2013 (4) TMI 872 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition on account of Arm's Length Price (ALP).
2. Deletion of addition on account of royalty paid to SEC Korea.
3. Deletion of addition on account of provision for warranty/after sale service compensation.
4. Deletion of addition on account of advertisement and sale promotion expenses (brand promotion).
5. Deletion of addition on account of advertisement and sale promotion expenses (capital in nature).
6. Deletion of addition on account of purchase of computer software.
7. Deletion of addition on account of deemed dividend u/s 2(22)(e).
8. Deletion of addition on account of recruitment and training expenses.

Summary:

1. Deletion of addition on account of Arm's Length Price (ALP):

The revenue questioned the deletion of Rs. 24,03,22,940/- by the CIT(A) on account of ALP. The TPO had adjusted the transfer prices of Class I transactions and accepted the arm's length price in respect of other transactions. The CIT(A) deleted the addition, applying current year data for comparability analysis. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had correctly used current year data and OP/Sales as the profit level indicator for better comparability analysis. The Tribunal also rejected the revenue's contention regarding the use of multiple year data.

2. Deletion of addition on account of royalty paid to SEC Korea:

The revenue questioned the deletion of Rs. 11,92,75,955/- by the CIT(A) on account of royalty. The AO had treated the royalty payment as capital expenditure. The CIT(A) accepted the royalty payment as revenue expenditure, noting that it was a running royalty linked to sales for technical assistance provided in the course of production. The Tribunal upheld the CIT(A)'s decision, finding that the royalty payment was deductible as revenue expenditure based on established legal principles.

3. Deletion of addition on account of provision for warranty/after sale service compensation:

The revenue questioned the deletion of Rs. 68,68,216/- by the CIT(A) on account of provision for warranty/after sale service compensation. The CIT(A) deleted the addition, noting that the reimbursement received from overseas AEs was under prior agreement and directly connected with the corresponding expenditure incurred. The Tribunal upheld the CIT(A)'s decision, treating the reimbursement as part of operating profit.

4. Deletion of addition on account of advertisement and sale promotion expenses (brand promotion):

The revenue questioned the deletion of Rs. 4,56,75,050/- by the CIT(A) on account of advertisement and sale promotion expenses (brand promotion). The AO had made an ad hoc disallowance, alleging that the expenses promoted the 'Samsung' brand in India. The CIT(A) deleted the addition, following the decision of the Tribunal in the case of Sony India (P) Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred for promoting the sales of the assessee's products in India.

5. Deletion of addition on account of advertisement and sale promotion expenses (capital in nature):

The revenue questioned the deletion of Rs. 4,56,75,050/- by the CIT(A) on account of advertisement and sale promotion expenses (capital in nature). The AO had treated the expenses as capital expenditure resulting in an enduring benefit. The CIT(A) deleted the addition, following the decision of the Tribunal in the assessee's own case for earlier years. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were revenue in nature.

6. Deletion of addition on account of purchase of computer software:

The revenue questioned the deletion of Rs. 35,36,485/- by the CIT(A) on account of purchase of computer software. The AO had treated the software expenses as capital expenditure. The CIT(A) deleted the addition, accepting the assessee's claim that the expenses were revenue in nature. The Tribunal upheld the CIT(A)'s decision, noting that the software did not result in an enduring benefit and had a short utility shelf life.

7. Deletion of addition on account of deemed dividend u/s 2(22)(e):

The revenue questioned the deletion of Rs. 4,40,92,460/- by the CIT(A) on account of deemed dividend u/s 2(22)(e). The AO had made the addition, treating inter-corporate deposits from SEIIT as deemed dividend. The CIT(A) deleted the addition, noting that the assessee was not a shareholder of SEIIT and that SEIIT was a subsidiary of SEC Korea, a widely held company. The Tribunal upheld the CIT(A)'s decision, following the decision in the case of Bhaumik Color Pvt. Ltd.

8. Deletion of addition on account of recruitment and training expenses:

The revenue questioned the deletion of Rs. 12,40,743/- by the CIT(A) on account of recruitment and training expenses. The AO had treated the expenses as capital expenditure. The CIT(A) deleted the addition, noting that the expenses were ongoing and fully deductible in the year of incurring. The Tribunal upheld the CIT(A)'s decision, following the Tribunal's order in the assessee's own case for earlier years.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on all issues, rejecting the revenue's grounds of appeal and dismissing the appeal. The Tribunal found that the CIT(A)'s decisions were based on relevant legal principles and established precedents.