Levi Strauss (India) Private Limited, Bengaluru V. Income Tax Officer, Ward-4(1)(1), Bangalore

ITA 223/BANG/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7694 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 27-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 37; 271(1)(c); 115JB; 143(2); 72; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C”, BANGALORE Before Shri George George K, JM & Ms.Padmavathy S, AM IT(TP)A No.223/Bang/2021 : Asst.Year 2016-2017 M/s.Levi Strauss (India) Pvt.Ltd. ITC Green Centre, No.18, 4 th & 5 th Floor, West Wing, North Tower, Banaswadi Main Road, Maruthiseva Nagar Bangalore – 560 005. PAN : AAACL3092Q. v. The Additional / Deputy / Assistant Commissioner of Income-tax, National e-Assessment Centre, New Delhi. (Appellant) (Respondent) Appellant by : Smt.Shreya Loyalka, CA Respondent by : Sri.Bijoy Kumar Panda, CIT-DR Date of Hearing : 22.08.2022 Date of Pronouncement : 13.09.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 01.04.2021 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2016-2017. 2. The brief facts of the case are as follows: The assessee is a company wholly owned subsidiary of Levi Strauss Mauritius Limited. It is engaged in the business of marketing and distribution of products under the brand Levis Strauss and Co. For the assessment year 2016-2017, the return of income was filed on 30.11.2016 declaring `Nil’ income. The assessment was selected for scrutiny and the noticed u/s 143(2) of the I.T.Act was duly served on the IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 2 assessee. During the course of assessment proceedings, it was noticed that the assessee had entered into various international transactions with its AEs exceeding Rs.10 crore. The case was referred to the Transfer Pricing Officer (TPO) for the determination of the Arm’s Length Price (ALP) of the international transactions entered by the assessee with its Associate Enterprises (AEs). Subsequently, the assessee company filed return of income u/s 92CD of the I.T.Act on 30.09.2020 after entering into advance pricing agreement dated 29.06.2020. The TPO passed an order u/s 92CA of the I.T.Act (order dated 30.12.2019) proposing TP adjustment as under:- Sl. No. Particulars Amount (Rs.) 1. Sourcing Support Services 88,67,335 2. AMP Expenses 148,46,00,000 Total adjustment proposed 149,34,67,335 3. The Assessing Officer passed draft assessment order on 30.12.2019 incorporating the above additions proposed by the TPO. Further, the A.O. made certain corporate tax additions / disallowances. Aggrieved, the assessee filed objections before the Dispute Resolution Penal (DRP). The objections of the assessee pertaining to TP adjustment made on account of Sourcing Support Services amounting to Rs.88,67,335 was rejected by the DRP. Further, the TP adjustment made on AMP expenses, the DRP noted, was covered under the Advance Pricing Agreement. Consequent to the DRP’s directions, the impugned final assessment order was passed IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 3 on 01.04.2021. The addition under the TP adjustment and the corporate tax as per the final assessment order, are as follows:- Sl. No. Particulars Amount (Rs.) 1. Business income as per computation of income filed. Nil 2. Adjustment as per direction of DRP on account of Sourcing Support Services 88,67,335 3. Disallowance u/s 37 on account of expenditure incurred on fixtures and stores interiors. 2,19,27,416 4. Total income 3,07,94,751 Rounded u/s 288A to 3,07,94,750 4. Aggrieved by the final assessment order, the assessee has filed the present appeal before the Tribunal, raising following grounds:- “1. The order of the learned AO pursuant to the directions of the Honorable DRP, erred in assessing the total income at INR 3,07,94,750 as against the returned income of Nil reported by the Appellant; Grounds relating to transfer pricing matter 2. The learned AO/Transfer Pricing Officer ("TPO") erred in making an addition of INR 8,867,335 to the total income of the Appellant on account of transfer pricing adjustment in the arm's length price of the international transactions entered by the Appellant with its associated enterprise; 3. The learned TPO and the learned AO have erred, in law and in facts, by not accepting the TP documentation and economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 (Rules"). conducting a fresh economic analysis for the determination of the ALP in connection with the international transaction involving provision of sourcing support services, and holding that the Appellant's international transaction is not at arm's length; IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 4 4. The learned TPO and the learned AO have erred, in law and in facts, by rejecting the following comparable companies based on unreasonable criteria for determining the arm's length margin in relation to provision of sourcing support services without appreciating the fact that the comparable companies identified by the appellant is functionally comparable and has satisfied all the filters adopted by the TPO; Companies forming part of Appellant's TP documentation (a) MCI Management (India) Limited (b) Concept Public Relations India Limited; and Additional Comparable Companies proposed by the Appellant (c) Adhaan Solutions Private Limited 5. The learned TPO and the learned AO