BRATRIM INDIA P. LTD, MUMBAI V. ADDL CIT RG 2(1), MUMBAI

ITA 323/MUM/2012

• Counselvise Citation: 32319914 RSA 2012
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURALI
• Assessee Lawyers: M P LOHIA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 1 O F 11 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A.NO. 323/MUM/2012 ASSESSMENT YEAR: 2007-08 BRAITRIM INDIA PRIVATE LIMITED, 1105, MAKER CHAMBER V, NARIMAN POINT, MUMBAI 400 021. PAN: AABCB 2779 F VS. ADDL. COMMISSIONER OF I.T., RANGE 2(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. P. LOHIA. RESPONDENT BY : SHRI M. MURALI. DATE OF HEARING: 12-06-2012. DATE OF PRONOUNCEMENT: 04/07-2012. O R D E R PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF THE AO DATED 30/11/2011 PASSED UNDER SECTION 143(3) READ W ITH SECTION 144C OF THE ACT. 2. GROUNDS NO. 1, 2, 3 & 4 PERTAIN TO THE ISSUE OF DISALLOWANCE OF RS. 1,88,85,035/- ON COMPUTATION OF ALP FOR ADMINIS TRATION CHARGES/REBATE, BEING REIMBURSEMENT OF EXPENSES. 3. THE FACTS EMERGING FROM THE ORDER OF THE AO READ WITH THAT OF THE DRP ARE THAT THE ASSESSEE BRAITRIM INDIA PRIVAT E LIMITED (BIL), COMPANY REGISTERED IN INDIA, IS A SUBSIDIARY OF BRA ITRIM U.K (BUK), M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 2 O F 11 HAVING TAX RESIDENCE IN U.K. THE PARENT COMPANY BUK IS IN THE BUSINESS OF SUPPLYING HANGERS. BUK HAS AGREEMENT WI TH RETAILERS AROUND THE WORLD, WHEREBY THE RETAILERS HAVE NOMINA TED BUK AND ITS GROUP COMPANIES AS THEIR GLOBAL SOURCE FOR HANGERS TO BE USED BY THEIR GARMENT SUPPLIERS. BUK GIVES REBATE/DISCOUNT TO THE RETAILERS BASED ON VOLUME/UNIT OF SALES ACHIEVED BY BRAITRIM GROUP. SU BSEQUENTLY, PROPORTIONATE SHARE OF REBATE IS RECOVERED BY BUK F ROM THE RESPECTIVE GROUP COMPANIES. AS A RESULT OF SUCH ARRANGEMENT, B IL SELLS HANGERS TO THE INDIAN GARMENT SUPPLIERS OF THE RETAILERS WITH WHOM BUK HAS ARRANGEMENT. BIL REIMBURSES THE REBATE PERTAINING T O INDIA SALES TO BUK. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E ENTERED A FEW INTERNATIONAL TRANSACTIONS, OF WHICH THE DISPUTE AR ISES IN THE PAYMENT OF ADMINISTRATION CHARGES OF RS. 4.87 CRORES, BEING REIMBURSEMENTS TO BUK. