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TMI Blog2025 (5) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Additional/Joint/Deputy/Assistant Commissioner of Income Tax Income Tax Officer. National Faceless Assessment centre, Mumbai or the Learned Assessing Officer ('Ld. AO'), under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ('the Act) is erroneous and bad in law. 2 That the final assessment order dated 12 July 2024 passed under section 143(3) read with section 144C(13) of the Act by Ld. AO is not in conformity with the directions of the Hon'ble Dispute Resolution Panel-2, Mumbai ('Ld. DRP") and is liable to be quashed being in gross violation of the strict mandate of section 144C(13) of the Act. 3. On the facts and circumstances of the case, and in law, the Deputy/Assistant Commissioner of Income Tax, Transfer Pricing-Circle 3(3)(1), Mumbai ('Ld. TPO')/Ld. AO and the Hon'ble DRP have erred in not appreciating the contentions raised by the Appellant. 4 On the facts and circumstances of the case, and in law, the Hon'ble DRP erred in enhancing/confirming the additions/disallowances proposed in the draft assessment order passed by the Ld. AO without judiciously considering the factual and legal objections and submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Hon'ble DRP have erred in enhancing the income of the Appellant by INR 9,65,65,885 by arbitrarily disallowing the payment for intra group services. In doing so, the Ld. AO/TPO have grossly erred in: 6.1. not following the mandatory statutory procedure as laid down under Rule 10B(1)(a) and Rule 10C of the Rules to identify the MAM end application of the same, merely based on presumptions that the arm's length price value of the transactions is 'Nil' without furnishing details of the price charged in any comparable uncontrolled transaction; 6.2. disregarding the documentary evidences furnished and the service agreements entered into by the Appellant for availing the services from overseas AEs: 6.3. not appreciating the fact that the need for services is a commercial/business decision made by the Appellant as part of its business operations, thereby disregarding sound transfer pricing principles and relevant judicial pronouncements in India when undertaking the said adjustment. 6.4. holding that the Appellant could have availed the intra group service from third-party service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case." 3. The brief facts of the case are that the assessee, M/s Royal Canin India Private Limited (RC India), is a wholly owned subsidiary of Royal Canin S.A.S. (RC SAS' or Overseas Affiliate', or 'Franchisor"). The assessee is primarily engaged in the marketing, sales and distribution of pet care products. The assessee group manufactures, processes, and sells food products worldwide. During the alleged assessment year, the assessee undertook the following international transactions with its AEs: Particulars Most Appropriate Method ('MAM') Value of international transaction (INR) Tested party Margin Arm's length range Payment of franchisee fees Comparable uncontrolled price ('CUP') 244,691,341 9% 8% to 10% with median of 9.5% Purchase of finished goods Transactional net margin method ('TNMM') 1,066,691,280,789 Not Applicable Payment of communication charges Other method 66,787,167 Not Applicable Payment for advertisement and sales promotion Other method 12,571,038 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee filed a detailed submission, wherein the assessee contented against the enhancement of income proposed by the DRP. The DRP passed the directions dated 12/06/2024, accepting the assessee's contention on disallowance u/s 40(4)(ia) and disregarded the assessee's contentions & disallowed the payment of Franchise Fee, Intra-group services and deduction claimed under section 80G which is restricted to the amount of Rs. 962,917/-.Additionally, the DRP proposed an alternate disallowance of the sum paid in respect of franchisee fee and intra-group service charges by the assessee to its Associated Enterprise(s) (in short "AE"), as being ineligible for deduction under Section 37(1) of the Act E. Approach adopted by the Ld. AO in the Final Assessment Order. The Ld. AO in the Final AO order dated 12/07/2024, reiterated the directions issued by Hon'ble Panel and thus disallowed the payment of Franchise Fee, Intragroup services and deduction claimed u/s 80G made by the assessee. The details are as follows:- Description Amount (in Rs) Income as per Return of Income 132,979,460/- Add: Variation in respect of addition made under section 92CA of the Act 341,257,227/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mention, there would not be double addition/disallowance of Rs. 9,65,65,885/-, but the Assessing Officer will provide the additional supporting argument that the sums have not only "Nil" ALP as determined; but also are not eligible for deduction under s.s. 37(1) of the I.T. Act. This is an additional ground raised by the Panel. The Assessing Officer is directed to comply with the additional ground and incorporate the same." 6. The Ld. AR argued that the Ld. AO has not followed the directions issued as no alternate disallowance has been proposed or discussed, thereby violating the mandatory provisions of the section 144C(13) of the Act. Thus, the final assessment order dated 12/07/2024 passed by the Ld. AO pursuant to the DRP directions dated 12/06/2024 is bad in law and void as the same has not been passed in conformity with the DRP directions. It is stated that basis the above stated facts and observations of the Ld. AO, it leads to an unmistakable conclusion that the final assessment order has not been passed in compliance to the statutory provisions that mandate in terms of Section 144C(13) of the Act that upon receipt of the directions of the DRP, the Ld. AO shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the specific directions of the DRP was held to be excessive and hence illegal: ESPN Star Sports Mauritius S.N.C. ET Compagnie us UOI, [2016] 68 taxmann.com 377 (Delhi). 