TMI Blog2021 (6) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... t payment is at arms length. The benefit of those enquiries was not available with the TPO in the two years under consideration. Since the issue is the same in all the years and further, in view of the conflicting stands taken by TPO, we are of the view that this issue requires fresh examination at the end of TPO. Accordingly, we restore this issue in both the years under consideration to the file of AO/TPO for examining it afresh TP adjustment in respect of reimbursement of expenses - HELD THAT:- Identical issue in assessment year 2005-06 and 2006-07 and has held that the nature of these expenses is such that they cannot be attributed solely and exclusively incurred by parent company for distribution business of the assessee. Accordingly, the TPO, following the decision of ITAT, determined the ALP of reimbursement of expenses at NIL. Tribunal following the decision rendered by the coordinate bench in A.Y. 2005-06 2006-07 [ 2013 (11) TMI 355 - ITAT BANGALORE ] has decided this issue against the assessee. TP adjustment in respect of royalty payment - HELD THAT:- We notice that an identical issue has been examined by the coordinate bench in A.Y. 2014-15 [ 2020 (10) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the burden to incur this expenditure is that of parent company and is not related to the business activities of the assessee - As relying on previous years we decide this issue against the assessee and accordingly, confirm the disallowance made by the A.O. on this issue. Disallowance u/s 40(a)(i/ia) of the Act for non-deduction of tax at source - A.R. submitted that the assessee could not fully furnish the relevant details before the AO/DRP in respect of expenses which were disallowed in earlier years in respect of which TDS was remitted during the year - HELD THAT:- Having regard to the submissions made by the Ld. A.R., we are of the view that, in the interest of natural justice, the assessee may be provided with an opportunity in this regard. Accordingly, we restore this issue to the file of AO for examining the same afresh in accordance with law. - IT(TP)A No.2809/Bang/2017 - - - Dated:- 30-6-2021 - Shri George George K., Judicial Member And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri K.R. Vasudevan, A.R. For the Respondent : Ms. Neera Malhotra, D.R. ORDER PERB.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable companies, which had paid sourcing commission in the range of 5% to 12%. Accordingly, the assessee claimed the payment to be at arms length. 19.2 The TPO observed that the comparable companies selected by the assessee has not been proved to be really comparable. The TPO has also analysed the agreements entered by the comparable companies with their respective agents and took the view that they are materially different. Accordingly, the TPO took the view that the CUP method adopted by the assessee is not suitable to the assessee. Hence he called for various details from the assessee. After considering those details, the TPO came to the conclusion that the assessee has not been able to show that NGTPS did all those activities as mentioned in the agreements. Accordingly he came to the conclusion that that the agreements are nothing but make belief arrangements. The TPO reinforced his views by observing that the assessee did not pay any commission till AY 2013-14 and did not mention about any sourcing agent till that year. In the absence of evidences proving that the services were provided by the sourcing agents, the TPO determined the ALP at NIL. Accordingly he ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2012-13. We notice that the coordinate bench has restored this issue to the file of the AO/The TPO for examining it afresh. The Ld. A.R. submitted that this issue may be restored to the file of the AO/TPO for examining the same afresh along with assessment year 2012-13 2014-15. 4.2 We notice that the coordinate bench has restored this issue to the file of AO/TPO for examining it afresh with the following observations:- 18. The next issue relates to transfer pricing adjustment made in respect of interest paid on Compulsorily Convertible Debentures (CCD). This issue is being contested by the assessee in AY 2012-13 and 2014-15. 18.1 During the year relevant to AY 2012-13, the assessee had issued debentures to the tune of ₹ 527.54 crores to M/s Nike India Holding B V (Netherlands). The Debentures carried interest rate @ 12% p.a. The TPO noticed that the average Base rate of interest determined by State Bank of India during the financial year 2011-12 worked out to 9.31%. Accordingly he proposed to make transfer pricing adjustment by adopting the rate of interest @ 9.31% under CUP method by taking the base lending rate determined by State Bank of India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istent with the view taken by the coordinate bench in the assessee s own case for assessment year 2012-13 2014-15, we restore this issue to the file of AO/TPO with similar directions. 5. The next issue relates to transfer pricing adjustment of ₹ 5.33 crores in respect of reimbursement of expenses. 5.1 The Ld. A.R. fairly admitted that an identical issue was decided against the assessee by the Tribunal in the assessee own case in assessment year 2010-11, 2012-13 2014-15. 5.2 The TPO noticed that the reimbursement of expenses of ₹ 5.33 crores are in the nature of salary cost of the employees deputed by the parent company, which has been cross charged by the parent company. The TPO noticed that the jurisdictional ITAT, Bengaluru bench has examined an identical issue in assessment year 2005-06 and 2006-07 and has held that the nature of these expenses is such that they cannot be attributed solely and exclusively incurred by parent company for distribution business of the assessee. Accordingly, the TPO, following the decision of ITAT, determined the ALP of reimbursement of expenses at NIL. Accordingly, he made transfer pricing adjustment of ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding that, at arm s length, companies engaged in providing such value added services are entitled to receive compensation appropriate to the services performed and the capital invested in their businesses, but are not entitled to share in any returns attributable to the marketing or commercial intangibles that belong to the entrepreneur. 1.2.5 NIKE group owns virtually all the valuable intellectual property rights (know how, copy rights, etc.) and other commercial or marketing intangibles (brand names, trade marks, etc.) and is involved in complex operations of developing proprietary technologies NIKE group also bears all the significant business and entrepreneurial risks of product acceptability and performance in the market: On the other hand, NIKE India does not own any interest in these intangibles and is a mere service provider. Eased on an analysis of the functions performed and risks assumed, we conclude that NIKE group has more complex operations and bears greater share of risks. 5.5.3What emerges from a perusal of the above paragraphs of the TransferPricing Study report submitted by the assessee is that; i) NIKE Group, the parent company, does certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company who have been deputed to the assessee, the FAR analysis in the Transfer Pricing Study/Report related to the employees states as under: Risk Category and Description Exposure to NIKE India Exposure to NIKE Group Manpower Risk: Any enterprise, which is largely dependent for its success, upon quality personnel with superior technical knowledge is faced with this risk. Competitive market forces expose such an enterprise to the risk of losing its trained personnel NIKE India has to hire and retain good personnel. However, recruitment of key employees at higher levels are guided by Bike Group NIKE Group bears a greater degree of this risk as it needs to retain key employees and trained technical people. As .is stated in the Transfer Pricing Study, the recruitment of key employees at higher levels in the assessee company are guided by the parent group, negating the claim of the assessee made before us that these employees are totally under the control of the assessee. Further, from the secondment agreement submitted by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for all the years. As mentioned earlier, for the two years under consideration before us, the assessee has not furnished any evidence to substantiate its claim that these persons work onlyfor the distribution activity undertaken by the assessee. The onus for bringing such evidenceon record to substantiate the claim rests with the assessee and wefind that such onus hasneither been discharged before us nor before the authorities below. If these expenses were held to be at arm s length in the subsequent year, then the assessee must have furnished evidence before the TPO to show that these persons had contributed for the distribution activities of the assessee for that year. The facts could be different for each year be different for the same assessee depending on various factors and stage of the assessee s business and require to be viewed differently. From the copies of secondment agreement submitted to us, we find that the employees seconded are different for different years performing different functions, as seen from their designations. In this view of the matter the contention that the adjustment made in the two years under consideration require to be deleted merely be similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate bench in A.Y. 2014-15 and this issue has been decided against the assessee by following the decision rendered by the coordinate bench in A.Y. 2005-06. The observations made in this regard by the Tribunal in AY 2014-15 are extracted below:- 16. The next issue relates to the T.P adjustment made in respect of third party royalty. This issue is being contested by the assessee in AY 2010-11, 2012-13 and 2014-15. 16.1 The TPO noticed that the assessee was paying royalty on goods endorsed by celebrity sports persons around the world on the basis its sales turnover in India. The TPO noticed that the assessee has not furnished any agreement in respect of this arrangement. The assessee could not also furnish workings as to how it is allocated to it. Further, the assessee was seen paying royalty @ 1% on the sales, in addition to the payment of third party royalty, in accordance with the agreement entered by it with M/s NEON, an Associated Enterprises, which manages endorsement contracts with world class athletes. Accordingly, the TPO took the view that the payment of third party royalty would amount to duplication of payment. The TPO also noticed that the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCI. The agreement was relevant to the assessment years 2010-11 2011- 12. The Tribunal passed a common order dated 14.10.2020 for assessment years 2012-13 2014-15. For deciding this issue, the AMP expenses were divided into two categories, viz., (a) AMP expenses other than BCCI expenses and (b) AMP expenses relating to BCCI. The Ld. A.R. submitted that the second category AMP expenses relating to BCCI actually referred to the years in which the assessee had an agreement with its AE for reimbursing part of expenses incurred on BCCI tournaments. The TP adjustment with regard to the first category of expenses was deleted by the tribunal and the TP adjustment in respect of AMP expenses relating to BCCI, which arose in 2010-11 2011-12 was restored to the file of the A.O. The Ld. A.R. submitted that in assessment years 2010-11 2011-12, the assessee had an agreement with its A.E. for reimbursement of 50% of the expenses incurred on the tournaments held by BCCI. In view of the existence of the agreement, the issue was restored to the file of AO/TPO. The Ld A.R. submitted that the assessee does not have any agreement with its A.E. for reimbursement of BCCI cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue:- 20. The remaining issues are corporate issues and the additions have been made by the assessing officer. The first corporate issue urged by the assessee relates to the disallowance of purchase of samples and incidental expenses . This issue is being urged in AY 2012-13 and 2014- 15. 20.1 This expenditure was disallowed by way of Transfer pricing adjustment in the earlier years. In the assessment year 2012-13 and 2014-15, the assessing officer has disallowed the expenditure incurred on purchase of samples and incidental expenses holding that this expenditure is to be borne by the manufacturer only and not by the assessee, as the assessee is only distributor of products. 20.2 The AE of the assessee, viz., Nike Inc., has introduced new products and accordingly sent samples to the assessee for giving the same to the third party distributors, who are required to display the same in their premises. The objective is apparently promotion of the new products. The AE has charged the assessee towards cost of samples given to it. The AO took the view that the assessee is only a distributor of the NIKE products and hence the expenditure on samples should be borne by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view, the view expressed by the co-ordinate bench can be taken as guidance for deciding the issue in the years under consideration also. There is no dispute that the parent company Nike Inc., has introduced new products and the samples are supplied to third party distributors in order to create awareness of new products amongst the public. The assessee herein is merely an intermediary between M/s Nike Inc and the public. Hence, it is the responsibility of the assessee, first of all, to show that the expenditure on samples incidental expenditure was incurred for the purposes of business of the assessee. Under sec.37(1), expenditure should have been laid out or expended wholly and exclusively for the purposes of business of the assessee. In the context of AMP expenses, the co-ordinate bench has taken the view that the sample expenses are related to brand promotion and marketing initiatives of the parent company of the assessee, meaning thereby, it cannot be said that this expenditure has been expended wholly and exclusively for the business of the assessee. The Ld A.R contended that the assessing officer cannot question the necessity of incurring the expenditure. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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