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REFERRED THESE INTERNATIONAL TRANSACTIONS, INCLUDING THE IMP UGNED TRANSACTIONS TO TPO U/S 92CA(1) FOR DETERMINING ALP BETWEEN THE ASS ESSEE AND THE AE. THE TPO, ON EXAMINATION OF THE AGREEMENTS WITH THE BUK AND BIL ON THE ONE HAND AND BUK WITH CERTAIN RETAILERS ON T HE OTHERS, IN THE UK CONCLUDED THAT THE DISCOUNT WHICH IS DUE TO THE IND IAN HANGER PURCHASERS, IS BEING PASSED ON TO FOREIGN ENTITY AN D THUS THERE IS A SHIFT OF REVENUE BASE FROM INDIA TO THE TAX BASE WH ERE FOREIGN ENTITY IS TAX RESIDENCE. THE TPO, THEREFORE, DETERMINED THE A LP AT NIL AND M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 3 O F 11 PROPOSED ADJUSTMENT OF RS. 4,87,30,339/- ON ACCOUNT OF PAYMENT OF ADMINISTRATION CHARGES TO THE VALUE OF INTERNATIONA L TRANSACTION. IN THE DRAFT ASSESSMENT ORDER DATED 20/12/2010, THE AO MAD E ADDITIONS OF RS. 4.87 CRORES. THE DRP REDUCED SUCH ADDITIONS TO RS. 1,88,85,035 FOR THE REASONS STATED IN ITS ORDER. THE AO, VIDE THE I MPUGNED ORDER, MADE ADDITION FOR RS. 1.88 CRORES AGAINST WHICH THE ASSESSEE IS AGGRIEVED IN THE PRESENT APPEAL. 6. AT THIS STAGE IT WILL BE RELEVANT TO NOTE THE FA CTS AS RECORDED BY THE DRP ALONG WITH THE ASSESSEES OBJECTIONS AND TH E FINDINGS OF DRP. THE FACTS RECORDED BY THE DRP ARE, BRAITRIM UK, THE AE OF THE TAXPAYER, IS IN THE BUS INESS OF SUPPLYING WORLD CLASS HANGERS AND HAS AGREEMENTS WITH VARIOUS RETAILERS, WHEREBY THE RETAILERS HAVE NOMINATED BRAITRIM UK IT S GROUP COMPANIES AS THEIR PREFERRED OR EXCLUSIVE GLOBAL SO URCE FOR HANGERS AND RELATED PRODUCTS TO BE USED BY THEIR GARMENT SU PPLIERS (SITUATED ALL OVER THE WORLD) UNDER PREFERRED OR EXCLUSIVE AR RANGEMENTS WITH RETAILERS, BRAITRIM UK IS REQUIRED TO GIVE A REBATE / DISCOUNT TO THE RETAILERS, BASED ON THE VOLUME / UNITS OF SALES TO GARMENT SUPPLIERS, ASSOCIATED WITH THE BRAITRIM GROUP. THIS REBATE/DIS COUNT IS STATED AS ADMINISTRATION CHARGES BY BRAITRIM, FOR ITS ACCOU NTING PURPOSES. SUBSEQUENTLY, THE PROPORTIONATE SHARE OF REBATE / D ISCOUNT IS RECOVERED BY BRAITRIM UK, FROM ITS GROUP COMPANIES (INCLUDING BRAITRIM INDIA), BASED ON THE RELATIVE SALES OF THO SE GROUP COMPANIES. AS A RESULT OF AFORESAID ARRANGEMENTS BETWEEN BRAIT RIM UK AND THE THIRD PARTY RETAILERS, THE ASSESSEE SELLS HANGERS T O THE INDIAN GARMENT SUPPLIERS OF THE SAID RETAILERS, IT IS STATED THAT THE RETAILERS THEN CHARGE THE AGREED REBATES TO BRAITRIM UK. THEREAFTER, THE ASSESSEE REIMBURSES THE REBATE PAID BY BRAITRIM TO THE RETAI LERS TO THE EXTENT IT PERTAINS TO INDIA SALES (I.E. SALES TO INDIAN GARME NT SUPPLIERS OF THE RETAILERS LOCATED OUTSIDE INDIA). IN VIEW OF THE AB OVE, IT IS STATED, THAT BRAITRIM UK HAS ENTERED INTO A COST REIMBURSEMENT A GREEMENT WITH THE ASSESSEE, WHEREBY THE ASSESSEE IS REQUIRED