M/s. Nike India Private Limited, Bengaluru V. Assistant Commissioner of Income Tax, Circle-5(1)(1), Bengaluru

ITA 2809/BANG/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2251 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 21-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Wholly owned subsidiary; Non-deduction of tax; Onus to prove; TDS
• Section: 143(3); 13; 12; 2

Judgement Text

IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBERAND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.2809/BANG/2017 ASSESSMENTYEAR:2013-14 NIKE INDIA PRIVATE LIMITED GROUND & 1 ST FLOOR OLYMPIA BUILDING NO.66/1, BAGMANE TECH PARK CV RAMAN NAGAR BANGALORE 560 093 PAN NO :AABCN9612K VS. ACIT, CIRCLE 5(1)(1) BENGALURU APPELLANT RESPONDENT A PPELLANT BY : SHRI K.R. VASUDEVAN, A.R. RESPONDENT BY : MS. NEERA MALHOTRA, D.R. DATE OF HEARING : 21.04.2021 DATE OF PRONOUNCEMENT : 30.06.2021 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 28.12.2016 PASSED BY THE A.O. FOR ASSESSMENT YEAR 2 013-14 U/S 143(3) R.W.S. 144 C OF THE ACT IN PURSUANCE TO THE DIRECTIONS GIVEN BY LD. DISPUTE RESOLUTION PANEL (DRP). 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF FOOTWEAR, APPAREL AND SPORTS E QUIPMENT IN INDIA OF NIKE BRAND. THE ASSESSEE IS A WHOLLY OWNE D SUBSIDIARY OF IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 2 OF 19 NIKE HOLDING B.V. NETHERLANDS, WHICH IN TURN IS HEL D BY M/S. NIKE INC., USA. 3. THE FIRST ISSUE URGED BY THE ASSESSEE RELATES TO TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF SOURCING COMM ISSION. THE ASSESSEE HAD CLAIMED RS.14.06 CRORES AS PAYMENT OF COMMISSION FOR SOURCING OF MATERIALS. THE ASSESSEE PAID COMMI SSION OF 7% ON THE VALUE OF PRODUCTS SOURCED. THE ASSESSEE BENCH MARKED THE SAME UNDER CUP METHOD AND IN THIS REGARD, IT HAD SE LECTED 12 COMPANIES WHICH HAD PAID COMMISSION RANGING FROM 5% TO 12%. ACCORDINGLY, THE ASSESSEE CLAIMED THAT THE PAYMENT OF COMMISSION IS AT ARMS LENGTH. THE TPO HOWEVER, DETERMINED TH E ALP OF COMMISSION PAYMENT AS NIL AND ACCORDINGLY MADE TRAN SFER ADJUSTMENT OF ENTIRE CLAIM OF RS.14.06 CRORES. LD DRP ALSO CONFIRMED THE SAME. 3.1 THE LD A.R SUBMITTED THAT AN IDENTICAL ISSUE WAS EXAMINED BY THE COORDINATE BENCH IN THE ASSESSEES CASE IN IT(T P)A NO.3321/BANG/2018 RELATING TO ASSESSMENT YEAR 2014- 15 AND THE COORDINATE BENCH, VIDE ITS ORDER DATED 14.10.2020, HAS RESTORED THE ISSUE TO THE FILE OF THE TPO FOR EXAMINING IT AFRES H. 3.2 WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAMINED IN THE ASSESSEES OWN CASE BY THE COORDINATE BENCH IN A.Y. 2014-15 AN D THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO/TPO FOR EXA MINING IT AFRESH. THE RELEVANT OBSERVATIONS MADE BY THE COORDINATE BE NCH IN 2014-15 ARE EXTRACTED BELOW. 19. THE NEXT ISSUE RELATES TO THE TRANSFER PRIC ING ADJUSTMENT MADE IN RESPECT OF SOURCING COMMISSION PAYMENT. TH IS ISSUE IS BEING URGED IN AY 2014-15. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 3 OF 19 19.1 DURING THE YEAR RELEVANT TO THE ASSESSMENT Y EAR 2014-15, THE ASSESSEE HAS PAID SOURCING COMMISSION OF RS.22.24 C RORES TO ITS ASSOCIATED ENTERPRISE NAMED M/S NIKE GLOBAL TRADING PTE., SINGAPORE (NGTPS). THE RATE OF COMMISSION PAID BY THE ASSESSEE WAS 7% OF THE VALUE OF PRODUCTS SOURCED. THE ASSES SEE BENCHMARKED THE SAME UNDER CUP METHOD BY SELECTING CERTAIN COMPARABLE COMPANIES, WHICH HAD PAID SOURCING COMMI SSION 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 COMPANI ES SELECTED BY THE ASSESSEE HAS NOT BEEN PROVED TO BE REALLY CO MPARABLE. 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 SUITA BLE TO THE ASSESSEE. HENCE HE CALLED FOR VARIOUS DETAILS FROM THE ASSESSEE. AFTER CONSIDERING THOSE DETAILS, THE TPO CAME TO TH E CONCLUSION THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT NG TPS DID ALL THOSE ACTIVITIES AS MENTIONED IN THE AGREEMENTS. A CCORDINGLY HE CAME TO THE CONCLUSION THAT THAT THE AGREEMENTS ARE NOTHING BUT MAKE BELIEF ARRANGEMENTS. THE TPO REINFORCED HIS V IEWS BY OBSERVING THAT THE ASSESSEE DID NOT PAY ANY COMMISS ION TILL AY 2013-14 AND DID NOT MENTION ABOUT ANY SOURCING AGEN T 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 MADE TRANSFER PRICING ADJUSTME NT OF RS.22.24 CRORES. THE LD DRP ALSO CONFIRMED THE SAME. 19.3 THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FURNISHED VARIOUS EVIDENCES TO PROVE THAT THE SOURCING AGENT HAS PROVIDED SERVICES TO THE ASSESSEE. HE SUBMITTED THAT THE AS SESSEE HAS UTILIZED SERVICES OF ONE USA ENTITY AND ONE SINGAPO RE ENTITY. HOWEVER, THE ASSESSEE HAS PAID COMMISSION ONLY TO