8. The Ld. DR argued filed a written submission which is kept in record. The Ld. DR prayed to set aside the issue before the Ld. AO for reconsideration the issue. 9. We have heard the rival contention of both parties in the matter and perused the material on record. The undisputed facts on record, as brought out by the discussions above, is that the Ld. AO, as per law, was required to pass the final order of assessment dated 12/7/2024 for asst. year 2020-21 u/s 143(3) r.w.s 144C (13) r.w.s. 144B of the Act in conformity with the directions issued by the DRP u/s 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within the time prescribed u/s 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the Ld. AO passed the impugned final order of assessment which, as contended by the Ld AR against the direction of the DRP related the issues IGS fees and franchise fees. In view of the provisions of the Act and respectfully relied on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides IP rights required for manufacturing of products. It also provides the Standards of quality required to be maintained by the franchisee. 11.2. Marketing support-RC SAS make available to RC India continuous marketing assistance in form of various merchandising and promotional tools, and packaging materials. Market team of RC SAS continuously performs various marketing services including market analyses, press announcements, leaflets and websites design, among others and publish the research insights on its library for RC India and other affiliates. Further, RC SAS, having immense experience about the worldwide trends and the demand patterns, it develops and manages all brand and product communication strategies including creation of supporting communication materials needed to explain the products in a manner that is consistent with the brand image. The products are sold in India on the basis of recommendations/ knowledge proposition by the channel partners. Thus, for the channel partners to be able to recommend the products to the customers, it is essential that they are educated about the contents of the products and the underlying scientific benefits. The said informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The TPO cannot step into the shoes of assessee to decide prudence of expenditure. The TPO failed to examine the documents furnished by assessee to benchmark the transaction by applying one of the methods specified in Chapter-X of the Act. Thus, in the facts of the case and in the light of decisions refereed above, we hold that the findings of the TPO/Assessing Officer in making adjustment in respect of franchise fee are unsustainable. The adjustment is deleted and ground No. 3 of appeal is allowed." 13. The Ld. DR argued and supported the order of the ld. AO. 14. We heard the rival submission and perused the documents available on record. Considering the ALP of its international transaction pertaining to payment of Franchisee Fees, the assessee had undertaken and maintained contemporaneous documentation. Further, a methodical process for the purpose of comparability analysis for the determination of the ALP was undertaken wherein the CUP was selected as most appropriate method and an arm's length range of 8% to 10% with a median of 9.5% was determined. Based on the same, payment of Franchisee Fees was concluded to be at arm's length, details in APB Page No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by considering the benchmark price of the said international transaction as 'Nil', has violated the explicit provisions of the Indian TP regulations. In our considered view the issue is squarely covered by assessee's own case ITA No. 1298/Mum/2021 for AY 2016-17 (supra). We direct to delete the adjustment as proposed in relation to franchise fees. 15. In the result, the appeal of the assessee ground no-5 is allowed. Ground No 6 &7 (adjustment on account of disallowance of payment of intragroup service charges) 16. The adjustment on account of IGS has already been adjudicated, and the bench has deleted the said adjustment for being in contravention of Section 144C(10) read with Section 144C(13) of the Act, as addressed in Ground No. 2. Accordingly, the assessee's appeal on Grounds No. 6 and 7 stands allowed. Ground no. 8 (alternate disallowance of franchisee fee and intra-group service charges by Appellant under section 37(1)) 17. The assessee has raised an alternative ground concerning the adjustment of franchise fees and IGS charges. Since both issues have already been decided in favor of the assessee in ground no-2, separate adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein." (Emphasis added) From the above, it is clear that, no deduction will be allowed for CSR expenditure as business expenditure but the Explanatory Memorandum to The Finance (No.2) Bill, 2014 makes no reference to ineligibility or restriction in claiming deductions under section 80G of the Act for donations made pursuant to section 135 of Companies Act, 2013. No restrictions imposed on claim of CSR expenditure made towards donations under Section 80G of the Act. 19. The Ld. DR argued and relied on the order of revenue authorities. 20. We heard the rival submission and perused the documents available in record. The provisions of section 80G of the Act permits deduction for the contributions made by an assessee to specified relief funds and charitable institutions except where CSR expenditure is made towards donation to Swachh Bharat Kosh or Clean Ganga Fund. Respectful reliance is placed on judicial precedents where it was held that CSR expenditure is eligible for deduction under section 80G of the Act subject to satisfaction of the conditions mentioned in the said section. We respectfully relied on the order of the coordinate bench of ITAT-Mumbai in M/s Naik Seafoods Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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