TO R EIMBURSE ITS PROPORTIONATE SHARE OF THE DISCOUNT / REBATE TO BRA ITRIM UK WITHOUT ANY MARK UP . M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 4 O F 11 7. IN PARAS 9.1 & 9.2, THE DRP RECORDS THE REASONS FOR DETERMINATION OF ALP AT NIL AND THE ASSESSEES OBJE CTIONS AS UNDER: 9.1 THE TPO DETERMINED THE ARMS LENGTH PRICE OF IN TERNATIONAL TRANSACTIONS RELATING TO PAYMENT OF ADMINISTRATIVE CHARGES AT RS, NIL, MAINLY FOR THE FOLLOWING REASONS : THIS CHARGE IS ACTUALLY A RETROSPECTIVE DISCOUNT GIVEN BY THE ASSESSEE TO ITS AE AT UK FOR TRANSACTIONS OF SALE O F HANGERS IN INDIA. THE AGREEMENT FURNISHED BEFORE THE TPO IS UNDATED BUT IS SAID TO BE EFFECTIVE ,BETWEEN 31-03-2002 AND 31-03-2003 (PAR A 52 OF THE AGREEMENT) PROFORMA CERTIFICATE ISSUED BY DELIOTTE UK IS UNS IGNED AND HENCE NO CREDIBILITY CAN BE ATTACHED TO THE CERTIFICATE. THE PRICE REBATE IS IN ESSENCE AND SUBSTANCE IN T HE NATURE OF PRICE REBATE ON SALE PRICE OF HANGERS, CALCULATED ON THE TOTAL UNITS SOLD BY THE TAXPAYER ON THE BASIS OF AGREED PRICE REBATE PE R UNIT OF SALES. THE DISCOUNT WHICH IS ACTUALLY DUE TO THE INDIAN HANGER PURCHASER IS BEING PASSED ON TO A FOREIGN ENTITY AND THUS THERE IS A SHIFT OF REVENUE BASE FROM INDIA TO THE COUNTRY IN WHICH THE FOREIGN ENTITY IS BASED, WHO IS ULTIMATELY THE RECIPIENT OF RETROSPEC TIVE DISCOUNT OF RS. 4.87 CRORES PAID BY THE ASSESSEE TO BRAITRIM UK IN THE NAME OF ADMINISTRATION CHARGES. EFFECTIVELY, INDIAN PURCHASER IS SHOWING AN INFLA TED PURCHASE PRICE (WITHOUT DISCOUNT), WHEREAS THE CORRESPONDING DISCO UNT FLOWS OUT OF INDIA FROM BRAITRIM UK TO ULTIMATE RETAILER LOCATED OUTSIDE INDIA. THE ASSESSEE IS NOT ABLE TO SHOW THE DOCUMENTS CO NCERNING THE INDIAN PURCHASER ENTITY AND TO SHOW THAT THE DISCOU NT OF RS. 4.87 CRORES HAS ALREADY BEEN ACCOUNTED FOR IN THE BOOKS OF PURCHASER IN INDIA. 9.2 THE TAXPAYER ARGUED BEFORE THE DRP MAINLY ON THE FOLLOWING GROUNDS : THE DISCOUNTS / REBATES IN QUESTION ARE PAYABLE D IRECTLY BY BRAITRIM UK TO GARN RETAILERS PURSUANT TO AGREEMENTS CONCLUD ED BETWEEN THE SAID RETAILERS AND BRAITRIM UK. THE RETAILERS DEMAN D THE REBATE PAYMENTS FROM BRAITRIM UK AS AN INCENTIVE TO NOMINA TE THE BRAITRIM GROUP AS THEIR PREFERRED OR EXCLUSIVE GLOBAL SUPPLI ER OF HANGER SYSTEMS. THE EFFECT OF THE NOMINATION BY THE RETAILERS TO REQUIRE THE USE OF BRAITRIM PRODUCTS BY THE GARMENT MANUFACTURERS IN I NDIA AND OTHER PARTS OF THE WORLD GENERATES SUBSTANTIAL BUSINESS F OR THE BRAITRIM GROUP. BRAITRIM UK