T HE SINGAPORE ENTITY. HE SUBMITTED THAT THE ASSESSEE HAS FURNISH ED COPIES OF AGREEMENTS ENTERED WITH THE AGENTS, CONFIRMATION LE TTER OBTAINED FROM THE AGENTS, E-MAIL COMMUNICATIONS, SUMMARY OF E-MAIL COMMUNICATIONS ETC., BEFORE THE TPO IN THIS REGARD. HE SUBMITTED THAT THE TPO, HOWEVER, DID NOT EXAMINE THESE IMPORT ANT EVIDENCES, BUT CAME TO THE CONCLUSION THAT THE AGENT HAS NOT P ROVIDED SERVICES TO THE ASSESSEE. ACCORDINGLY HE PRAYED THAT THIS I SSUE MAY BE RESTORED TO THE FILE OF TPO FOR EXAMINING IT AFRESH BY DULY CONSIDERING VARIOUS EVIDENCES FURNISHED BY THE ASSE SSEE. 19.4 WE HEARD LD D.R. HAVING REGARD TO THE SUB MISSIONS MADE BY LD A.R, WE ARE OF THE VIEW THAT THIS ISSUE REQUI RES FRESH EXAMINATION AT THE END OF TPO. ACCORDINGLY WE REST ORE THIS ISSUE TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH BY DU LY CONSIDERING IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 4 OF 19 THE VARIOUS EVIDENCES FURNISHED BY THE ASSESSEE. A FTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE AO/TPO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 3.3 CONSISTENT WITH THE VIEW TAKEN BY THE COORDINAT E BENCH, WE REMAND THIS ISSUE TO THE FILE OF THE AO/TPO WITH SI MILAR DIRECTIONS FOR EXAMINING THIS ISSUE AFRESH. 4. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUS TMENT MADE IN RESPECT OF PAYMENT OF INTEREST ON DEBENTURES. IT I S ALSO A RECURRING ISSUE. THE ASSESSEE HAS CLAIMED A SUM OF RS.65.18 CRORES AS EXPENDITURE ON PAYMENT OF INTEREST ON DEBENTURES. THE TPO, BY RELYING ON CERTAIN RULINGS/RBI CIRCULAR, TOOK THE V IEW THAT THE CCDS ARE IN THE NATURE OF EQUITY CAPITAL AND ACCORD INGLY, HELD THAT THE ARMS LENGTH PRICE OF INTEREST PAYMENT ON CCDS IS NIL. ACCORDINGLY, HE MADE TRANSFER PRICING ADJUSTMENT OF ENTIRE AMOUNT OF INTEREST CLAIM OF RS.64.18 CRORES. 4.1 WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. IT WAS BROUGHT TO OUR NOTICE THAT AN IDENTICAL ISSUE W AS EXAMINED BY THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2014-15 REFERRED (SUPRA) AND ALSO IN ASSESSMENT YEA R 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 YEA R 2012-13 & 2014-15. 4.2 WE NOTICE THAT THE COORDINATE BENCH HAS RESTORE D THIS ISSUE TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH WITH THE FOLLOWING OBSERVATIONS:- 18. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJU STMENT MADE IN RESPECT OF INTEREST PAID ON COMPULSORILY CONVERT IBLE DEBENTURES IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 5 OF 19 (CCD). THIS ISSUE IS BEING CONTESTED BY THE ASSESSE E IN AY 2012-13 AND 2014-15. 18.1 DURING THE YEAR RELEVANT TO AY 2012-13, T HE ASSESSEE HAD ISSUED DEBENTURES TO THE TUNE OF RS.527.54 CRORES T O M/S NIKE INDIA HOLDING B V (NETHERLANDS). THE DEBENTURES CARRIED INTEREST RATE @ 12% P.A. THE TPO NOTICED THAT THE AVERAGE BASE R ATE OF INTEREST DETERMINED BY STATE BANK OF INDIA DURING T HE FINANCIAL YEAR 2011-12 WORKED OUT TO 9.31%. ACCORDINGLY HE P ROPOSED TO MAKE TRANSFER PRICING ADJUSTMENT BY ADOPTING THE RA TE OF INTEREST @ 9.31% UNDER CUP METHOD BY TAKING THE BASE LENDING RATE DETERMINED BY STATE BANK OF INDIA. THE ASSESSEE SU BMITTED THAT THE BASE RATE IS THE MINIMUM RATE SET BY RESERVE BANK O F INDIA AND THE BANK IS FREE TO CHARGE HIGHER RATE OF INTEREST DEPE NDING UPON CREDIT RISK OF THE CUSTOMER. IT ALSO SUBMITTED THAT THE B ANK LENDING RATE CANNOT BE CONSIDERED TO BE COMPARABLE WITH THE RATE CHARGED ON DEBENTURES. THE TPO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY MADE TRANSFER PRICING ADJU STMENT OF RS.4,09,95,719/- BY ADOPTING THE RATE OF INTEREST @ 9.31%. 18.2 IN AY 2014-15, THE TPO TOOK THE VIEW THAT T HE COMPULSORILY CONVERTIBLE DEBENTURES IS A CONTROVERSIAL FINANCIAL PRODUCT CALLED HYBRID INSTRUMENT. HE FURTHER OBSERVED THAT THE CCD SUFFER DIFFERENT TAX TREATMENT IN DIFFERENT JURISDICTIONS, , I.E., IT IS TREATED AS LOAN IN ONE COUNTRY AND DIVIDEND RECEIPTS IN ANO THER COUNTRY. SUCH HYBRID INSTRUMENTS ARE CRITICIZED STRONGLY BY ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT. THE TPO REFE RRED TO CERTAIN CASE LAWS AND HELD THAT THE CCD IS IN THE N ATURE OF EQUITY. ACCORDINGLY HE HELD THAT THE ALP OF INTEREST PAYABL E ON CCD AT NIL. 18.3 THE LD DRP UPHELD BOTH THE VIEWS TAKEN BY T PO IN THE ABOVE SAID YEARS. 18.4 THE LD A.R SUBMITTED THAT THE TPO HAS CONS IDERED THE INTEREST PAYMENT MADE IN THE YEAR RELEVANT TO AY 20 15-16 AND HELD IT TO BE AT ARMS LENGTH. IN THIS REGARD, THE TPO H AS MADE ENQUIRIES WITH FOREIGN AUTHORITIES AND IT WAS ASCERTAINED THA T THE INTEREST PAID BY THE ASSESSEE HAS BEEN OFFERED AS INCOME BY THE AE IN ITS HANDS. 