TMI Blog2018 (4) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... l the invoiced to that effect. There was no assets acquired by the assessee and it is a period cost but from the order of the Assessing Officer it can be seen that the said details as contemplated by the assessee was not before the Assessing Officer . Therefore, this aspect has to be verified at the level of. Therefore, this issue is remanded back to the file of the Assessing Officer to see these expenses according to the evidence produced by the assessee. Disallowance of 2/3rd expenditure incurred on an advertisement and capacity expenses on the ground that benefit will accrue over a period of 3 years - Held that:- Following the view taken in our order for the A.Y. 2004-05, we hold that the entire amount of advertisement and publicity expenses should be allowed as deduction in the year of incurring itself. It is however, made clear no further deduction for 2/3rd of the total expenditure for the earlier years be granted as the same will lead to double deduction. If such a deduction has already been allowed, then the same should be reversed to that extent. This ground of the Revenue is not allowed. - I.T.A .No. 4080/DEL/2013, I.T.A .No. 1287/DEL/2015 - - - Dated:- 2-4-2018 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Without prejudice to the appellate s contention that the advertisement and publicity expenses are revenue in nature, the Ld CIT(Appeals) has erred in not allowing the proportionate reduction in respect of advertisement and publicity expenses as disallowed in proceedings for AY 2004-05 and AY 2005-06. 6. Without prejudice to above grounds, the Ld AO has erred, on the facts and circumstances of the case and in law, in adjusting the brought forward losses of prior years to the extent of the assessed income eligible for deduction under section 10B of the Act. 7. That the Ld CIT(Appeals) has erred in law and on facts in confirming the levy of interest under section 234B of the Act. 8. That the Ld CIT(Appeals) has erred in law and on facts in confirming the levy of interest under section 234D of the Act and further in withdrawing the interest under section 244A of the Act. 9. That the Ld CIT(Appeals) has erred in law and on facts in not withdrawing the penalty proceedings initiated by the Ld AO under section 271(1 )(c) of the Act against the Appellant for each of the additions made in the assessment order. All the above grounds of appeal are independent and without prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant involve transfer of ay technology or asset or technical information / know-how in any manner. Following the above cited judgments, the same should be considered as revenue in nature. 6. As relates to Ground No. 3, the Ld. AR submitted that the expenditure incurred on software and EDP charges amounting to ₹ 10,46,963 paid to Swarovski Hong Kong Ltd. are business expenditure and the same should not have been treated as capital expenditure. In fact, the assessee has filed all the invoices to that extent. There was no assets acquired by the assessee, it is a period cost. Therefore, the same are revenue expenditure. 7. As relates to Ground No. 4, the Ld. AR submitted that the Tribunal in A.Ys. 2004-05 and 2005-06 (ITA Nos. 5621 5496/DEL/2014 and ITA Nos.5622 5497/DEL/2014 orders dated 10.02.2017) allowed the issue in favour of the assessee. The extracts of both the decision is as follows: ITA Nos.5621 5496/DEL/2014 14.2 After considering the rival submissions and perusing the relevant material on record, we find that this issue is no more res integra in view of the judgment of the Hon ble jurisdictional High Court in CIT vs. Citi Financial Consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years, the Revenue has accepted this expenditure as Revenue Expenditure and only in this particular year, the same has been treated as capital expenditure. After going through the order of subsequent year passed by the CIT (A) vide order dated 21/08/2017. There is a clear finding that incurrence of management fee expenditure is to acquire the managerial support services for the day to day operations of the assessee s business and ongoing basis for which quarterly payments were made there was no endeavor benefit or any underline nature of service obtain by the assessee which involves transfer of technology or asset or technical information/knowhow in any manner. It is pertinent to note that the Revenue in particular years has accepted this expenditure as Revenue Expenditure and segregated this particular year by disallowing it as capital expenditure but while doing so, the Revenue has not given any finding to the extent that as to why these are capital expenditure. 