HAS MERELY RECHARGED THE COSTS (I.E. DISCOUNTS / REBATES) INCURRED BY IT ON BEHALF OF THE ASSESSEE. BRAITRIM UK DOES NOT RECOVER ANY COMMISSION FROM THE ASSESSEE FOR THE FACILITATION PROVIDED TO THE ASSESSEE THE ASSESSEE DOES NOT INCUR HUGE MARKETING EXPENS ES FOR THE PROMOTION OF ITS BUSINESS ON ACCOUNT OF THE FACILIT ATION SERVICES PROVIDED BY BRAITRIM UK. M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 5 O F 11 THE TEAMED TPO HAS NOT APPLIED ANY METHOD WHILE DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF ADMINISTRATION CHARGES. 8. ON CONSIDERATION AND RECORDING THE REASONS, THE DRP HELD AS UNDER: 10.THE DRP HAS CAREFULLY CONSIDERED THE ORDER OF T HE TPO, SUBMISSIONS OF THE TAX PAYER AND OBJECTIONS OF THE TAX PAYER. THE MAIN ISSUE HERE IS THAT THE ASSESSEE HAS PAID ITS A ES AN AMOUNT OF RS. 4,87,30,339/- STATING THAT THESE CHARGES ARE PAID A S ADMINISTRATION CHARGES. HOWEVER, AS ACCEPTED BY THE TAXPAYER, THES E EXPENSES ARE NOTHING BUT REIMBURSEMENT OF EXPENSES INCURRED BY T HE AE FOR THE DISCOUNTS TO BE PASSED ON TO THE RETAILERS BY BRAIT RIM UK. AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE, IT CAN B E INFERRED THAT BRAITRIM UK NEGOTIATES GLOBALLY WITH VARIOUS GARMEN T RETAILERS TO USE THE HANGERS MANUFACTURED BY BRAITRIM GROUP COMPANIE S ALL OVER THE WORLD. AS PART OF THE ARRANGEMENTS / AGREEMENTS, BR AITRIM UK AGREED TO PASS ON THE DISCOUNT AT THE RATE 1% OF SALE OF H ANGERS BY BRAITRIM GROUP OF COMPANIES TO THE RETAILERS. AS RIGHTLY STA TED BY THE ASSESSEE, BECAUSE OF THIS ARRANGEMENT, THE TAXPAYER IS GETTIN G BUSINESS WITHOUT MUCH EFFORT ON ADVERTISEMENT AND MARKETING AS EVIDE NCED BY NO EXPENSES ON MARKETING OR ADVERTISEMENT DEBITED IN T HE PROFIT AND LOSS ACCOUNT FOR THE FY 2006-07. THE BRAITRIM GROUP COMP ANIES SUPPLY THE HANGERS TO THE GARMENT MANUFACTURERS, WHICH IN TURN SUPPLY TO THE ULTIMATE RETAILERS IN THE FORM OF PREHANGED CLOTHES . THE ASSESSEE ALSO SUPPLIED HANGERS TO GARMENT MANUFACTURERS WITHIN AN D OUTSIDE INDIA. BASED ON THE SALE OF THESE HANGERS BY THE ASSESSEE, BRAITRIM UK HAS TO PAY TO THE RETAILERS AT THE RATE OF 1% ON THESE SALES MADE BY THE TAXPAYER TO RETAILERS THROUGH GARMENT MANUFACTURERS . BEFORE THE DRP, THE TAXPAYER ALSO PRODUCED INVOICES AGAINST BRAITRI M UK TO SHOW THAT THE SAID DISCOUNT @1% ON SALE OF HANGERS BY THE IND IAN ENTITY WAS PASSED ON TO THE RETAILERS. THUS, IT IS SEEN THAT B RAITRIM UK IS PASSING ON 100% OF DISCOUNT PAYABLE BY THE TAXPAYER TO THE