18.5 WE NOTICE THAT THE TPO HAS BEEN TAKING DI FFERENT STAND IN DIFFERENT YEARS. WHILE HE ACCEPTED THE CCD AS DEBE NTURES IN AY 2012-13 AND REDUCED THE RATE OF INTEREST ONLY, THE TPO TREATED CCD AS EQUITY IN AY 2014-15. HOWEVER, IN AY 2015-1 6, THE TPO HAS ACCEPTED THE RATE OF INTEREST OF 12% TO BE AT A RMS LENGTH. WE NOTICE THAT THE TPO HAS MADE CERTAIN ENQUIRIES IN A Y 2015-16 AND ACCORDINGLY CAME TO THE CONCLUSION THAT THE INTERES T PAYMENT IS AT IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 6 OF 19 ARMS LENGTH. THE BENEFIT OF THOSE ENQUIRIES WAS NO T AVAILABLE WITH THE TPO IN THE TWO YEARS UNDER CONSIDERATION. SINC E THE ISSUE IS THE SAME IN ALL THE YEARS AND FURTHER, IN VIEW OF T HE CONFLICTING STANDS TAKEN BY TPO, WE ARE OF THE VIEW THAT THIS I SSUE 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. 4.3 CONSISTENT WITH THE VIEW TAKEN BY THE COORDINAT E BENCH IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 & 2 014-15, WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO WITH SIMIL AR DIRECTIONS. 5. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUS TMENT OF RS.5.33 CRORES IN RESPECT OF REIMBURSEMENT OF EXPEN SES. 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 EXPEN SES OF RS.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 JURIS DICTIONAL ITAT, BENGALURU BENCH HAS EXAMINED AN IDENTICAL ISSUE IN ASSESSMENT YEAR 2005-06 AND 2006-07 AND HAS HELD THAT THE NATU RE OF THESE EXPENSES IS SUCH THAT THEY CANNOT BE ATTRIBUTED SOL ELY AND EXCLUSIVELY INCURRED BY PARENT COMPANY FOR DISTRI BUTION BUSINESS OF THE ASSESSEE. ACCORDINGLY, THE TPO, FOLLOWING T HE DECISION OF ITAT, DETERMINED THE ALP OF REIMBURSEMENT OF EXPENS ES AT NIL. ACCORDINGLY, HE MADE TRANSFER PRICING ADJUSTMENT OF RS.5.33 CRORES. 5.3 WE NOTICE THAT AN IDENTICAL ISSUE WAS EXAMINED IN A.Y. 2010- 11, 2012-13 & 2014-15 AND THE TRIBUNAL FOLLOWING TH E DECISION RENDERED BY THE COORDINATE BENCH IN A.Y. 2005-06 & 2006-07 HAS IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 7 OF 19 DECIDED THIS ISSUE AGAINST THE ASSESSEE. THE RELEV ANT OBSERVATIONS MADE BY THE TRIBUNAL IN 2014-15 ARE EXTRACTED BELOW : 15.2 HOWEVER, WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAMINED BY THE CO- ORDINATE BENCH IN THE ASSESSEES OWN CASE IN IT(TP) A NOS.653 & 654/BANG/2011 RELATING TO AY 2005-06 & 2006-07 ORDER DATED 10-0 5-2013. WE FURTHER NOTICE THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESS EE WITH THE FOLLOWING OBSERVATIONS:- 5.5.1 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL O N RECORD. THE MAIN ISSUE FOR CONSIDERATION BEFORE US IS WHETHER OR NOT THE E XPENSES INCURRED BY THE PARENT COMPANY, NIKE INC., USA CAN BE ATTRIBUTED SO LELY AND TOTALLY TO THE BUSINESS OF DISTRIBUTION UNDERTAKEN BY THE ASSESSEE . IT IS THE CONTENTION OF THE ASSESSEE THAT THESE EXPENSES INCURRED TOWARDS CROSS PAYMENT CHARGES IN THE RELEVANT PERIOD AMOUNTING TO RS.4,79,96,697 ARE SOL ELY RELATED TO THE BUSINESS OF THE ASSESSEE IN INDIA. PER CONTRA, REVENUES VI EW IS THAT THE ASSESSEE HAS FAILED TO ESTABLISH AND DEMONSTRATE THAT THESE EXPE NSES ARE TO BE ATTRIBUTED TO THE BUSINESS OPERATIONS OF THE ASSESSEE. 5.5.2 TO UNDERSTAND AND APPRECIATE THE ROLE AND BUS INESS OF THE ASSESSEE AND THE INTERPLAY IT HAS WITH ITS PARENT COMPANY, N IKE INC., USA, IN RESPECT OF ITS OPERATIONS, AN EXAMINATION OF THE TRANSFER PRIC ING STUDY/REPORT SUBMITTED BY THE ASSESSEE IS BOTH INFORMATIVE AND USEFUL. IN THE TRANSFER PRICING REPORT, UNDER THE HEADING BRIEF ON THE BUSINESS, IT IS ME NTIONED THAT 1.2.3 NIKE INDIA, A WHOLLY OWNED SUBSIDIARY OF NI KE HOLDINGS INC., IS RESPONSIBLE FOR DISTRIBUTION OF FOOTWEAR, SPORTS APPAREL AND EQUIPMENT. IN ADDITION, NIKE INDIA PROVIDES ADMINISTRATIVE SUP PORT IN RELATION TO THE MARKETING AND BRAND PROMOTION INITIATIVES OF NIKE G ROUP IN INDIA. 1.2.4 THE DEVELOPMENT OF ARMS LENGTH PRICE IN THI S ANALYSIS RECOGNIZES THAT NIKE INDIA ACTS AS A WHOLESALE DIST RIBUTOR AND IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING VALUE ADDED SE RVICES, ACTING AS AN INTERMEDIARY BETWEEN ENTREPRENEURS AND CUSTOMERS. THIS ANALYSIS REFLECTS THE PROVISIONS OF THE OECD GUIDELINES CONCLUDING THAT, AT ARMS LENGTH, COMPANIES ENGAGED IN PROVIDING SUCH VALUE ADDED SERVICES ARE ENTITLED TO RECEIVE COMPENSATION APPROPRIATE TO THE SERVICES PE RFORMED AND THE CAPITAL INVESTED IN THEIR BUSINESSES, BUT ARE NOT ENTITLED TO SHARE IN ANY RETURNS ATTRIBUTABLE TO THE MARKETING OR COMMERCIAL INTANGI BLES THAT BELONG TO THE ENTREPRENEUR. 