have erred, in law and in facts, by selecting the following companies based on unreasonable criteria for determining the arm’s length margin in relation to provision of sourcing support services without appreciating the fact that the comparable companies identified by the TPO are not functionally comparable. (a) Irclass System & Solution Private Limited; (b) Ugam Solutions Private Limited; (c) Teks Tech Inspection India Private Limited; (d) Axience Consulting Private Limited; (e) Aparajitha Corporate Service Private Limited; (f) Platinum Advertising Private Limited. Ground relating to corporate tax matter: 6. For that upon facts and circumstances of the case, the learned AO and the Honorable DRP erred in disallowing a sum of INR 2,19,27,416 under section 37 of the Act without appreciating the fact that the expenditure on point of sales materials are recurring in nature and it directly helps in promoting sale of products of the Appellant's business; 7. For that upon facts and circumstances of the case, the learned AO and the Honorable DRP erred in treating the expenditure of INR 2,19,27,416 as capital expenditure; 8. Without prejudice to the Ground NO.6 and 7 - (a) The learned AO/DRP erred in not granting depreciation on the expenditure incurred by the Appellant on point of sales materials of INR 2,19,27,416; IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 5 (b) The Honorable DRP erred in noting that Appellant is not the owner in Para 4.3 of the order without any basis and in deviating from the findings of the AO in Para 5.3 that the Appellant is the owner of the advertising material displayed at the point of sales; (c) The Honorable DRP was not justified in concluding that the ownership of point of sales materials does not belong to the Appellant without providing sufficient opportunity to the Appellant to submit relevant documents to establish the Appellant's ownership over the point of sales materials; (d) The learned AO and the Honorable DRP have erred in law and on facts, in not appreciating that the point of sales materials incurred by the Appellant are for the purpose of Appellant's business / to promote sale of products distributed by the Appellant. under a commercial arrangement which has a direct nexus with Appellant's business; (e) The learned AO and the Honorable DRP have erred, in not following the directions of the CIT(A) for A Y 2012-13 to AY 2014-15 wherein the CIT(A) has treated the Appellant to be the owner of the point of sale materials and thereby allowing the depreciation on such expenditure and that the directions of the CIT(A) attained finality as no appeal was filed by the revenue in relation to the said ground; 9. Based on the facts and circumstances of the case and in law, the Appellant prays that the education cess and secondary and higher education cess on income tax paid for the year under consideration ought to be allowed, as a deduction while computing the total income under the normal tax computation; General Grounds 10. Without prejudice to the above Grounds 6 to 9 - (a) The learned AO has raised an erroneous demand of INR 66,61,62,513 (including consequential interest) in the notice of demand issued under section 156 of the Act by erroneously considering the adjustment as per draft assessment order of INR 151,58,13,762 in the computation sheet issued along with final assessment order (instead of adjustment of INR 3,07,94,751 as determined in the final assessment order pursuant to relief granted by the Honorable DRP); (b) The learned AO has erred in not adjusting the brought forward losses of INR 139,17,96,874 pertaining to earlier IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 6 years as per the provisions of section 72 of the Act while computing tax liability on assessed income; (c) The learned AO has erroneously computed the book profit under section 115JB of the Act in the computation sheet (issued along with final assessment order) by erroneously adding back the foreign exchange losses of INR 4,18,991 despite no such adjustment was proposed in the .assessment order! directions of the Honorable DRP and ignoring the fact that there is no such adjustment specified under section 115JB of the Act; and 11. The learned AO has erred in law and in facts in initiating penalty under section 271(1 )(c) of the Act.” 5. The assessee has also filed additional grounds, which read as follows:- “1. The learned AO / Transfer Pricing Officer ('TPO') and the learned Dispute Resolution Panel (DRP') have erred, in facts, in computing operating margins for comparable companies mentioned as follows; (a) India Tourism Devp. Corpn. Limited. (Segmental) (b) I C R A Management Consulting Services Limited (c) Kestone Integrated Mktg. Services Private Limited (Segmental).” 6. Ground 1 is general in nature and no specific adjudication is called for, hence, the same is dismissed. Ground 11 with reference to initiation of penalty u/s 271(1)(c) of the I.T.Act is premature and we dismiss the same. The other surviving grounds, we shall adjudicate the same as under. Grounds 2 to 5 (TP Adjustment of Rs.88,67,335) 7. The above grounds relate to TP adjustment of Rs.88,67,335 made by the TPO towards international transaction of inventory procurement and sourcing support IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 7 services with its AEs. The assessee was providing sourcing support services to its AE, Levi Strauss Trading Co. (Levi Hong Kong). In regard to the sourcing support services, the assessee was to recover cost from its AEs along with mark up of 8%. The functions performed by the assessee under sourcing support services are described at last para of page 2 of the TPO’s order. For the ready reference, the same is reproduced below:-  Identifying suppliers  Entering into contract with suppliers  Monitoring pre-production and production activities  Assistance in inspection of the sourced goods. 