12. As relates to Ground No. 3, regarding disallowance of expenditure incurred on Software EDP Charges amounting to ₹ 10,46,963/- paid to Swarovski Hong Kong Ltd on the ground that the same is a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g itself. It is however, made clear no further deduction for 2/3rd of the total expenditure for the earlier years be granted as the same will lead to double deduction. If such a deduction has already been allowed, then the same should be reversed to that extent. This ground of the Revenue is not allowed. Thus, the issue is squarely covered in favour of the assessee. 14. Ground No. 4 is allowed in favour of the assessee. 15. Ground No. 5, 7, 8 9 are consequential. Ground No. 6 is not pressed, hence dismissed. 16. In result, ITA No. 4080/DEL/2013 filed by the assessee is partly allowed. Now we are taking up the appeal for A.Y. 2010-11 and grounds for the same are as under: I.T.A .No. 1287/DEL/2015 (A.Y 2010-11) 1. On facts and in law, the Learned Joint Director of Income Tax, Transfer Pricing Officer - ll(2) Ld. TPO ) and Learned Assistant Commissioner of Income Tax, Circle 22(2), New Delhi / Learned Assessing Officer ( Ld. AO ) erred in determining, and Learned Dispute Resolution Panel - III, New Delhi ( Ld. DRP ) erred in confirming an addition of ₹ 84,461,391 to the income of the Appellant, on account of the difference in the Arm s Length Price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP erred in confirming the action of Ld. AO / Ld. TPO of disregarding the fact that significantly higher total profits earned by the Appellant vis-a-vis the comparable companies already include (i) the arms length return for Distribution business, as well as (ii) any alleged activities represented by alleged excessive AMP expenses, if any during the year and amply offset any return which should have been earned by the Appellant in relation to the allegedly excessive AMP expenses incurred by it. 9. On facts and in law, the Ld. AO and Ld. TPO erred in violating, and the Ld. DRP erred in confirming the action of Ld. AO / Ld. TPO of violating the fundamental Matching Principle of Accounting, in so far as costs incurred in the form of alleged excessive AMP expenses were imputed (using bright line methodology) to determine the corresponding required AMP Revenue, however, the said costs were continued to be (double) counted for the ongoing Distribution business, instead of being deducted against the alleged AMP Revenue. 10. On facts and in law, the Ld. AO and Ld. TPO erred in not appreciating, and the Ld. DRP erred in confirming the action of Ld. AO / Ld. TPO of not appreciating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 22(2), New Delhi ( AO ) under directions issued by the Hon ble Dispute Resolution Panel- II ( DRP ) has erred in disallowing expenditure incurred on software and EDP charges advertisement and publicity expenses, and interest on late deposit of service tax to the Appellant s total income. 15. That on the facts and circumstances of the case and in law, the AO has erred in proposing and the DRP has further erred in confirming the disallowance of expenditure incurred towards software and EDP charges amounting to ₹ 67,79,613 on the premise that the same is in the nature of capital expenditure incurred for the acquisition of capital asset being computer and software . 16. The AO has erred and DRP has further erred in proposing / confirming the disallowance of expenditure on software and EDP charges by merely relying on the decision of the predecessors of the AO and holding such expenditure to be capital in nature without assigning any specific reason to this effect. 17. Without prejudice to the above the AO / DRP has erred in not allowing consequent depreciation on software and EDP charges which was disallowed as depreciable capital expense in earlier years i.e. AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4D of the Act. 2010-11 17. During the year under consideration, the assessee company is engaged in the business relating to import, manufacture, sale and export of all kind of high end crystal components for jewellery, fashion accessories and home decoration, etc. The assessee filed a return declaring an income of Rs, 10,23,55,073/- (before setting off losses) on 27.09.2011, through E-filing acknowledgment no. 161380911270910. The case was selected under scrutiny and notice u/s 143(2) was issued and served upon the assessee within the statutory limit. Further Notice under section 142(1) along with specific questionnaire was issued and hearing of the case took place from time to time. In response to the statutory notices Chartered Accountant and Authorized representative attended the proceedings form time to time and case was discussed with them. A draft assessment order u/s 144C dated 18/02/2014 was passed by erstwhile DCIT, Circle-7(1), New Delhi and sent to the assessee by speed post. During the course of assessment proceeding, the case was referred to TPO u/s 92CA for computation of Arms Length Price (ALP). A TPO vide order dated 29.01.2014 proposed to make an adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the decision of AO to allow the depreciation thereon. Thus, the Assessing Officer disallowed ₹ 1,69,49,032, as revenue expenditure and allowed depreciation @60% on it. Consequently, an addition of ₹ 67,79,613 was made to the income of the assessee. 