1.2.5 NIKE GROUP OWNS VIRTUALLY ALL THE VALUABLE I NTELLECTUAL PROPERTY RIGHTS (KNOW HOW, COPY RIGHTS, ETC.) AND OTHER COMM ERCIAL 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 IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 8 OF 19 BUSINESS AND ENTREPRENEURIAL RISKS OF PRODUCT ACCEP TABILITY 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 O N 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 PARAG RAPHS OF THE TRANSFERPRICING STUDY REPORT SUBMITTED BY THE ASSES SEE IS THAT; I) NIKE GROUP, THE PARENT COMPANY, DOES CERTAIN MAR KETING BRAND PROMOTION INITIATIVES, WITH SOME ADMINISTRATIVE SUP PORT FROM THE ASSESSEE; II) THE ASSESSEE IS MERELY A WHOLESALE DISTRIBUTOR AND IS ONLY AN INTERMEDIARY BETWEEN NIKE GROUP AND THE ULTIMATE CU STOMER. IT IS ONLY A SERVICE PROVIDER, IS COMPENSATED FOR ITS SERVICES A ND HAS ABSOLUTELY NO STAKE IN THE MARKETING AND COMMERCIAL INTANGIBLES, WHICH BEL ONG ONLY TO THE PARENT COMPANY. III)- THE BUSINESS RISK OF PRODUCT ACCEPTABILITY AN D PERFORMANCE IN THE MARKET IS BORNE BY NIKE GROUP, THE PARENT COMPANY A ND THE ASSESSEE DOES NOT OWN ANY INTEREST IN THE SAME. 5.5.4 ADMITTEDLY, AS PER THE SUBMISSIONS OF THE ASS ESSEE, THE COST OF SAMPLES IS INCURRED TO INCREASE AND IMPROVE THE PRODUCT AWAREN ESS, THE RESPONSIBILITY FOR WHICH VESTS WITH THE PARENT COMPANY, NIKE INC., USA. IN T HIS FACTUAL MATRIX, THERE IS NO REASON WHY A MERE SERVICE PROVIDER, MERELY ACTING A S AN INTERMEDIARY BETWEEN THE ENTREPRENEUR AND THE CUSTOMER, SHOULD BEAR THE EXPE NSES RELATED TO INCREASING THE PRODUCT AWARENESS AND PRODUCT ACCEPTABILITY IN THE MARKET. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE US AND BEFORE THE AUTHORITIES B ELOW HAVE BEEN CONTRADICTORY TO WHAT IS STATED IN THE ASSESSEE'S TRANSFER PRICING S TUDY AND THIS IS NOT ACCEPTABLE. FURTHER, AS POINTED OUT BY THE TPO, THE ASSESSEE HA S SEPARATELY BOOKED SUBSTANTIAL EXPENSES AMOUNTING TO APPROX. RS.2.42 CRORES TOWARD S ADVERTISING, MARKETING AND SALES PROMOTION WHICH IS APPROX.. 8% OF SALES TURNO VER AND THESE HAVE BEEN ALLOWED AS EXPENSES INCURRED TOWARDS PROMOTION OF PRODUCT SALES. THE ON US FOR PROVING THAT THE EXPENSE! INCURRED BY THE PARENT, NIKE INC, USA, ARE TOWARDS THE SALES OF THE PRODUCTS AND NOT FOR THE PURPOSE OF CREATING BRAND AWARENESS IS ON THE ASSESSEE, WHICH ONUS IS NOT DISCHARGED BY THE ASSESSEE. ALSO CONSIDERING THAT THE ASSESSEE ITSELF HAS ADMITTED THAT THE PARENT, NIKE INC. USA HAS BRAND MARKETING AND PROMOTION INITIATIVES IN INDIA, IT IS BUT NATURAL T O CONCLUDE THAT THE EXPENSES INCURRED BY NIKE INC., USA ARE TOWARDS CREATION OF BRAND AWARENESS, FOR WHICH THE PARENT HAS THE RESPONSIBILITY. IN THIS VIEW OF THE MATTER, THE EXPENSES ON COST OF SAMPLES, ETC., HAVE TO BE ATTRIBUTED TO THE PARENT, NIKE INC., USA AND THEREFORE IT IS NOT CORRECT TO CONCLUDE THAT THESE EXPENSES HAVE TO BE BORNE BY THE ASSESSEE. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 9 OF 19 5.5.5 AS REGARDS THE EXPENSES RELATED TO EMPLOYEES, OF THE PARENT COMPANY WHO HAVE BEEN DEPUTED TO THE ASSESSEE, THE FAR ANAL YSIS IN THE TRANSFER PRICING STUDY/REPORT RELATED TO THE EMPLOYEES STATES AS UND ER: 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 RE CRUITMENT 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 EMP LOYEES ARE TOTALLY UNDER THE CONTROL OF THE ASSESSEE. FURTHER, FROM THE SECONDME NT AGREEMENT SUBMITTED BY THE ASSESSEE BEFORE US, IT IS SEEN THAT THE PERSONNEL D EPUTED FROM THE PARENT COMPANY ARE WORKING AS GENERAL MANAGER, INDIA SALES DIRECTO R, MANUFACTURING LEADER, CATEGORY BUSINESS DIRECTOR AND THE LIKE. THERE IS NO PLAUSIBLE REASON PUT FORTH TO JUSTIFY WHY A MERE SERVICE PROVIDER, WHO IS ONLY AN INTERMEDIARY BETWEEN THE ENTREPRENEUR VIZ. NIKE INC., USA AND THE CUSTOMER SHOULD INCUR COSTS RELATED TO MANUFACTURING LEADER, CATEGORY BUSINESS DIRECTOR, E TC. ALSO IT IS INCONCEIVABLE WHY A THIRD PARTY UNRELATED ENTITY WOULD EMPLOY PEOPLE FROM THE ENTREPRENEUR TO MAN SUCH KEY SENIOR POSITIONS IN ITS ORGANIZATION. FUR THER, WE ALSO FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM THAT THESE PERSONS, INDEED ONLY WORK IN THE DISTRIBUTION ACTIVITIES WHICH IS T HE SOLE WORK UNDERTAKEN BY THE ASSESSEE. THE ONUS FOR PROVIDING EVIDENCE TO SUBST ANTIATE ITS CLAIM RESTS WITH THE ASSESSEE WHICH, IN THE FACTS AND CIRCUMSTANCES AS D ISCUSSED ABOVE, THE ASSESSEE HAS NOT DISCHARGED. 