8. The assessee has also filed additional evidence as Exhibit-A (application dated 05.04.2022), which details the description of sourcing support services (forming part of the agreement with the AE) for the subject assessment year. Similar agreement for the earlier year is also enclosed at page 868 of the paper book submitted by the assessee. The TPO computed margin of 8% of the sourcing support services segment (refer pages 4 and 5 of the TPO’s order). The assessee adopted Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The assessee selected six companies as comparables. The TPO did not dispute the TNMM adopted by the assessee. However, as regards the selection of comparables out of six, three were retained and three were excluded by the TPO. During the course of TP proceedings, the assessee proposed another company, namely, Adhaan Solutions Private Limited, which IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 8 also excluded by the TPO. The TPO finally took 6 new comparables and completed the TP analysis with 9 comparables (6 proposed by the TPO and 3 retained out of TP study). The comparison of the TP study done by the assessee and the TPO, the comparables selected by the TPO & their weighted average, the computation of ALP and the adjustment made, reads as follows:- Computation of TP study done by assessee and TPO Particulars Assessee TPO Method adopted TNMM TNMM Profit level indicator (PLI) Operating profit / operating cost (OP/OC) OP/OC Comparable companies selected 6 9 Period for which data used FY 2015-16, FY 2014- 15, FY 2013-14 FY 2015-16, FY 2014- 15, FY 2013-14 Comparable companies selected by the TPO and their weighted average. Sl. No. Name of the company Weighted average unadjusted OP/OC(%) 1. India Tourism Development Corporation Limited (Segmental) 8.55% 2. Irclass Systems & Solutions Pvt.Ltd. 9.42% 3. ICRA Management Consulting Services Ltd. 10.54% 4. Kestone Integrated Marketing Services Pvt. Ltd. (Segmental) 11.98% 5. Ugam Solutions Private Limited 14.48% 6. Teks Tech Inspection India Private Limited 18.86% 7. Axience Consulting Private Limited 22.06% 8. Aparajitha Corporate Services Pvt. Ltd. 34.15% 9. Platinum Advertising Pvt.Ltd. 46.69% 35 th Percentage 13.98% IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 9 Median 14.48% 65 th Percentage 18.86% Computation of ALP and the adjustment made: Arm’s length mean margin on price 14.48% Operating cost 136,841,606 ALP at 114.48% of OC 156,656,271 ALP computed by the assessee 147,788,935 Variation in price / shortfall being adjusted 8,867,335 9. Aggrieved by the TP adjustment of Rs.88,67,335, the assessee filed objections before the DRP. The assessee pleaded for exclusion of 6 comparables proposed by the TPO and inclusion of 3 comparables (2 forming part of TP study and 1 additional comparable proposed by assessee during the TP proceedings). The DRP, however, confirmed the TPO’s order and rejected the objections of the assessee (refer pages 14 to 19 of the DRP’s directions). 10. Aggrieved, the assessee has raised this issue before the Tribunal. The limited submissions of the assessee before the Tribunal is seeking for inclusion of three companies and exclusion of six companies from the comparable’s list of companies. The learned AR referring to ground 4, sought for inclusion of the following 3 companies:- (a) MCI Management (India) Limited (b) Concept Public Relations India Limited, and (c) Adhaan Solutions Private Limited. 11. The assessee also wants exclusion of 6 comparables as mentioned in ground 5, as namely - IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 10 (a) Irclass System & Solution Private Limited; (b) Ugam Solutions Private Limited; (c) Teks Tech Inspection India Private Limited; (d) Axience Consulting Private Limited; (e) Aparajitha Corporate Service Private Limited; (f) Platinum Advertising Private Limited. We shall adjudicate the inclusion /exclusion of the above companies sought by the assessee, as under: MCI Management (India) Limited (assessee seeking inclusion) [Ground 4(a)] 12. The assessee sought for inclusion of the above company for the reason that the said company is functionally comparable, as the said company is a globally renowned Event Management company and is engaged in providing AM&C, PCO, PIP, meeting and event services throughout the world. The same can be compared to a routine business service provider. 13. The DRP noted that the company’s revenue is mainly from Meeting & Event Receipt, PCO Event Receipt, PIP Event Receipt and A M & C Receipt. These functions cannot be compared with the inventory procurement and sourcing support services of the assessee-company. Accordingly, the DRP held that the functions of said company are dissimilar to the functions of the assessee-company. 