TMI Blog2021 (2) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... ot appropriate method to bench mark AMP transactions? - HELD THAT:- The question of bench marking the AMP expenses has been examined and decided by Hon Tale Delhi High Court in the case of Sony Ericsson [ 2015 (3) TMI 580 - DELHI HIGH COURT] and Maruti Suzuki Ltd. [ 2015 (12) TMI 634 - DELHI HIGH COURT] . The bright line test adopted by the TPO has been specifically rejected in the case of Sony Ericsson (supra). The Hon'ble Delhi High Court has held in the case of Maruti Suzuki Ltd. (supra) that the revenue needs to establish the existence of international transaction before undertaking benchmarking of AMP expenses. Hence, the approach of the TPO cannot be upheld. Since the TPO has combined Royalty payments also along with AMP expenses while making Transfer pricing adjustments by adopting Residual Profit Split Method, since the existence of international transactions in AMP expenses is required to be shown separately, we are of the view that this issue requires fresh examination at the end of AO/TPO. Accordingly, we set aside the order passed by the AO on AMP expenses and restore the same to the file of AO/TPO for examining it afresh. After affording adequate opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Courts. 4. Ld. DRP/AO/TPO have erred disapproving appellants contention that AMP expenditure incurred routinely and voluntarily by appellant for its business does not amount to carrying out high intensity AMP expenses or lead to creation of marketing intangibles for Associated Enterprises (AE[s]). 5. Impugned order completely failed to establish existence of international transaction and further erred in imagining routine AMP expenditure incurred by Appellant as 'excessive', as constituting separate international transaction with AE[s] and in the guise of applying Residual Profit Split Method benchmarked it separately by adopting arbitrary process not known to law. Without prejudice to failure of Ld. TPO/AO/DRP in discharging primary onus of establishing international transaction, impugned order is also directly contrary to law laid down by courts that in the absence of any computation mechanism being prescribed under the Act or the rules made thereunder, such determination is unlawful. 6. Ld. DRP/AO/TPO erred in making transfer pricing adjustment by reference to imaginary international transaction (incurrence of non-routine AMP expense) by adoptin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting weights to contributing activity/factors of the AE/Appellant for computing the profit split ratio to allocate residual profits while applying PSM. e) Ld. AO/TPO have erred in selection of comparables and in not providing the detailed search process to Appellant. Without prejudice, Ld. AO/TPO erred in not considering segmental while computing the profit margin (Bata India Ltd. and SSIPL Retail Ltd.) 15. Without prejudice to above impugned order is ex facie contradictory as even while stating that companies that own valuable brand cannot be comparable, Ld. DRP/AO/TPO proceeded to choose/uphold following companies as comparable even though the same are associated with well-established brands in the Indian market-- a) Bata India Ltd. b) Metro Shoes Ltd., c) Sreeleather Ltd. d) Khadim India Ltd. 16. Ld. DRP/AO/TPO have erred in law and in fact by considering only single year data while calculating the margins of companies selected as comparables by Ld. TPO. 17. That on the facts and circumstances of the case and in law, Ld. DRP/AO/TPO erred in not appreciating the fact that the payment has been made by the Assessee towards AMP expenses to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 32(1)(ii) of the Act 22. Ld. AO/DRP has erred in disallowing depreciation under section 32 amounting to ₹ 3,59,24,143/- despite the same being allowed by the Hon'ble IT AT in the case of the Assessee in the earlier years and there being no change in the facts of the case. 23. Ld. AO/DRP has erred in upholding the disallowance of depreciation on technical design and know how on the ground that the same is not patented and is therefore a paper transaction, without appreciating that the Assessee had paid consideration to acquire the procedure/process, which would assist the Company in carrying out commercial production of its products. 24. Ld. AO/DRP has erred in upholding the disallowance made in respect of depreciation on Vendor Relationship and Costumer Relationship on the ground that there was no agreement which binds the vendors/customers to have dealings with the Appellant, without appreciating that such distribution network is one of the most important pillars of the apparel, industry, and therefore is in the nature of 'any other business or commercial right of similar nature' i.e. an intangible asset under Section 32(1)(ii) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- a) Transfer pricing adjustment made in respect of AMP expenditure. b) Rejection of depreciation claimed on intangible assets. 4. The assessee company is engaged in the business of manufacturing and marketing of readymade garments. 5. We shall first take up the second issue urged by the assessee. During the course of assessment proceedings the A.O. noticed that the assessee has claimed depreciation of ₹ 2,41,80,072/- on intangible assets as detailed below: Particulars WDV as on 1April 2014 Depreciation for FY 2014-15 Design Technical Know how 4,03,72,735 1,00,93,184 Total-A 1,00,93,184 Vendor Network Relationship 3,21,10,217 80,27,554 Customer Network Relationship 2,42,37,337 60,59,334 Total-B 1,40,86,888 Total Depreciation (A+B) 2,41,80,072 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Smifs Securities Ltd. reported in 348 ITR 302 wherein it was held as under: 4. Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset ITA No. 42/Bang/2017 under Explanation 3(b) to Section 32(1) of the Act. 6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) ['CIT(A)', for short] has come to the conclusion that the authorised re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that the Delhi High Court judgment has been delivered on 5th November 2012 and the impugned order was passed on 15th June 2011. The Tribunal has essentially based its conclusion on the consistent stand of the Assessee and that of the Assessing Officer. In dealing with the shift in stand for the subject assessment year, the Tribunal found that this claim of depreciation was raised in the assessment year 2003-2004. The Assessee claimed that it is allowable as per the provisions of Income Tax Act on block of assets under the head intangible assets . The Assessing Officer allowed the claim for that assessment year by an order under Section 143(3) dated 28.03.2006. The Tribunal then, proceeds to hold that when the Assessing Officer had to allow depreciation on the written down value of the block of assets, then, it cannot in the present assessment year dispute the opening written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under Section 143(3) for the assessment year 20032004 continues to operate and no proceedings under the Act were initiated to disturb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd non-routine AMP expenses was ₹ 40.25 crores. The TPO accordingly held that the difference between the above said amount of ₹ 40.25 crores and ₹ 18.41 crores is liable to be adjusted. Accordingly, he adjusted ₹ 21.94 crores as transfer pricing adjustment. The Ld. Dispute Resolution Panel (DRP) also confirmed the same. 11. We heard the parties on this issue and perused the record. Before us, the Ld. A.R. placed his reliance on the decision rendered by Hon'ble Delhi High Court in the case of Sony Ericsson (374 ITR 118) and submitted that Residual profit split method is not appropriate method to bench mark AMP transactions. He further submitted that the TPO was not justified in considering Royalty payments along with AMP expenses. The Ld. D.R., however, supported the order passed by tax authorities. 12. The question of bench marking the AMP expenses has been examined and decided by Hon Tale Delhi High Court in the case of Sony Ericsson (supra) and Maruti Suzuki Ltd. (381 ITR 117). The bright line test adopted by the TPO has been specifically rejected in the case of Sony Ericsson (supra). The Hon'ble Delhi High Court has held in the case of Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