5.5.6 IN RESPECT OF THE EXPENSES AMOUNTING TO RS.1, 74,93,025 CLAIMED IN *MISCELLANEOUS EXPENSES', THE ASSESSEE HAS PUT FORT H ONLY A GENERAL EXPLANATION THAT THESE REPRESENT COURIERING EXPENSE S, ETC. NO FURTHER DETAILS AS TO THE NATURE OF EXPENSES, THE PURPOSE FOR WHICH TH EY WERE EXPENDED ETC. HAS BEEN FORTHCOMING FROM THE ASSESSEE. THE ASSESSEE HA S ALSO NOT FURNISHED ANY EVIDENCE TO ESTABLISH THAT THESE EXPENSES WERE INDE ED INCURRED FOR AND ON BEHALF OF THE ASSESSEE. IN THE ABSENCE OF THESE DET AILS, THE CLAIMS PUT FORTH BY THE ASSESSEE REMAIN UNSUBSTANTIATED. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 10 OF 19 15 5.5.7 ANOTHER CONTENTION OF THE ASSESSEE IS THAT SINCE THE SAME SET OF EXPENSES HAS BEEN HELD TO BE AT ARM'S LENGTH IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2008-09, THEREFORE, THEY SHOULD BE TREATED AS ARM'S LENGTH IN THE YEAR UNDER CONSIDERATION. WE ARE UNABLE TO ACCE PT THE CONTENTION THAT THE TRANSFER PRICING ADJUSTMENT MADE IN THE TWO YEARS U NDER CONSIDERATION HAS TO BE NEGATED ONLY ON THE GROUND THAT SUCH AN ADJUSTMENT WAS NOT MADE IN THE SUBSEQUENT YEAR. IT IS A WELL SETTLED POSITION IN L AW THAT THE ASSESSMENT OF EVERY YEAR STANDS ON ITS OWN LEGS AND THE 'PRINCIPLE OF R ES JUDICATA' DOES NOT APPLY TO INCOME TAX ASSESSMENT PROCEEDINGS. THE ALP FOR EACH YEAR IS DETERMINED BASED ON THE SET OF FACTS APPLICABLE TO EACH OF THE INDIV IDUAL YEARS AND NO COMMON PROPOSITION CAN BE PROPOUNDED FOR ALL THE YEARS. AS MENTIONED EARLIER, FOR THE TWO YEARS UNDER CONSIDERATION BEFORE US, THE ASSESS EE HAS NOT FURNISHED ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM THAT THESE PERSO NS WORK ONLYFOR THE DISTRIBUTION ACTIVITY UNDERTAKEN BY THE ASSESSEE. T HE ONUS FOR BRINGING SUCH EVIDENCEON RECORD TO SUBSTANTIATE THE CLAIM RESTS W ITH THE ASSESSEE AND WE- FIND THAT SUCH ONUS HASNEITHER BEEN DISCHARGED BEFO RE US NOR BEFORE THE AUTHORITIES BELOW. IF THESE EXPENSES WERE HELD TO B E AT ARMS LENGTH IN THE SUBSEQUENT YEAR, THEN THE ASSESSEE MUST HAVE FURNIS HED 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 VARIOU S FACTORS AND STAGE OF THE ASSESSEES BUSINESS AND REQUIRE TO BE VIEWED DIFFER ENTLY. FROM THE COPIES OF SECONDMENT AGREEMENT SUBMITTED TO US, WE FIND THAT THE EMPLOYEES SECONDED ARE DIFFERENT FOR DIFFERENT YEARS PERFORMING DIFFER ENT 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 T O BE DELETED MERELY BE SIMILAR ADJUSTMENT WAS NOT MADE IN THE SUBSEQUENT YEAR IS N OT ACCEPTABLE. WE FIND THAT THE FACTS APPLICABLE TO THE TWO YEARS UNDER CONSIDERATI ON DO NOT SUPPORT THE CASE OF THE ASSESSEE. IN FACT, AS EXPLAINED EARLIER, THE STATEM ENTS, AVERMENTS, ADMISSIONS MADE IN THE TRANSFER PRICING STUDY SUBMITTED BY THE ASSE SSEE DOES NOT SUPPORT THE STAND URGED BY THE ASSESSEE BEFORE US. 5.5.8 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AS DISCUSSED ABOVE, ON THE ISSUE OF PAYMENT OF CROSS CHARGES OF EXPATS COSTS AND CONTRACTOR CHARGES CLAIMED AS REIMBURSEMENTS TO THE PARENT COM PANY, NIKE INC., USA, WE ARE OF THE CONSIDERED OPINION THAT THE TPO HAS BEEN RIGHT IN HOLDING THAT: I) THE NATURE OF THESE EXPENSES ARE SUCH THAT THEY CAN NOT BE ATTRIBUTED TO HAVE BEEN SOLELY AND EXCLUSIVELY FOR THE DISTRIBUTION BU SINESS OF THE ASSESSEE; II) THE CLAIM OF THE ASSESSEE THAT IT HAD DERIVED TANGI BLE BENEFIT FROM THE EXPENDITURE HAS NOT BEEN SUBSTANTIATED WITH EVIDENC E. III) THERE IS NO EVIDENCE OR LIKELIHOOD OF ANY INDEPENDE NT ENTITY DEALING IN SIMILAR CIRCUMSTANCES BEARING SUCH EXPENDITURE. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 11 OF 19 WE, THEREFORE, UPHOLD THE FINDING IN THE ORDERS OF THE AUTHORITIES BELOW IN MAKING THE T.P. ADJUSTMENT OF RS.4,79,96,6 97 FOR ASSESSMENT YEAR 2005-06 AND DISMISS THE GROUNDS RAISED BY THE ASSES SEE. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCH REFERRED ABOVE, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AN D CONFIRM THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO. 5.4 CONSISTENT WITH THE VIEW TAKEN BY THE COORDINAT E BENCH ON THIS ISSUE IN THE OTHER YEARS, WE DECIDE HIS ISSUE AGAINST THE ASSESSEE AND CONFIRM THE TRANSFER PRICING ADJUSTMEN T MADE BY TPO/AO. 6. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUS TMENT IN RESPECT OF ROYALTY PAYMENT AMOUNT TO RS.12.02 CRORE S. 6.1 THE LD. A.R. FAIRLY ADMITTED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE COORDINATE BENC H IN OTHER YEARS. 6.2 THE ASSESSEE HAS PAID ROYALTY OF RS.2.02 CRORES . THE TPO NOTICED THAT THE ITAT HAS CONFIRMED THE TRANSFER PR ICING ADJUSTMENT MADE IN RESPECT OF ROYALTY PAYMENT IN A.Y. 2005-06 & 2006-07. FOLLOWING THE SAME, TPO DETERMINED THE ALP OF ROYAL TY PAYMENT AS NIL AND ACCORDINGLY, MADE TRANSFER PRICING ADJUSTME NT OF RS.2.02 CRORES. 