18. The Assessing Officer also disallowed an amount of ₹ 3,57,00,524/- towards advertisement and publicity charges. The Assessing Officer asked the assessee to submit the detail of expense and explanation as to why advertisement publicity charges should not be treated as capital expense. Vide reply dated 05.12,2013, the assessee furnished nature of expenses included in such advertisement and publicity expenses and also furnished justification on why it should be allowed as a deduction to the assessee. The Assessing Officer observed that the assessee incurred expenses towards Media Advertisements, PR Agency fees, communication materials and others which are classified under the head of Advertisement and publicity expenses and claimed as an expense in the current year. In the submissions furnished by the AR of the assessee, it was mentioned that the advertisement and publicity expenses was incurred to attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by earlier Assessing Officer in the preceding years wherein it was upheld that the above advertisement and publicity expenses will benefit the entire product range of Swarovski products i.e. the holding company based in Austria. There are several crystal items apart from the main products like accessories and decorative items under the same brand Swarovski, which is not being either, marketed or sold by the assessee company in India. The details of these expenditure shows that the expenditure is incurred on sponsorship of the events, newspapers / magazines / electronic media advertisement, banners wall painting and hoardings which are nothing but capital in nature and were incurred to promote their brands and products, the benefit of which is enduring in nature which goes beyond the previous year relevant to assessment year under consideration. There is no dispute or doubt that increases in the awareness, popularity and the visibility of the brand in India Market will lead to better sales and turnover and therefore, increased profit and revenues for the assessee. But this will also benefit the entire product range of the assessee group products. Therefore, the benefit of advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being interest on delay in deposition of TDS was already added to the computation of income by the assessee, the remaining ₹ 9,601 was upheld. Therefore, following the direction of DRP, sum of ₹ 9,601/- was disallowed u/s 37(1) and 40(a) of the Income Tax Act, 1961 and added back to the total income of the assessee. 20. The Ld. AR submitted that the AMP issue should be set aside to the file of the TPO/AO as held in the earlier year by the Tribunal. The relevant extracts of the same are as under: ITA Nos.5621 5496/DEL/2014 8.3 On perusal of the order of the Ld. CIT(A), it emerges that while holding AMP expenses as an international transaction, he did not have the benefit of the judicial precedents now available for consideration, in some of which the transaction of AMP expenses has been held as an international transaction, in others as not an international transactions, while still in some others, the matter has been restored for fresh consideration in the light of the judgment in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del), in which the AMP expenses as an international transaction has been accepted. In another judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter will end there and then, calling for no transfer pricing addition. If, on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments of the Hon ble High Court, after allowing a reasonable opportunity of being heard to the assessee. In doing so, the selling expenses directly incurred in connection with sales not leading to brand promotion, should not be brought within the ambit of AMP expenses. This view taken by the Special Bench of the Tribunal in the case of LG Electronics India Pvt. Ltd. vs. AC1T (2013) 152 TTJ (Del) 273 (SB) has been upheld by the Hon ble Delhi High Court in the case of Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del. The contention of the ld. DR that SLP has been admitted against the exclusion of selling expenses from the ambit of AMP expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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