TMI Blog2022 (5) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is directed to file all requisite details in support of its contention to establish the need to analyse the transaction independently. The Ld.TPO shall consider the claim of assessee in accordance with law and by granting appropriate opportunity of being heard to the assessee. Nature of expenses - treating certain expenses on advertisement as capital in nature - HELD THAT:- The assessee has not been able to establish that the expenditure is incurred are revenue in nature. Even before this Tribunal, the Ld.AR could not counter the observations of Ld.CIT(A) reproduced hereinabove. We do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Disallowing the foreign exchange fluctuation on restatement of receivables and payables - HELD THAT:- In the present facts also, there is no dispute that the outstanding liability was in respect of trade receivables and payables and therefore loss would be on revenue account. In such circumstances respectfully following the above view in assessee s case for A.Ys. 2012-13 and 2013-14 [ 2019 (11) TMI 857 - ITAT BANGALORE] we direct the Ld.AO to allow the deduction as claimed by the assessee. Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned international transaction, and holding that the Appellant's international transaction is not at arm's length; 5. The impugned order is violative of the principles of natural justice as effective opportunity was not made available by the learned TPO and the learned AO resulting in (a) non-consideration of important relevant materials and submissions. and (b) errors in the order, all of which give rise to an unjustified demand; 6. The learned TPO and the learned AO have erred, in law and in facts, by using an aggregated approach at an entity level instead of comparing/ benchmarking the international transactions on a transaction-by-transaction basis as mandated by the Income Tax Act and Rules; 7. The learned TPO, the learned DRP and the learned AO have erred in making transfer pricing adjustment to transactions with non associated enterprises, which is impermissible under chapter X of the Act, 8. The learned TPO and the learned AO have, erred, in law and in facts, by rejecting the internal RPM adopted by the Assessee and accepting the external TNMM, to determine the arm's length nature of international transactions undertaken by the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, by disallowing notional interest of Rs. 2,34,000 under section 36(1)(iii) of the Act on the salary advance given to the employee on the basis that the transaction lacked business expediency: 19. The learned AO has erred, in law and in facts, by not appreciating the fact that above salary advance was charged as perquisite in the hands of employees and hence the same cannot be taxed in the hands of the Appellant again; 20. The learned AO has erred, in law and in facts, by protectively disallowing royalty expenditure of Rs.1,78,07,384 which was already disallowed by the Appellant under section 40(a) in its return of income for AY 2011-12 on the basis that expenses did not crystallize during the AY 2011-12 without granting opportunity to the Appellant of being heard: General Grounds 21. Without prejudice to the above grounds, the learned AO has erred in not adjusting the brought forward losses of Rs 89,07,83,284 pertaining to AY 2008-09, 2009-10 and 2010-11 as per the provisions of section 72 of the Act while computing tax liability on assessed income; 22. Without prejudice to the above grounds, the learned AO has erred in not considering the rectified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices to Levi Strauss Asia Pacific Division Pvt. Ltd( LSAPD') 203174130 Use of support services rendered by LSAPD 108984547 Payment of royalty to LS Co 131687582 Cost Reimbursement 107623641 2.3 The Ld.TPO observed that, the assessee benchmarked its four transactions independently, in the TP study, and therefore, a notice was issued calling upon the assessee to establish the validity of such segmental benchmarking. The assessee in support of its contention, filed various submissions, which was rejected by the Ld.TPO. The Ld.TPO aggregated all the transactions under TNMM at entity level. The Ld.TPO also rejected RPM as the most appropriate method applied by the assessee to benchmark its import of finished goods for resale segment. The Ld.TPO thus computed the margin of assessee at 7.78%. 2.4 On receipt of the transfer pricing order u/s. 92CA by the Ld.AO, draft assessment order was passed by making additional disallowances as under: 1) Disallowance of expenditure incurred on fixtures and stores interiors amounting to Rs. 3,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RPM is considered as the most appropriate method for computing the ALP of the finished garments imported by assessee. He placed reliance on decision of Hon ble Bombay High Court in case of CIT vs. L Oreal India Pvt. Ltd. reported in (2015) 53 taxmann.com 432 wherein the Hon ble Court held that in case of distribution or marketing activities when the goods are purchased from the associated enterprises and are sold to unrelated parties without any further processing then, RPM can be adopted as the most appropriate method. 4.5 The Ld.AR submitted that assessee had also paid for the intra group services rendered by AE which has also been aggregated by the Ld.TPO at the entity level. 4.6 The Ld.AR further submitted that the proposition of international transaction with the AE is much less than the transaction with the non-AE. In support he placed reliance on following table which forms part of objections raised before the DRP. Purchases of finished goods Amount (in INR) Purchases from AEs during the FY 2010-11 353,400,642 Purchases from Non-AEs during the FY 2010-11 3,568 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.12 We note that the transactions between the assessee and the AE has been aggregated by the Ld.AO without any basis. We also note that the benchmarking of the transaction has been considered by the Ld.TPO at entity level, without segregating the non-AE transactions which is a requirement as per section 92B of the Act. As held by various Courts, no addition can be made to the local transactions under Chapter X of the Act, and that the Ld.AO/TPO is supposed to determine the arms length price in relation to the international transaction with the AE only and not with any third party. 4.13 This alone warrants to entire issue to be remanded back to the Ld.AO/TPO to reconsider the transfer pricing issues de novo. The Ld.TPO is directed to consider the transactions and apply the appropriate method as per section 92 r.w. Rule 10A of the Act, qua the facts of the assessee. The assessee is directed to file all requisite details in support of its contention to establish the need to analyse the transaction independently. The Ld.TPO shall consider the claim of assessee in accordance with law and by granting appropriate opportunity of being heard to the assessee. Accordingly, ground no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stores to attract customer's attention. Further it is submitted that these advertising materials have a very short term life and are to be routinely changed, since every season calls for different presentations which are based on the line of products .each season. In this regard, the Appellant also produced sample copy of invoices to buttresses its claim that the above expenditure are normal, recurring and regular expenditure, considering the nature of business carried on by the Company. It is the assessee's stand that: such expenditure is not resulting in the creation of any new asset or advantage of enduring nature for the Company. And therefore, the expenditure incurred on the above point of sales materials is the nature of revenue expenditure. The assessee's contentions were not accepted by the AO, primarily for the reason that, these expenditures were of a capital nature and therefore were not prima-facie allowable u/s 37 of the I.T. Act. It is observed by the AO that, the franchisee agreements revealed that the impugned expenditure on sample / advertisement items were ether provided by the appellant company or the ownership was retained by it and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding trade receivables and payables as at 31 March 2011 in accordance with Accounting Standard-11. During AY 11-12 Rs 60,409,168/- were debited to the profit and loss account towards foreign exchange loss, out of which, Rs.15,896,977/- pertains to loss incurred on restatement of outstanding trade receivables/payables as at 31 March 2011. 6.2 The Ld.AR referred to Coordinate Bench decision in assessee s case for A.Ys. 2012-13 and 2013-14 wherein this Tribunal has considered this issue as under: 6.3 For the sake of ready reference, we reproduce the relevant paras 9. We have given careful consideration to the rival submissions. We find that the foreign exchange loss claimed by the assessee was on account of reinstatement of the liability of the assessee as on the last date of the previous year. It is no doubt true that there has been no actual payment and at the time of ultimate settlement, there may not be a loss also. Nevertheless, AS - 11 of ICAI requires such liability also to be reflected in the financial statements. The Hon'ble Supreme Court considered all these aspects in the case of CIT(A) Vs. Woodward Governor (2009) 312 ITR (P.) Ltd. (2011) 200 Taxman 179. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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