6.3 WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAM INED BY THE COORDINATE BENCH IN A.Y. 2014-15 AND THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION REND ERED 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:- IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 12 OF 19 16. THE NEXT ISSUE RELATES TO THE T.P ADJUSTMENT MA DE IN RESPECT OF THIRD PARTY ROYALTY. THIS ISSUE IS BEIN G 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 T HE WORLD ON THE BASIS ITS SALES TURNOVER IN INDIA. THE TPO NOT ICED THAT THE ASSESSEE HAS NOT FURNISHED ANY AGREEMENT IN RESPECT OF THIS ARRANGEMENT. THE ASSESSEE COULD NOT ALSO FURNISH WO RKINGS AS TO HOW IT IS ALLOCATED TO IT. FURTHER, THE ASSESSEE W AS SEEN PAYING ROYALTY @ 1% ON THE SALES, IN ADDITION TO THE PAYME NT OF THIRD PARTY ROYALTY, IN ACCORDANCE WITH THE AGREEMENT ENT ERED BY IT WITH M/S NEON, AN ASSOCIATED ENTERPRISES, WHICH MANAGES ENDORSEMENT CONTRACTS WITH WORLD CLASS ATHLETES. A CCORDINGLY, THE TPO TOOK THE VIEW THAT THE PAYMENT OF THIRD PARTY R OYALTY WOULD AMOUNT TO DUPLICATION OF PAYMENT. THE TPO ALSO NO TICED THAT THE ASSESSEE HAS NOT OBTAINED APPROVAL FROM RBI FOR MAK ING THIS PAYMENT. ACCORDINGLY, HE TOOK THE VIEW THAT THE TH IRD PARTY ROYALTY IS NOT AN EXPENDITURE RELATED TO THE ASSESSEE. ACC ORDINGLY THE TPO DETERMINED THE ALP OF THIS EXPENDITURE AT NIL. 16.2 THE LD A.R SUBMITTED THAT THERE IS NO DUPLI CATION OF ROYALTY PAYMENT AS PRESUMED BY THE TPO. HE SUBMITTED THAT THE ASSESSEE IS PAYING ROYALTY OF 1% FOR USING THE BRAND NAME NI KE IN ITS PRODUCTS. IN ADDITION TO THAT, THE ASSOCIATED ENTE RPRISE NEON ENTERS INTO CONTRACTS WITH CELEBRITIES FOR PROMOTIO N OF THE PRODUCT, WHICH WOULD IN TURN WOULD INCREASE THE SALES. THE THIRD PARTY ROYALTY SIMPLY REPRESENTS CROSS CHARGING OF ROYALTI ES PAID BY AE BACK TO THE DISTRIBUTORS. 16.3 WE HEARD LD D.R ON THIS ISSUE AND PERUSED T HE RECORD. AS OBSERVED BY THE CO-ORDINATE BENCH IN THE CASE OF TH E ASSESSEE IN AY 2005-06, THE ONUS TO PROVE THAT THE EXPENSES INCURR ED BY THE AE WAS TOWARDS SALE OF PRODUCTS AND NOT FOR PURPOSE OF CREATING BRAND AWARENESS LIES UPON THE ASSESSEE. WE NOTICE THAT THIS ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE. THE BASIC DETAILS LIKE THE AGREEMENT IF ANY FOR REIMBURSING THIS EXPENSES, RBI APPROVAL, BUSINESS NECESSITY/EXPEDIENCY IN MAKING THE PAYMENT , THE BASIS OF CALCULATION ETC., HAVE NOT BEEN FURNISHED. HENCE, THE TPO HAS TAKEN THE VIEW THAT THIS EXPENDITURE IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY HE HAS DETERMINED THE ALP AT NIL. BEFORE US ALSO, NO FURTHER DETAILS WERE FURNISHED. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THERE IS NO INFIRMIT Y IN THE ORDER SO PASSED BY THE TPO/AO. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 13 OF 19 6.4 FOLLOWING THE DECISION RENDERED BY THE COORDINA TE BENCH IN A.Y 2005-06, WE DECIDE THIS ISSUE AGAINST THE ASSES SEE AND CONFIRM THE TP ADJUSTMENT MADE BY THE TPO/AO. 7. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUS TMENT MADE IN RESPECT OF ADVERTISEMENT, MARKETING AND PROMOTION E XPENSES (AMP EXPENSES). THE ASSESSEE HAD INCURRED EXPENDITURE O F RS.83.13 CRORES TOWARDS AMP EXPENSES. THE A.O. MADE AN ADJU STMENT OF RS.85.58 CRORES IN RESPECT OF THIS EXPENDITURE. TH E LD. A.R. SUBMITTED THAT AN IDENTICAL ADJUSTMENT WAS MADE BY THE TPO IN OTHER YEARS ALSO AND THIS ISSUE WAS EXAMINED BY THE COORDINATE BENCH IN ASSESSMENT YEAR 2014-15. HE SUBMITTED THA T THE ASSESSEE WAS HAVING AN AGREEMENT WITH ITS A.E. WITH REGARD TO THE EXPENSES INCURRED DURING CRICKET TOURNAMENTS CONDUCTED BY BC CI. 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 T HIS 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 AM P EXPENSES RELATING TO BCCI ACTUALLY REFERRED TO THE YEARS IN WHICH THE ASSESSEE HAD AN AGREEMENT WITH ITS AE FOR REIMBURSI NG PART OF EXPENSES INCURRED ON BCCI TOURNAMENTS. THE TP ADJU STMENT WITH REGARD TO THE FIRST CATEGORY OF EXPENSES WAS DELETE D BY THE TRIBUNAL AND THE TP ADJUSTMENT IN RESPECT OF AMP EXPENSES RE LATING TO BCCI, WHICH AROSE IN 2010-11 & 2011-12 WAS RESTORED TO TH E FILE OF THE A.O. THE LD. A.R. SUBMITTED THAT IN ASSESSMENT YEA RS 2010-11 & 2011-12, THE ASSESSEE HAD AN AGREEMENT WITH ITS A.E . FOR REIMBURSEMENT OF 50% OF THE EXPENSES INCURRED ON TH E TOURNAMENTS HELD BY BCCI. IN VIEW OF THE EXISTENCE OF THE IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 14 OF 19 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 FROM ASSESS MENT YEARS 2012-13 ONWARDS. ACCORDINGLY, THE LD. A.R. SUBMITTE D THAT THE EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION ON BCCI TOURNAMENTS WOULD FALL UNDER THE FIRST CATEGORY ONLY.IN THE CASES, WHERE NO AGREEMENT EXIS TS WITH THE AE, THE COORDINATE BENCH HAS DECIDED THE ISSUE IN A.Y. 2010-11, 2011- 12, 2012-13 & 2014-15 IN FAVOUR OF THE ASSESSEE. HE SUBMITTED THAT, IN THIS REGARD, THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY IT IN ASSESSMENT YEAR 2009-10, WHEREIN THE TRIBU NAL HAD FOLLOWED THE DECISION RENDERED BY HONBLE DELHI HIG H COURT IN THE CASE OF MARUTI SUZUKI LTD. (282 ITR 1). ACCORDINGL Y, THE LD. A.R. SUBMITTED THAT THE FACTS PREVAILING IN THE CURRENT YEAR ARE AKIN TO THE FACTS THAT PREVAILED IN ASSESSMENT YEAR 2009-10 . ACCORDINGLY, HE SUBMITTED THAT THE ENTIRE TP ADJUSTMENT SHOULD B E DELETED. 7.1 WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE AMP EXPENSES INCURRED BY THE ASSESS EE IN THE YEARS, OTHER THAN THE YEAR IN WHICH THERE WAS PARTIAL REIM BURSEMENT OF EXPENSES BY A.E. OF THE ASSESSEE, HAS BEEN HELD TO BE FULLY ALLOWABLE BY THE COORDINATE BENCH. THOSE YEARS ARE A.Y. 2009 -10, 2010-11, 2011-12, 2012-13 & 2014-15. ACCORDINGLY, THE TP AD JUSTMENT MADE IN THOSE YEARS HAS BEEN DELETED BY THE TRIBUNA L. ONLY IN THE YEARS RELEVANT TO ASSESSMENT YEAR 2010-11 & 2011-12 , THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND ITS A.E FOR R EIMBURSEMENT OF 50% OF THE BCCI EXPENSES. THE TP ADJUSTMENT MA DE IN THOSE YEARS HAS BEEN RESTORED TO THE FILE OF AO/TPO. SIN CE THE FACTS AVAILABLE IN THE PRESENT YEAR IS AKIN TO A.Y. 2009- 10 AND SINCE IT IS STATED THAT THERE IS NO AGREEMENT BETWEEN THE ASSES SEE AND ITS A.E. FOR REIMBURSEMENT OF EXPENSES, WE ARE OF THE VIEW T HAT THE DECISION IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 15 OF 19 RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI LTD. (SUPRA) IS APPLICABLE TO THE FACTS OF THE PRES ENT CASE. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH IN OTHER YEARS, WE HOLD THAT THE TP ADJUSTMEN T MADE IN RESPECT OF AMP EXPENSES IS NOT JUSTIFIED. ACCORDIN GLY, WE DIRECT THE A.O. TO DELETE THE SAME. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CL AIM OF PURCHASE OF SAMPLES. AN IDENTICAL ISSUE HAS BEEN DE CIDED AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2012-13 & 2014-15. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DECISION RENDE RED BY THE COORDINATE BENCH ON THIS ISSUE:- 20. THE REMAINING ISSUES ARE CORPORATE ISSUES AND THE ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER. THE FIRST CORP ORATE ISSUE URGED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF PURCHA SE 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 TR ANSFER PRICING ADJUSTMENT IN THE EARLIER YEARS. IN THE ASSESSMENT YEAR 2012-13 AND 2014-15, THE ASSESSING OFFICER HAS DISALLOWED THE E XPENDITURE 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 PR ODUCTS. 20.2 THE AE OF THE ASSESSEE, VIZ., NIKE INC., HA S INTRODUCED NEW PRODUCTS AND ACCORDINGLY SENT SAMPLES TO THE ASSESS EE FOR GIVING THE SAME TO THE THIRD PARTY DISTRIBUTORS, WHO ARE REQUI RED TO DISPLAY THE SAME IN THEIR PREMISES. THE OBJECTIVE IS APPARENTLY PRO MOTION OF THE NEW PRODUCTS. THE AE HAS CHARGED THE ASSESSEE TOWARDS COST OF SAMPLES GIVEN TO IT. THE AO TOOK THE VIEW THAT THE ASSESSE E IS ONLY A DISTRIBUTOR OF THE NIKE PRODUCTS AND HENCE THE EXPENDITURE ON SAMP LES SHOULD BE BORNE BY THE MANUFACTURER ONLY. ACCORDINGLY THE AO TOOK THE VIEW THAT THE MANUFACTURER SHOULD NOT PASS ON THE BURDEN TO T HE ASSESSEE. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE EXPENDIT URE ON PURCHASE OF SAMPLES AND INCIDENTAL EXPENSES ARE NOT RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDINGLY HE DISALLOWED THE SAM E. THE LD DRP ALSO CONFIRMED THE SAME. 20.3 THE LD A.R SUBMITTED THAT THE ASSESSING OFF ICER CANNOT SIT IN THE ARM CHAIR OF THE ASSESSEE AND DECIDE THE MODE OF CO NDUCTING BUSINESS. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 16 OF 19 HE SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDI TURE ON SAMPLES ON COMMERCIAL CONSIDERATIONS AND HENCE THE SAME SHOULD BE ALLOWED. THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. DHANRAJGIRJI RAJA NARA SINGIRJI (1973)(94 ITR 544), WHEREIN THE HONBLE APEX COURT HAS OBSERV ED AS UNDER:- IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. SO FAR AS THE APPORTIONMENT IS CONCERNED WE ARE NOT TOLD WHY WE S HOULD NOT CONSIDER THE SAME AS A REASONABLE ESTIMATE. 