14. The learned AR apart from reiterating the submissions made before the TPO and DRP, stated that the DRP for assessment year 2017-2018 and assessment year 2018-2019, IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 11 in assessee’s own case had taken MCI Management (India) Limited as a comparable company. 15. The learned DR supported the orders of the TPO and the DRP. 16. We have heard rival submissions and perused the material on record. The DRP at page 14 of its order, has rejected MCI Management (India) Limited on the ground that it is engaged in event management activity. However, the same DRP has rendered contrary finding in assessment years 2017-2018 and 2018-2019 and accepted the above company as a comparable. There is no reasoning given by the DRP as to why different conclusion are reached for the same comparable for the same assessee. Therefore, we remand this company back to the DRP for fresh consideration. Needless to say, the DRP shall provide an opportunity of hearing to the assessee. Concept Public Relations India Limited (assessee seeking inclusion) [Ground 4(b)] 17. The assessee sought for inclusion of the above company for the reason that the said company is functionally comparable, as the said company is having expertise at relationship building which it uses to build relations and image for a company, individual and organization. It derives income from public relation fees, media receipts, etc. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 12 18. The DRP, however, held that the revenue of the said company is mainly from public relation fees receipt, media receipts and other fees and business receipts. These functions cannot be compared with the inventory procurement and sourcing support services of the assessee- company. The DRP further held that the export earnings of Rs.15,78,700 of out of the total revenue from operating of Rs.17,23,23,593, the export earning is only 0.92% of the total revenue. Therefore, the functions of the above company cannot be compared with that of the assessee-company. 19. We have heard rival submissions and perused the material on record. The DRP on page 14 of its order, has rejected the above company on the ground that its revenue is from public relation fees, media receipts and other business receipts. However, the same DRP has rendered contrary finding in A.Y. 2017-2018 and accepted the above company as a comparable. There is no reasoning given by the DRP as to why different conclusions are reached for the same company for the same assessee. Further, status of this company in assessment year 2018-2019 is not brought on record by the learned AR and DR. Further, nature of media receipts is also not clear. The learned AR has sought exclusion for companies have media receipts. Therefore, we remand this company back to the DRP for fresh consideration. Needless to say, the DRP shall provide an opportunity of hearing to the assessee. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 13 Adhaan Solutions Private Limited (assessee seeking inclusion) [Ground 4(c)] 20. At the time of hearing before us, the learned AR did not press the above company for inclusion as comparable companies. Hence, ground 4(c) is dismissed. Irclass Systems & Solutions Private Limited (assessee seeking exclusion) [Ground 5(a)] 21. The assessee sought for exclusion of the above company for the reason that the said company is functionally different as the said company is engaged in providing services related to Land Based Inspection services and quality certification. Only income of Irclass is survey fee in its P&L account is receiving income for survey and inspection of immovable property and to determine its condition and value which is possible by employing professionally competent, independent and highly efficient technical persons who specialize in this work. The work of survey also involves looking into legal issues of encumbrance, tracing the correct legal owner, working with registry offices, physical verification of the location of the property. Further the professionals would need to be specialized and capable to issue certification. Whereas the functional profile of the assessee is completely different and not related to the business of sourcing related services of apparels, i.e., the business of the assessee. 22. The DRP held that the said company is functionally comparable, as the assessee is involved in monitoring of the IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 14 progress of pre-production and production activities of the identified suppliers and also gives assistance in inspection of the sourced goods. The business of Irclass is comparable to the support services rendered by the assessee. Irclass passes through all the filters applied by the TPO and has been correctly included in the set of comparables. 