RETAILERS. FURTHER, KEEPING IN VIEW THE MARGIN OF THE TAXPAYER AT 15.82 % ON SALES FOR THE FY 2006-07 AND ALSO LOWER/ HARDLY ANY MARKETING AND ADVERTISEMENT EXPENSES, THE PAYMENT MADE IS QUALIFIED BY THE BENE FIT RECEIVED FROM THE AE, BRAITRIM UK. FURTHER, THE VALUE OF INTERNAT IONAL TRANSACTIONS DOES NOT CONSTITUTE MORE THAN 10% OF SALES OF THE T AXPAYER FOR THE P1 2006-07, INDICATING THAT THERE IS NO OTHER POSSIBIL ITY OF PASSING OF SUCH BENEFIT TO THE AE. IN THIS BACKGROUND, WE ARE UNABL E TO AGREE THE VIEW OF THE TPO THAT TAX BASE IN INDIA IS ERODED. IN AN INTERNATIONAL TRANSACTION IN THE FORM OF INTRA GROUP SERVICES, TH E MAIN THING TO BE SEEN IS WHETHER THE PAYMENT MADE FOR SERVICES IS CO MMENSURATE WITH THE BENEFIT RECEIVED AND VALUED AT ARMS LENGTH WHE N THE BENEFIT IS ACCRUED TO THE TAXPAYER IN INDIA IN COMMENSURATE WI TH THE PAYMENT MADE, THEN EROSION OF TAX BASE IN INDIA IS NOT A RE LEVANT FACTOR AS ALL PAYMENTS MADE OUTSIDE INDIA ERODES INDIAN TAX BASE. FURTHER, THE TPOS ARGUMENT THAT THIS DISCOUNT SHOULD HAVE BEEN PASSED ON TO SOUND LOGICAL. IT IS THE BRAITRIM UK, WHICH IS NEGO TIATING WITH THE M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 6 O F 11 RETAILERS TO USE THEIR HANGERS AND NOT THE INDIAN G ARMENT MANUFACTURERS. AS PART OF THE ARRANGEMENT BETWEEN B RAITRIM UK AND THE RETAILERS. BRAITRIM UK AGREES TO PASS ON BENEFI T TO THE RETAILERS IN THE FORM OF INCENTIVE COMPUTED AT THE RATE OF 1% OF SALE VALUE OF HANGERS USED BY THE RETAILERS. THUS, IN THIS TRANSA CTION, THERE IS NO ROLE TO PAY FOR INDIAN GARMENT MANUFACTURERS. IN VI EW OF THE ABOVE DISCUSSION, WE ARE SATISFIED THAT THE DISCOUNT GIVE N BY THE AT, BRAITRIM UK TO THE RETAILERS IS HELPING THE TAXPAYER TO GET BUSINESS WITHOUT MUCH MARKETING EFFORT, OF THE TAX PAYER IS REIMBURS ING THE AE AT THE RATE OF 1% OF SALE OF HANGERS IN INDIA, WHICH WAS U LTIMATELY PASSED ONTO THE RETAILERS BY THE AE. 11. HAVING ACCEPTED THAT BENEFIT WAS ACCRUED TO THE TAXPAYER, THE SECOND ISSUE IS THE DETERMINATION OF THE ARMS LENG TH PRICE. IN THIS REGARD, THE AUDIT REPORT SUBMITTED BY DELIOTTE & TO UCHE LLP, UK REGARDING THE ADMINISTRATION CHARGES AID BY THE TAX PAYER TO ITS AE HAS BEEN PERUSED. THIS WAS NOT PRODUCED BEFORE THE TPO DUNG THE TRANSFER PRICING PROCEEDINGS. THE AUDITOR FIRM AUDIT ED THE INVOICES RAISED BY THE ASSESSEE TO ITS AE, BRAITRIM UK IN R ESPECT OF ADMINISTRATION CHARGES/ RETROSPECTIVE DISCOUNTS. IT WAS STATED IN THIS AUDIT REPORT THAT THERE ARE 12 RECHARGE