20.4 WE HEARD LD D.R AND PERUSED THE RECORD. WE HAVE NOTICED EARLIER THAT THIS EXPENDITURE WAS A MATTER OF TRANS FER PRICING ADJUSTMENT IN AY 2010-11 AND 2011-12, WHEREIN WE HAVE CONFIRME D THE TRANSFER PRICING ADJUSTMENT BY FOLLOWING THE DECISION RENDER ED BY THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE IN AY 2005-06 & 20 06-07. IN THOSE YEARS, THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST T HE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- THE ONUS FOR PROVING THAT THE EXPENSE! INCURRED BY THE PARENT, NIKE INC, USA, ARE TOWARDS THE SALES OF THE PRODUCTS AND NOT FOR THE PURPOSE OF CREATING BRAND AWARENESS IS ON THE ASSESSEE, WHICH ONUS IS NOT DISCHARGED BY THE ASSESSEE. ALSO CONSIDERING THAT THE ASSESSEE ITSELF HAS ADMITTED THAT THE PARENT, NIKE INC. USA HAS BRAND MARKETING AND P ROMOTION INITIATIVES IN INDIA, IT IS BUT NATURAL TO CONCLUDE THAT THE EX PENSES INCURRED BY NIKE INC., USA ARE TOWARDS CREATION OF BRAND AWARENESS, FOR WHICH THE PARENT HAS THE RESPONSIBILITY. IN THIS VIEW OF THE MATTER, THE EXPENSES ON COST OF SAMPLES, ETC., HAVE TO BE ATTRIBUTED TO THE PARENT, NIKE INC., USA AND THEREFORE IT IS NOT CORRECT TO CONCLUDE THAT THESE EXPENSES HAVE TO BE BORNE BY THE ASSESSEE. 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 IN C., HAS INTRODUCED NEW PRODUCTS AND THE SAMPLES ARE SUPPLIED TO THIRD PARTY DISTRIBUTORS IN ORDER TO CREATE AWARENESS OF NEW PRODUCTS AMONGST T HE PUBLIC. THE ASSESSEE HEREIN IS MERELY AN INTERMEDIARY BETWEEN M /S NIKE INC AND THE PUBLIC. HENCE, IT IS THE RESPONSIBILITY OF THE ASS ESSEE, FIRST OF ALL, TO SHOW THAT THE EXPENDITURE ON SAMPLES &INCIDENTAL EXPENDI TURE WAS INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. UNDER SEC.37(1), EXPENDITURE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EX CLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN THE CONTE XT OF AMP EXPENSES, THE CO-ORDINATE BENCH HAS TAKEN THE VIEW THAT THE SAMPL E EXPENSES ARE RELATED TO BRAND PROMOTION AND MARKETING INITIATIVE S OF THE PARENT COMPANY OF THE ASSESSEE, MEANING THEREBY, IT CANNOT BE SAID THAT THIS EXPENDITURE HAS BEEN EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE BUSINESS OF THE ASSESSEE. THE LD A.R CONTENDED THAT THE ASSESS ING OFFICER CANNOT QUESTION THE NECESSITY OF INCURRING THE EXPENDITURE . HOWEVER, IN OUR IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 17 OF 19 VIEW, WHEN THE TRANSACTION IS BETWEEN RELATED PARTI ES, THE ACT PLACES MORE BURDEN ON THE SHOULDERS OF THE ASSESSEE TO PRO VE THAT THE EXPENDITURE IS RELATED TO THE BUSINESS OF THE ASSES SEE. FURTHER, IN TRADE CIRCLES ALSO, IT IS KNOWN FACT THAT THE EXPENDITURE ON SAMPLES ARE BORNE BY THE MANUFACTURERS ONLY. HENCE THIS CLAIM OF EXPEND ITURE IS AGAINST THE TRADE PRACTICE AND THE ASSESSEE APPEARS TO HAVE BOR NE THE EXPENSES ONLY ON THE REASONING THAT THE SAME WAS CHARGED UPON IT BY ITS PARENT COMPANY. HENCE, WE ARE OF THE VIEW THAT THE AO WAS JUSTIFIED IN HOLDING THAT THE BURDEN TO INCUR THIS EXPENDITURE IS THAT O F PARENT COMPANY AND IS NOT RELATED TO THE BUSINESS ACTIVITIES OF THE ASSES SEE. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE MADE BY THE AO. 8.1 CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE SAI D YEARS, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND ACCORDIN GLY, CONFIRM THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. 9. THE LAST ISSUE URGED BY THE ASSESSEE RELATES TO DISALLOWANCE MADE U/S 40 (A)(I/IA) OF THE ACT. THE LD. A.R. SUBM ITTED THAT CERTAIN EXPENSES WERE DISALLOWED IN THE EARLIER YEARS U/S 4 0(A)(I/IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE. HE SUBMITT ED THAT, AS PER PROVISIONS OF SECTION 40(A)(I/IA) OF THE ACT, EXPEN DITURE WHICH WAS DISALLOWED IN THE EARLIER YEAR IS ALLOWABLE AS DEDU CTION IN THE YEAR IN WHICH TDS WAS REMITTED TO THE CREDIT OF THE GOVE RNMENT. THE LD. A.R. SUBMITTED THAT THE ASSESSEE COULD NOT FULLY FU RNISH THE RELEVANT DETAILS BEFORE THE AO/DRP IN RESPECT OF EX PENSES WHICH WERE DISALLOWED IN EARLIER YEARS IN RESPECT OF WHIC H TDS WAS REMITTED DURING THE YEAR. HENCE THE CLAIM OF THE A SSESSEE WAS NOT ALLOWED. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS NOW COLLATED ALL THE DETAILS AND ACCORDINGLY PRAYED FOR AN OPPOR TUNITY TO PRESENT THE SAME BEFORE THE A.O. 9.1 WE HEARD THE LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. 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. ACCOR DINGLY, WE IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 18 OF 19 RESTORE THIS ISSUE TO THE FILE OF AO FOR EXAMINING THE SAME AFRESH IN ACCORDANCE WITH LAW. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 30 TH JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NO.2809/BANG/2017 NIKE INDIA PRIVATE LIMITED, BANGALORE PAGE 19 OF 19 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED