TMI Blog2022 (3) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has also raised various sub-grounds challenging the order of DRP in sustaining the TP addition made by the AO/TPO. Since we have deleted the addition by following the Rule of consistency in assessee s own case for earlier years under similar facts and the business model remaining the same, the other sub-grounds are not being adjudicated being academic in nature. The first issue raised by the assessee in the grounds of appeal are accordingly allowed. Addition on account of sundry creditors - HELD THAT:- Hon ble Punjab Haryana High Court in the case of Kulwinder Singh, [ 2017 (7) TMI 957 - PUNJAB AND HARYANA HIGH COURT] has held that provisions of section 68 are not attracted to amount representing purchase made on credits.Hon ble Allahabad High Court in the case of Zazsons Export Ltd. [ 2017 (5) TMI 1222 - ALLAHABAD HIGH COURT] has held that credit purchases reflected in the books of account of the assessee of raw hide from petty dealers even if not confirmed would not mean that it was concealed income or deemed income of the assessee, which could be subjected to tax under section 68 when there was no dispute as to trade practice that payment in respect of purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 149,995,444 1. Purchase of finished goods TNMM 155,430,042 1. Royalty for use of technical know-how and trde mark TNMM 743,886,716 1. Annual Maintenance fee for CODA software license fee TNMM 2,206,682 1. Recovery of expenses CUP 15,167,163 1. Reimbursement of other expenses CUP 658,781 1. Reimbursement of other expenses CUP 982,552 1. Reimbursement of affiliate support charges CUP 2,464,041 1. Reimbursement of other expenses CUP 8,041,888 1. Reimbursement of promotion and product events CUP 35,579,742 1. Purchase of finished goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be done in such activities. It was further explained that the distributors also have the responsibility to educate the users regarding the product being sold. It was argued that in the multi-level marketing model the assessee applied, the business model was not comparable to FMCG companies. The assessee also objected that no exact details of the quantum of adjustment using CPM method had been provided. 6. However, the TPO was not satisfied with the arguments advanced by the assessee. Relying on various decisions, the TPO proposed an upward adjustment of Rs.6874,84,700/- on substantive basis on AMP expenses. While doing so, he noted that the DRP, in assessee s own case for AY 2015-16, has also confirmed the advertisement expenses of Rs.56.77 crores for that year as AMP expenses. The TPO accordingly proposed an upward adjustment of Rs.68,74,84,700/- being the ALP of the international transaction entered into by the assessee. 6.1 The AO, in the draft assessment order, made addition of the same. The AO, in the draft assessment order also made addition of Rs.26,72,67,895/- on account of sundry creditors due to inability of the assessee to furnish any details/justification/sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of application of BLT: S. No. Name of the Comparable Direction of DRP 1. JK Helene Curtis Ltd As per information in public domain j.K. Helene Curtis is a part of the Raymond Group that has built its reputation based on the principles of Quality, Trust, Excellence and Leadership. The Park Avenue range includes Fragrances, Body Care Solutions, Shaving Systems and Hair Care Solutions. As FAR is broadly similar it should be retained as a comparable. 2. JL Morison (India) Ltd As per information in public domain J L Morison (India) Ltd. Is an FMCG company based in Mumbai, India. The company has three lines of products - baby care, Morisons Baby Dreams, hair dyes, Bigen and toothpaste for sensitive teeth. As FAR is broadly similar it should be retained as acomparable. 3. Modicare Ltd. As per information in public domain Modicare is one of India's leading Direct Selling Companies and is a major player in an industry selling nutri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts and in law in assessing the loss at Rs. 18,21,70,414/- against the loss claimed as per the ROI of Rs. 113,69,23,009/-. 2. The Ld. DRP has grossly erred on facts and in law in perversely stating that the grounds # 1 (a) to 1 (d) are general grounds and are subsumed in other grounds of objections in spite of being fully aware that; a) The said grounds were, prima facie, not general. b) The said grounds were not general as the same were factual in nature. c) Specific and detailed written submissions with regard to the same was made in the application as well as during the proceedings. d) Detailed oral submissions on these grounds were made during the course of hearing and cognizance of the same was taken by the DRP without pointing out any error in the submissions. 3. Ld. DRP has erred on facts and in law in not allowing the specific contention of the appellant that the AO /TPO erred by erroneous application / understanding of Ld. DRP order dated 11.09.2019 in assessee's own case for the immediately preceding Assessment Year 2015- 16 rendered on identical facts and circumstances of the matter. 4. Ld. DRP has erred on facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a person/entity and sales were made to the same person/entity without doing any value addition and alleging that this was a mere contrivance bereft of any commercial purpose and using the same in justifying the AMP adjustments. 13. The Ld. DRP has erred on facts and in law in holding that only substantial activity of the assessee is marketing and promoting the brand image of the AE products and legal structure of trading created by the assessee is only a facade, smokescreen to conceal the real activity and using this to justify the AMP adjustments made by the TPO. 14. The Ld. DRP has erred on facts and in law in grouping grounds. 15. The Ld. DRP has erred on facts and in law in not allowing the contention of the appellant that additions made on account of alleged increase in sundry creditors is not in accordance with the provisions of the Act and any addition made in pursuance of the same deserves to be deleted. 16. The Ld. DRP has erred on facts and in law in not allowing the contention of the appellant that the addition INR 26,72,67,895/ on account of alleged increase in the creditors cannot be made when there is not even an allegation that correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a number of grounds have been raised by the assessee, however, essentially there are two issues in the appeal, i.e., (a) against AMP adjustment of Rs.68,74,84,700/-; and (b) disallowance related to sundry creditors of Rs.26,72,67,895/- 11. So far as the AMP adjustment of Rs.68,74,84,700/- is concerned, the ld. Counsel strongly challenged the addition of the same and submitted that the aforesaid adjustment is totally incorrect in view of the settled position in favour of the assessee in its own case. The ld. Counsel for the assessee drew the attention of the Bench to the following as per page-1 of his written synopsis:- Assessment Year Adjustments/Additions on account of AMP 2009-10 No adjustments were made even though the assessee had same business model and the facts and circumstances of the matter were the same. (TPO Order at Paper Book Page No. 530) 2010-11 ..do .. (TPO Order at Paper Book Page No. 528) 2011-12 ...........do . (TPO Order at Paper Book Page No. 526) 2012-13 .do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Add: Markup @ 21.10% 11,97,84,700 Adjustment u/s 92CA 68,74,84,700 13. 13.The ld. Counsel for the assessee submitted that the above observation of the TPO is factually incorrect. Referring to page 497 to 500 of the paper book, which is the DRP appeal effect order in the case of the assessee for AY 2015-16, the ld. Counsel for the assessee drew the attention of the Bench to para 2 of the said appeal effect order and submitted that no adjustment on account of AMP expenses is made and the entire addition has been deleted. 14. He accordingly submitted that the TPO has erroneously assumed that the entire advertisement and marketing expenditure is disallowable AMP expenditure incurred on account of benefit of the AE. The ld. Counsel for the assessee drew the attention of the Bench to the order of the DRP and submitted that the DRP has grossly mis-directed itself by observing that the grounds of appeal related to the aforesaid aspect were general in nature and grossly erred in denying the indisputable relief to the assessee. The ld. Counsel accordingly submitted that since no adjustment were made fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had same business model and the facts and circumstances of the matter are the same. 17. We find some force in the above argument of the ld. Counsel for the assessee. As mentioned earlier, the TPO at page 40 of his order has observed that the DRP in its own case for AY 2015-16 has confirmed that the advertisement expenses incurred by the assessee is AMP expenses and, therefore, the total expenses which should be compensated from the assesseee s AE is considered as Rs.5677 lakhs. Accordingly, the adjustment as per CPM on a substantive basis was made by the TPO. However, on perusal of the DRP appeal effect order for AY 2015-16 in pursuance of the DRP s order dated 11 September, 2019, copy of which is placed at pages 497 to 500 of the paper book, we find no such adjustment has been made on account of advertisement, marketing and promotion after the order of the DRP. The relevant observation of the appeal effect order reads as under:- Adjustment on account of Advertisement, Marketing and Promotion (AMP) 2. The Hon'ble DRP in its direction at para 2.3.11.2 and 2.3.11.3 on page no 30 has given direction to delete adjustment on account of AMP expenditure holding as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order passed by the TPO, copy of which is placed at pages 536 to 556 of the paper book. Similarly, for AY 2014-15 also no adjustment was made after considering the submissions of the assessee. We find from the various details furnished by the assessee including the TPO appeal effect order for AY 2015-16, copy of which is placed at page 497 of the paper book, that adjustment of Rs.216,39,19,833/- was made on protective basis and adjustment of Rs.226,12,38,588/- was made on substantive basis by the TPO, copy of which is placed at page 279 of the paper book. We find, after the various submissions made by the