRP held that the expenditure is for the purpose of business. AO in the final assessment order pursuant to the directions of the ld DRP, changed his stand and observed that part of the expenditure does not relate to the year under consideration. Hence it could be seen that there is a shift in stand by the ld AO and the assessee was not given any opportunity to make its submissions in this regard. In these facts and circumstances, we deem it fit and appropriate, to remand this issue to the file of ld AO for verification of the same as to whether the said expenditure was claimed as deduction in Asst Year 2011-12 by the assessee. If it is found to have been claimed, then the assessee should not be given deduction in Asst Year 2012-13. If not, then the assessee should be granted deduction for the same as there is no change in tax rates in both the years and incurrence of the said expenditure for the purpose of business is not in dispute. Addition under the head ‘Finance cost’ towards ‘Interest on Service Tax’ - HELD THAT:- We find that the Service Tax Provisions as amended by Finance Act 2012 contains Section 75 and Section 76 thereon. The interest is charged on the assessee for delayed payment of service tax as per section 75 thereon. The penalty is charged on the assessee under section 76 thereon for failure to pay service tax, interest under section 75 thereon. We find that the amount under dispute in the sum of ₹ 1,257/- represents interest paid under section 75 of the Act which is purely compensatory in nature and hence allowable as deduction. It is not penalty paid under section 76 of the service Tax Rules so as to make it penal in nature.
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