INVOICES AN D THE TOTAL AMOUNT OF ADMINISTRATION CHARGES (RETROSPECTIVE DISCOUNTS) TOTALED GBP 370,611 FOR THE PERIOD FROM 01-04-2006 TO3L -03-200 7. THUS, IT IS THE CONSIDERED OPINION OF THE DRP THAT ARMS LENGTH PRIC E OF ADMINISTRATION CHARGES PAID/PAYABLE TO THE AE, BRAI TRIM UK WOULD BE GBP 370,611. HOWEVER, THE ENCLOSED RECHARGED INVOICE S PERTAINING TO THE PERIOD FROM O1-04-2005 TO 31-03-2007 WERE NOT A VAILABLE. THUS THE DRP CONVERTED GBP INTO INDIAN RUPEES, BY ADOPTING AVERAGE OF EXCHANGES AS OBTAINED THROUGH THE WEB-SITE HTTP://WWW.X-RATES.COM/D/INR/GPB/HIST2007 AND HTTP://WWW.X-RATES.COM/D/INR/GPB/HIST2008.HTML , AS UNDER:- SR. NO. MONTH INDIAN RUPEES TO 1 GBP 1 APRIL 2007 83.5175 2 MAY 2007 80.4713 3 JUNE 2007 80.6425 4 JULY 2007 81.9534 5 AUGUST 2007 81.8025 6 SEPTEMBER 2007 81.0849 7 OCTOBER 2007 80.4997 8 NOVEMBER 2007 81.4273 9 DECEMBER 2008 79,3092 10 JANUARY 2008 77.3668 11 FEBRUARY 2008 77.9341 12 MARCH 2008 80.3503 AVERAGE 80.5300 THUS THE ARMS LENGTH PRICE OF ADMINISTRATION CHARG ES FOR THE FY 2007-08 IS DETERMINED AT RS. 2,98,45,304!- (GBP 370, 611 X RS. 80.53 PER 1 GBP), INSTEAD OF RS. 4,87,30,339)- AS SH OWN BY THE M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 7 O F 11 TAXPAYER RESULTING IN A TRANSFER ADJUSTMENT OF RS. 1,88,85,035/-. THUS, THE TRANSFER PRICING ADJUSTMENT MADE BY THE T PO AT RS. 4,87,30,339/- STANDS REVISED TO RS. 1,88,85,035/-. DRP, THEREFORE, REVISED THE ADJUSTMENT TO RS. 1,88, 85,035/- WHICH IS NOW BEFORE US. 8. BEFORE US, THE AUTHORISED REPRESENTATIVE REITERA TED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND PLEADED THAT NO ADJUSTMENT IS CALLED FOR. DURING THE COURSE OF HEAR ING, THE A.R. TOOK US THROUGH THE AGREEMENT, CALLED AS COST REIMBURSEMENT AGREEMENT ENTERED INTO BETWEEN BUK AND BIL AND SAMPLE COPY OF AGREEMENT ENTERED INTO BETWEEN BUK AND RETAILERS PEACOCK STOR ES LTD, TO SHOW THAT BUK HAS ENTERED SUPPLIERS AGREEMENT WITH BRAND RETAILERS LIKE BHS, THE PEACOCK GROUP PLC, DEBENHAMS PLC, DUNNES S TORES, ASDA STORES, MATALAN STORES, TO BE THEIR WORLD WIDE PROV IDERS OF THE GOODS TO CUSTOMER COMPANIES AND SUPPLIERS. VIDE THIS AGRE EMENT, BUK IS REQUIRED TO PAY ADMINISTRATION CHARGES TO THE CUSTO MER COMPANIES, AND CONSEQUENTLY THESE ADMINISTRATION CHARGES IN RESPEC T OF THE GOODS SUPPLIED TO THE SUPPLIERS BY BUK OR DIRECTLY BY BIL , WOULD ULTIMATELY BE RECOVERED BY BUK FROM BIL. IN ACCORDANCE WITH AR TICLE 3 OF THE AGREEMENT, IT IS AGREED BETWEEN BUK AND BIL THAT BI L SHALL BEAR ITS SHARE OF THE ADMINISTRATION CHARGES IN RESPECT OF T HE GOODS SUPPLIED BY BIL AND SHALL COMPENSATE BUK WITH THE ADMINISTRATIO N CHARGES ALREADY PAID/PAYABLE BY BUK TO THE CUSTOMER COMPANIES. THE A.R. THEN POINTED OUT THAT THE PAYMENT TERMS ARE ELUCIDATED I N ARTICLE 5 OF THE AGREEMENT WHERE BY BUK SHALL RAISE AN INVOICE OVER BIL FOR THE M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 8 O F 11 AMOUNT OF ADMINISTRATION CHARGES QUARTERLY AND BIL SHALL MAKE THE PAYMENT WITHIN 30 DAYS OF THE DATE OF ISSUE OF INVO ICE. ACCORDINGLY, THE A.R. POINTED OUT THAT SCHEDULE OF INVOICES RAISED B Y BUK TO BIL DURING THE YEAR CAME TO BE GBP 3,70,611.05 WHICH EQUALLED INR 2,98,45,304/-. THE A.R. INVITED OUR ATTENTION TO TH E RECONCILIATION OF THE INVOICES RAISED AND HOW BIL ACCOUNTED IT IN ITS BOOKS. THE A.R. POINTED OUT THAT BIL RECORDED THE TRANSACTIONS IN I TS BOOKS OF ACCOUNT AT THE TIME OF MAKING SALES TO CUSTOMER COMPANIES O N THE BASIS OF MATCHING CONCEPT. HE EXPLAINED THAT THE BUK WAS RAI SING INVOICES AT A MUCH LATER DATE, ON THE BASIS OF ITS SETTLEMENT WIT H CUSTOMERS. THE A.R. POINTED OUT THAT PAGE 126 OF THE APB CONTAINED THE RECONCILIATION AND SUBMITTED THAT INVOICES RAISED BY BUK IN THE CU RRENT YEAR RELATED TO THE TRANSACTIONS WHICH WERE RECORDED BY THE ASSE SSEE IN ITS BOOKS OF ACCOUNT IN THE PRECEDING YEAR ON THE BASIS OF MERCA NTILE SYSTEM OF ACCOUNTING. IT WAS STATED THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE EFFECTED SALES TO ITS CUSTOMERS AND RECOGN IZED DISCOUNT/COMMISSION DUE ON IT TO BUK AT RS. 4.87 CR ORES. TO SUPPORT THE POINT OF VIEW THE AR INVITED OUR ATTENTION TO T HE ABOVE REFERRED RECONCILIATION STATEMENT. 9. WE HAVE HEARD THE ARGUMENTS AND HAVE GONE THROUG H THE APB AND THE SAMPLE COPIES OF AGREEMENTS AND ALSO THE CO MPUTATION OF ALP ON THE ADMINISTRATIVE EXPENSES REIMBURSED BY BIL TO BUK. WE HAVE ALSO SEEN THAT DRP HAS ACCEPTED THE METHOD OF REIMB URSEMENTS ALSO, WHEREBY DRP HAS REVERSED THE OBSERVATIONS OF THE TP O, HOLDING THAT M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 9 O F 11 ALP IS TO BE DETERMINED AND CONSEQUENTIAL ADJUSTMEN T MADE THERE AT. THE ISSUE FOR DETERMINATION AT PRESENT IS WHAT SHOU LD BE THE CORRECT ALP, INR 2,98,45,304/- AS PER DRP OR INR 4,87,30,3 39/- AS CLAIMED AND COMPUTED BY THE ASSESSEE. 