23. We have heard rival submissions and perused the material on record. On review of annual report of the above company, we find that at page 1437 of the paper book, in its profit and loss account, only income is from survey fees. Further, at page 1438 of the paper book, under corporate information of the above company, it is provided that the company is providing technical inspection and certification services. The assessee is engaged in rendering sourcing support services where it assists its AE to identify vendors, it provides preproduction support services etc. These services cannot be compared with inspection of land. Therefore, we hold that the TPO and DRP were correct in excluding this company from the comparable list. 24. In the result, ground 5(a) is rejected. Ugam Solutions Private Limited (assessee seeking exclusion) [Ground 5(b)] 25. The assessee is seeking exclusion of the above company for the reason that the said company is functionally different from the assessee. The assessee submits that Ugam IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 15 Solutions Private Limited is engaged in provision of managed analytics services. It provides services to Global Market Research firms and the services include research operations, technology infrastructure transition, data warehousing, aggregation and visualization, sample management optimization, global program management, custom panel solutions, reporting solutions and mobile solutions. Whereas assessee is engaged in assistance of sourcing of materials, the chemicals used in dying colours etc. which is completely different from the services provided by Ugam. Ugam is engaged more on the technology front by doing the analysis of data gathered by it and then selling the result of their analysis. Ugam requires personnel of different technical competence more so on the information technology side and deals with gathering data of wide range of different industries which is completely different from the services rendered by the assessee. Hence the same should be rejected as functionally different criteria. 26. The DRP held that the said company is functional comparable as the assessee assisted in identifying suppliers and monitoring the progress of pre-production and production activities of the identified suppliers. It gives assistance in inspection of the sourced goods. Ugam passes through all the filters applied by the TPO and has been correctly included in the set of comparables. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 16 26. We have heard rival submissions and perused the material on record. This company is engaged into business of managed analytical services, which is clear from annual report placed at page 941 of paper book. Our view is also supported by the decision of the Bangalore Tribunal in the case of M/s.Epson India Pvt. Ltd. v. DCIT, in IT(TP)A No.206/Bang/2021 for A.Y. 2016-2017, wherein it was observed as followed with respect of Ugam Solutions:- “20.1.3 We have perused submissions advanced by both sides on the basis of records placed before us. Admittedly this company is into managed analytical services and provides solutions to global market research firms, retailer, leading brands as has been observed by DRP in para 8.2.1. On comparing the functions rendered by the assessee to the associated enterprise, this company cannot be a fit comparable, due to functional dissimilarities and risk assumed by this company.” 28. Therefore, we direct the TPO to exclude this company from the comparable list as it is functionally different from the assessee. 29. In the result, ground 5(b) is allowed. Teks Tech Inspection India Private Limited (assessee seeking exclusion) [Ground 5(c)] 30. The assessee is seeking exclusion of the above company from the list of comparables for the reason that the said company is functionally different as it carries on the business of inspection of textile and inspection of civil construction for real estate companies, conducting social compliance audit IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 17 and providing training for social audit & CTPAT audit in India. It is also providing training for social audit in India. This involves specialized personnel who are eligible to certify and sign such audit reports and carry out technical expertise of construction and textile. Further training services also cannot be compared with sourcing support services. 31. The DRP held that the said company is functionally comparable as the business of the above company is comparable to the support services rendered by the assessee. Further, Teks Tech passes through all the filters applied by the TPO and has been correctly included in the set of comparables. 32. We have heard rival submissions and perused the material on record. WE have reviewed the annual report of the company. As per page 1098 of paper book Teks Tech has income from 3 activities namely inspection charges for textile products, inspection charges for building construction and audit charges. As part of sourcing services rendered by the assessee to its AE, the assessee also does inspection of textile products to ensure that they are as per the specification given by the AE. The assessee also assists its AE in ensuring that suppliers and vendor’s comply and adhere to various terms of agreement. Therefore, the services rendered by Teks Tech is comparable and we reject the contention of the learned AR to exclude this company from the final list of comparable. It is ordered accordingly. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 18 33. In the result, ground 5(c) is rejected. Axience Consulting Private Limited (assessee seeking exclusion) [Ground 5(d)] 34. The assessee is seeking exclusion of the above company from the list of comparables as the said company functionally different as the same is engaged the business of providing consultancy and advisory services in the field of finance, market research and business administration. Whereas the assessee is not in the business of market research. Market research could pertain to various fields including research for manufactured products, various types of services, customer satisfaction research etc. Further Axience cannot be compared with the assessee who is merely providing sourcing support services. It is merely using its knowledge acquired while doing its marketing and distribution services and cannot be said to be related to market research. 35. The DRP held that the said company is functional comparable to the assessee as the business of Axience is comparable to the support services rendered by the assessee. Axience passes through all the filters applied by the TPO and has been correctly included in the set of comparables. 36. We have heard rival submissions and perused the material on record. As per page 1143 of paper book, Axience is engaged in the business of providing consultancy and advisory services in the field of finance, market research and IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 19 business administration to corporate and non-corporate. The segmental break up of revenue between above different kinds of services is not available in annual report. Therefore, in the absence of segmental data, we direct the TPO to exclude Axience from the final list of comparables. It is ordered accordingly. 37. In the result, ground 5(d) is allowed. Aparajitha Corporate Services Private Limited (assessee seeking exclusion) [Ground 5(e)] 38. The assessee is seeking exclusion of the above company from the list of comparables as the said company is functionally different from the assessee, as the said company provides end to end HR solutions with focus on compliance audit, establishment compliance management, factory compliance management, contract labor regulation, contract labor compliance payroll services, payroll compliance services to its clients. Audits and compliance of various labour laws involves trained professionals who have legal acumen of the updated labour laws and who are capable of filing to be made before statutory authorities like PF, ESI, etc. to carry out the compliances and this function cannot be compared with sourcing support services. 39. The DRP held that the business of Aparajitha is comparable to the support services rendered by the assessee and Aparajitha passes through all the filters applied by the TPO. Therefore, it is concluded that the said company has IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 20 been correctly included in the set of comparables. 40. We have heard rival submissions and perused the material on record. As per page 1236 of paper book, the company is engaged in providing HR solutions with focus on compliance audit, establishment compliance management, factory compliance management, contract labour regulations, payroll services and payroll compliance. The assessee is engaged in providing sourcing support services. The services provided by Aparajitha are regular compliance services and cannot be compared to sourcing support services rendered by the assessee. Therefore, we direct the TPO to exclude Aparajitha Corporate Services from the final list of comparables. It is ordered accordingly. 41. In the result, ground 5(e) is allowed. Platinum Advertising Private Limited (assessee seeking exclusion) [Ground 5(f)] 42. The assessee seeking to exclude the above company from the list of comparable companies for the reason that the dissimilarity in functioning of this company with that of the assessee. According to the assessee Platinum Advertising is engaged in providing an entire range of communication services, which include advertising, media planning and buying, media research, sales promotion, corporate communication and public relations. Engagement with media, media research cannot be by any stretch of IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 21 comparison be compared with sourcing support services. Also, activities related to sales promotion are where assessee has to reach out to vendors, whereas in sourcing, the vendors reach out to the assessee. 43. The DRP held that this company is functionally comparable to that of the assessee. The DRP was of view that the assessee which is engaged in identifying suppliers and monitoring the progress of pre-production and production activities of the identified suppliers is akin to advertisement and sales promotion. Therefore, it was concluded that the business of Platinum is comparable to the support services rendered by the assessee. Further, it was held that Platinum passes through all the filters applied by the TPO and has been correctly included in the set of comparables. 44. We have heard rival submissions and perused the material on record. On review of company background from the annual report at page 1327 of the paper book, we find that the contention of the learned AR is correct. This company is engaged in an entire range of communication services, which include advertising, media planning and buying, media research, sales promotion, corporate communication and public relations. Media activity cannot be compared with sourcing or marketing activities. Therefore, we hold that this company is functionally different and should be excluded from the final list of comparables. It is ordered accordingly. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 22 45. In the result, ground 5(f) is allowed. Corporate Tax Issues (Grounds 6 to 8) 46. As mentioned earlier, the assessee is engaged in the business of marketing and distribution of apparel and non- apparel brands. The activity involves trading of ready made garments and related accessories from various manufacturers as per Levi specification and requirements. Goods are sold to franchisee (exclusive Levi stores), distributors or large department stores like Shoppers Stop, Pantaloons etc. The assessee supplies to these franchisees, distributors and departmental stores, some point of sales (POS) material being visual merchandise, visual display units, signages, lighting, mannequins, related accessories, etc. According to the assessee, these material have short life span and as such the expenses incurred on the same are revenue in nature and are to be allowed as deduction u/s 37 of the I.T.Act. 47. However, the A.O. treated the expenses of the assessee as capital expenditure and disallowed the same u/s 37 of the I.T.Act. The DRP upheld the view taken by the A.O. Further, no depreciation was granted on the amount capitalized. 48. Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR fairly submitted that the issue has been decided against the assessee by the order of the Tribunal in assessee’s own case for assessment year 2011- 2012 in IT(TP)A No.695/Bang/2016 (order dated 30.05.2022), IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 23 wherein it was held that the impugned expenditure cannot be held to be revenue expenditure. Further, it was held by the Tribunal that on the amount capitalized, depreciation is to be granted. 49. The learned DR supported the orders of the AO and the DRP. 50. We have heard rival submissions and perused the material on record. The Tribunal in the case of the assessee for the assessment year 2011-2012 (supra) had held that the impugned expenditure is a capital expenditure and on the amount capitalized, depreciation is to be granted. The relevant finding of the Tribunal in this regard reads as follows:- “5.3 We have perused the submissions advanced by both sides in the light of records placed before us. 5.4 The Ld.AR at the time of arguments submitted that, for A.Ys. 2012-13 and 2013-14, the Ld.CIT(A) treated the same expenditure to be capital in nature on which depreciation was granted, which has not been challenged by the revenue before this Tribunal. We note that, the view taken by the Ld.CIT(A) for A.Ys. 2012-13 and 2013-14 seems to be appropriate based on following reasoning. “6.3. I have carefully considered the AO's observations / findings and above arguments of the Appellant. The issue is accordingly adjudicated as under:-  The assessee's core contention is that the Company operates in the fashion wear industry which is highly volatile and competitive. The assessee explains that, for a company to sustain in such an industry and to reach out to maximum customers in the market, it has to creatively launch/ advertise its products to attract customers' attention. In the process, the Company has supplied various point of sales/ advertising materials to various distributors/franchisees, to ensure display of LEVI’s branded products in uniform manner IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 24 across various 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 the franchisee. The assessee has also not been in a position to refute the AO's findings that the Audit report itself, certifies the impugned expenditure incurred towards fixtures and stores-interiors, as capital expenditure.  Having considered the nature of items and expenditures involved, it is apparent that the same are essentially in the nature of advertising / marketing tools, resulting in Brandbuilding, which eventhough incurred for sale-promotion certainly create in an enduring benefit of Brand-loyalty over a long-period of time. The expenditures, which are incurred towards the placement of fixed items placed in the showroom and stores undisputedly cause brandvisibility on a long-term basis. The fixed items eventhough modified from time to time to cater to the changing fashion trends, do not lose the character of what is essentially a Brand-building exercise. The character of such expenditure therefore is certainly of a capital nature. It is not a coincidence but surely for this reason that, the auditreport, also identifies the impugned expenditure as being capital and not revenue. In this view of the matter, the impugned expenditure are held to be of a capital nature and accordingly, the AO’s action in this regard is upheld.  Having held the aforesaid expenditure as of capital nature, the assessee's alternative grounds of appeal with regard to claim of appropriate depreciation is to be allowed. The AO is accordingly directed to capitalize the impugned expenditure and provide appropriate depreciation, which is available as per the I.T. Act. In background of the above detailed discussion and facts & circumstances of the present case, the AO's action is to be upheld. The assessee's grounds of appeal are therefore disallowed, subject IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 25 to allowance of depreciation.” 