assessee, the DRP considered the entire facts and circumstances of the matter in exhaustive details and deleted both substantive and protective addition. Copy of the DRP order is placed at page 431 of the paper book. The TPO has already passed the order giving effect to the order of the DRP and, in the final order passed by the TPO, no adjustment on account of AMP has been made, the details of which have already been reproduced in the preceding paragraph. Therefore, in view of the rule of consistency from AY 2009-10 to 2015-16 and considering the fact that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept payable for royalty for which the assessee company could not furnish complete details. The AO, therefore, invoking the provisions of section 68 of the Income-tax Act, 1961 made an addition of Rs.26,72,67,895/- to the total income of the assessee in the draft assessment order. The ld. DRP upheld the action of the AO. The AO, in the final order accordingly made addition of the same to the income of the assessee. 21. The ld. Counsel for the assessee strongly challenged the order of the AO in making the addition. He submitted that the addition has been made solely for the reason that sundry creditors during the year increased by 93.07 crores in comparison to the Sundry Creditors outstanding during the preceding year. The ld. Counsel for the assessee, referring to the show cause notice issued by the AO on 12.12.2019, copy of which is placed at page nos. 578-579 of the paper book, submitted that the case was fixed for hearing on 13.12.2019. Despite the unfairly inadequate time given to respond, the assessee complied and submitted its reply, copy of whch is placed at page nos. 580 to 643 of the PB. He submitted that the reply also contained groupings in various sub-heads, the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is willing to provide any information or document with respect to them as desired by the Hon ble DRP. He submitted that despite all the submissions made before the DRP, the addition was confirmed solely for the reason of increase in the sundry creditor. 23. The ld. Counsel for the assessee filed the following factual summary in tabular form with regard to the proceedings before the DRP on the aforesaid issue:- Date Remarks 25.09.2020 Brief Synopsis dated 25.09.2020 filed by the appellant before the DRP. (Paper Book Page No. 644) 28.09.2020 First Hearing took place on 28.09.2020. During the course of hearing the DRP heard the matter in details. No direction was given to the assessee to submit any further document/information 29.09.2020 The DRP forwarded the assessee s submission dated 25.09.2020 to the AO vide letter dated 29.09.2020 (Paper Book Page No.670) with the direction to the AO to consider assessee s comments/objections and submit remand report to the Hon ble DRP on or before 15.10.2020. Remand Report notice iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2021 No response from the AO 01.03.2021 Letter filed by the appellant before the DRP informing the DRP above the relevant facts and circumstances of the matter and lack of any response by the AO in spite of several reminders from the DRP. (Paper Book Page No. 680). 24. He accordingly submitted that although the assessee had filed the relevant details duly supported by documentary evidence, the AO did not find anything against these submissions made by the assessee. He submitted that in spite of 5-6 reminders, the AO chose not to respond to DRP notices. He accordingly submitted that the addition made by the AO and sustained by the DRP without finding anything wrong in the duly audited books of account maintained by the assessee is incorrect in law and no addition can be made u/s 68 of the Act on account of alleged increase in sundry creditors. He also relied on the following decisions:- (i) [2018[ 99 taxmann.com 449 (Punjab Haryana): Kulwinder Singh; (ii) [2017] 88 taxmann.com 617 (Allahbad): Zazsons Export Ltd. (iii) [2006] 156 Taxman 507 (All): Pancham Dass Jain; (iv) [2011] 16 taxmann.com 350 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO passed the draft assessment order dated 15th December, 2019 proposing the addition of Rs.26,72,67,895/-. We find, the DRP upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraph. The addition, in the instant case, has been made solely for the reason that the sundry creditors during the year increased by 93.07 crores in comparison to the sundry creditors outstanding during the previous year. From the various details furnished by the assessee in the paper book, we find the assessee before the AO had filed the following details towards sundry creditors/trade payable:- 28. Similarly, the assessee has filed the comparative details of sundry creditors/trade payable the details of which are filed at page 586 of the paper book, which read as under:- 29.The chronology of events filed by the assessee with regard to the proceedings before DRP on this issue has already been reproduced in the preceding paragraph and a perusal of the same shows that despite reminders after reminders there was no response from the AO. We further find in the assessment year 2017- 18 and 2018-19, copies of which are placed at pages 682-692 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