10. AT THE TIME OF HEARING, THE AR ADMITTED THAT TH ERE WAS NO ELEMENT OF PROFIT IN THE TRANSACTIONS OF PAYMENTS M ADE BY THE ASSESSEE TO BUK, WHICH, IN TURN WAS PAID BY BUK TO ITS RETAILERS. THIS IS AN EXPENDITURE, INCURRED BY THE ASSESSEE, ROUTED TH ROUGH BUK, NECESSARILY TO GET NEW CUSTOMERS VIA BUK. THE AR FU RTHER SUBMITTED THAT THERE WAS NO DISPUTE BY THE AO, ON THE FACTUM OF PAYMENT OF COMMISSION BY THE ASSESSEE TO BUK AND BUK TO ITS RE TAILERS, WHICH IS THE REASON, THAT THE AO HAD INFACT, RESTRICTED THE ADDITION ONLY TO THE AMOUNT DETERMINED BY THE DRP. THE AR SUBMITTED THAT THE COMPUTATION ARRIVED AT BY THE DRP IS BASED ON VARIA TION OF AMOUNTS RELATING TO ONE PERIOD OR OTHER. WE HAVE SEEN FROM THE RECONCILIATION, THAT THE ASSESSEE HAS RECORDED ITS EXPENDITURE ON T HE BASIS OF SALES MADE BY IT TO THE MANUFACTURERS, WHEREAS BUK HAS RE CORDED THEM ON THE BASIS OF INVOICES RAISED BY THEM ON THE ASSESSE E, WHICH IS AT A LATER DATE/TIME. IT HAS BEEN POINTED OUT BY THE AR THAT T HE DEDUCTION ALLOWED BY THE AO IS ON THE BASIS OF THE DIRECTION OF THE DRP, WHICH HAD BASED ITS FINDINGS ON THE AMOUNTS RECORDED IN I TS BOOKS IN THE EARLIER YEAR AND THE EXPENDITURE BOOKED FOR THE CUR RENT YEAR FOR WHICH BUK RAISED INVOICES IN THE SUBSEQUENT YEAR. IF THIS IS CORRECT, THEN THERE CANNOT BE ANY REASON FOR DISALLOWANCE IN THE CURRENT YEAR, M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 10 OF 11 BECAUSE, THE ASSESSEE, BEING A COMPANY, HAS TO FOLL OW MERCANTILE SYSTEM OF ACCOUNTING AND GUIDED BY THE ACCOUNTING S TANDARDS, WHEREIN THE ASSESSEE HAS TO RECORD ITS EXPENDITURE OF COMMI SSION/DISCOUNT AT THE TIME OF MAKING ITS SALES, IRRESPECTIVE OF THE D ATE OF RAISING OF INVOICE BY BUK. IT IS ON THIS ARGUMENT, THAT THE AR RELIED UPON TO EXPLAIN THE BASIS OF THE RECONCILIATION THAT HAS BE EN PREPARED BY IT. THE AR SUBMITTED THAT THIS RECONCILIATION HAD NOT BEEN SUBMITTED BEFORE THE DRP. 11. IN OUR CONSIDERED OPINION, IT WOULD BE JUST AND REASONABLE IF THE ASSESSMENT ORDER IS SET ASIDE ON THIS ISSUE AND THE MATTER IS RESTORED TO THE FILE OF THE DRP WITH THE DIRECTIONS THAT DRP SHALL CONSIDER THE RECONCILIATION STATEMENT, RELIED UPON BY THE AR AND THEN GIVE ITS FINDINGS UNDER SECTION 144C, AFTER ALLOWING REASONA BLE AND ADEQUATE OPPORTUNITY TO THE ASSESSEE. ON RECEIPT OF SUCH REV ISED DIRECTION FROM THE DRP, THE AO SHALL PASS CONSEQUENTIAL ORDER THER EON. 12. THE APPEAL IS TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 04/07/2012. SD/- SD/- (R.S.SYAL) (VIVEK VARMA) ACCOUNTNAT MEMBER JUDIC IAL MEMBER MUMBAI: 04/07/ 2012. P/-* M/S BRAITRIM INDIA P. LTD. I.T.A . NO. 323/MUM/2012 PAGE 11 OF 11