5.5 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. Accordingly, these grounds raised by assessee stands dismissed.” 51. In view of the above order of the Tribunal, we reject grounds 6 and 7 and allow grounds 8(a). The A.O. is directed to allow depreciation on the amount treated as capital expenditure. Ground 9 : Deductibility of education cess : 52. The above ground was not pressed during the course of hearing, hence, the same is dismissed. Ground 10(a) : Correction of demand of Rs.66,61,62,513 53. The A.O. in the draft assessment order had made TP adjustment of Rs.148,46,00,000 on AMP issue. The assessee had filed APA. The DRP also gave direction to the A.O. to determine ALP of the transaction in accordance with the APA (refer page 23 of the DRP’s order). The TPO in accordance with the DRP’s directions and in accordance with the terms of the APA passed an order giving effect dated 25.03.2021 deleting the ALP adjustment on AMP issue. Further, in accordance with the above, the final assessment order was also passed and the income was determined at IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 26 Rs.3,07,94,750 (internal page 5 of the assessment order). However, the A.O. took the income as per the draft assessment order at Rs.151,58,13,762 in the computation sheet while determining the demand u/s 156 of the I.T.Act. 54. The learned AR submitted that the A.O. should have taken the income as per the final assessment order at Rs.3,07,94,750 instead of Rs.151,58,13,762. The learned AR submits that a rectification application has been filed by the assessee on 30.04.2021, however, no orders have been passed on the rectification application filed. 55. The learned DR was duly heard. 56. We have heard rival submissions and perused the material on record. The A.O. is directed to examine the above issue and dispose of the rectification application as expeditiously after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. 57. In the result, ground 10(a) is allowed for statistical purposes. Ground 10(b) (Non-adjustment of brought forward losses of Rs.139,17,96,874 with the income determined) 58. The learned AR submitted that as per the modified return (pursuant to the APA), the assessee had brought forward losses amounting to Rs.139,17,96,874 for set off with respect to the income of the said assessment order. It is IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 27 submitted that the A.O. did not consider the same while passing the final assessment order and while issuing the notice u/s 156 of the I.T.Act. In this context, the learned AR submitted that the assessee had filed rectification application and the same is pending for adjudication. 59. We have heard rival submissions and perused the material on record. The A.O. is directed to examine the above issue raised in ground 10(b) and take a decision in accordance with law after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. 60. In the result, ground 10(b) is allowed for statistical purposes. Ground 10(c) (Adjustment of foreign exchange loss of Rs.4,18,991 while computing book profit u/s 115JB of the I.T.Act.) 61. The learned AR submitted that while passing draft assessment order, the A.O. has made an addition of Rs.4,18,991 with respect to foreign exchange loss (internal page 4 to 9 of the draft assessment order). The DRP deleted the said addition (page 32 to 36 of the DRP’s directions). The A.O. in accordance with the DRP’s directions deleted the said addition and determined the total income at Rs.3,07,94,750 and book profit at Rs.56,37,76,375 (internal page 5 of the assessment order). The learned AR submits that while issuing notice of demand u/s 156 of the I.T.Act, the A.O. took the numbers from the draft assessment order for computing the IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 28 income under the normal provision and income u/s 115JB of the I.T.Act. Therefore, it was requested to direct the A.O. to take the correct income under the normal provision and the income u/s 115JB of the I.T.Act while issuing notice of demand u/s 156 of the I.T.Act. 62. We have heard rival submissions and perused the material on record. The A.O. is directed to examine the issue raised in ground 10(c) and take a decision in accordance with law after affording a reasonable opportunity of hearing to the assessee. 63. In the result, ground 10(c) is allowed for statistical purposes. Additional Ground (TP Adjustment) 64. In the above ground, the learned AR submits that the TPO has erroneously computed the operating margin of three comparable companies, namely, (i) India Tourism Development Corporation Limited (segmental), (ii) I C R A Management Consulting Services Limited, and (iii) Kestone Integrated Marketing Services Private Limited (segmental). 65. We have heard rival submissions and perused the material on record. The A.O. is directed to examine the plea of the assessee and correct the operate margin of the above mentioned three comparable companies. It is ordered accordingly. IT(TP)A No.223/Bang/2021. M/s.Levi Strauss (India) Private Limited. 29 66. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 13 th day of September, 2022. Sd/- (Padmavathy S) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 13 th September, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-2, Bengaluru. 4. The Pr.CIT-2, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore