M/s Colaway Golf India Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 470/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5050 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 22-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 27-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H S CHOUDHARY
• Assessee Lawyers: SHRUTI KHIMTA S
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.470/DEL/2017 ASSESSMENT YEAR : 2012-13 CALLAWAY GOLF INDIA PVT. LTD., 207-209, DLF TOWER-A, JASOLA DISTRICT CENTRE, SARITA VIHAR, DELHI. PAN: AADCC7557J VS. ITO, WARD 5(3), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KANCHAN KAUSHAL, & MS SHRUTI KHIMTA, ADVOCATES DEPARTMENT BY : SHRI H.S. CHOUDHARY, CIT, DR DATE OF HEARING : 22.08.2017 DATE OF PRONOUNCEMENT : 23.08.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER DATED 29.12.2016 PASSED BY THE ASSESSING OFFI CER (AO) U/S 143(3) ITA NO.470/DEL/2017 2 READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEA R 2012-13. 2. THE ONLY ISSUE ASSAILED IN THIS APPEAL IS AGAINS T THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT O F ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENSES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIRECT SUBSIDIARY OF CALLAWAY GOLF COMPANY AND IS ENGAGED IN THE DISTRIBUTION OF GOLF EQUIPMENT, GOLF BALLS, PACKAGED KITS AND ACCES SORIES. THE ASSESSEE REPORTED ONE INTERNATIONAL TRANSACTION OF `PURCHASE OF FINISHED GOODS IN FORM NO.3CEB WITH TRANSACTED VALUE OF RS.59,24,242. THE ASSESSING OFFICER REFERRED THE MATTER OF DETERMINATION OF ARM S LENGTH PRICE (ALP) OF THIS INTERNATIONAL TRANSACTION TO THE TRANSFER PRIC ING OFFICER (TPO). THE TPO ACCEPTED THAT THE INTERNATIONAL TRANSACTION OF WAS AT ALP. HE, HOWEVER, MADE TRANSFER PRICING ADJUSTMENT FROM THE INTERNATIONAL TRANSACTION OF AMP EXPENSES. THIS WAS DONE BY MAKIN G A PROTECTIVE ADDITION APPLYING BRIGHT LINE TEST. HOWEVER, SUBST ANTIVE ADDITION WAS MADE BY TREATING THE ENTIRE AMP EXPENSES INCURRED BY THE ASSESSEE AS LEADING TO ITA NO.470/DEL/2017 3 BRAND PROMOTION. GROSS PROFIT RATE EARNED BY THE A SSESSEE WAS APPLIED AND ADDED TO SUCH COST FOR DETERMINING THE AMOUNT OF S UBSTANTIVE TRANSFER PRICING ADJUSTMENT AT RS.4,32,34,167/-. THE ASSESSE E CHALLENGED THE DRAFT ORDER, INCORPORATING THE PROPOSED TRANSFER PRICING ADJUSTMENT, BEFORE THE DISPUTE RESOLUTION PANEL (DRP). APART FROM UPHOLDI NG THE SUBSTANTIVE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING O FFICER, THE DRP ALSO DIRECTED THE ASSESSING OFFICER TO CONSIDER MAKING A DJUSTMENT ON ACCOUNT OF AMP INTENSITY. THE ASSESSING OFFICER, IN THE FI NAL ORDER, MADE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ON AMP EX PENSES ON SUBSTANTIVE BASIS AT RS.4.32 CRORE. HE ALSO COMPUTED TRANSFER PRICING ADJUSTMENT ON PROTECTIVE BASIS AT RS.3.70 CRORE AND COMPUTED TOT AL INCOME AT RS.8.19 CRORE AS UNDER:- INCOME AS PER RETURN (INCLUDING INTT. ON FDR RS.600 7/- RS.16,33,420/- ADD: DIFFERENCE IN ALP U/S 92CA OF IT ACT ON SUBSTANTIVE BASIS (AS PER DRAFT ORDER WHICH HAS BEE N UPHELD BY THE DRP AND SUBSEQUENTLY BY THE TPO IN ORDER DT. 28.12.2016. RS.4,32,34,167/- ADD: DIFFERENCE IN ALP U/S 92CA OF IT ACT ON PROTECTIVE BASIS AS PER FINAL ORDER DT. 16.12.2016/28.12.2016 OF TPO RS.3,70,51,737/- TOTAL INCOM E RS.8,19,19,324/- ITA NO.470/DEL/2017 4 4. THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITIONS SO MADE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR INITIALLY CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANSACTION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE J UDGMENTS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSI DERED AS AN INTERNATIONAL TRANSACTION. IT WAS SUBMITTED THA T THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BA SIS OF THE PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, EX CONSEQUENTI , MAKING THE TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 6. IN THE OPPUGNATION, THE LD. DR, RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN ITA NO.470/DEL/2017 5 HELD TO BE AN INTERNATIONAL TRANSACTION AND THE MAT TER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. HE ALSO RELIED ON A LATER JU DGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WH ETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION HAS BEEN RE STORED FOR A FRESH DETERMINATION. IT WAS ARGUED, THAT THE JUDGMENT IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 IS LATER IN POINT OF TIME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. IT WAS FURTHER SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON-INTERNATIONAL TRANSACT ION. HE STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING I F AN INTERNATIONAL TRANSACTION OF AMP EXPENSE, EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES, INCLUDING THE ASSESSEES OWN CASE FO R THE PRECEDING YEAR, HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDE D AFRESH IN THE LIGHT OF THE ITA NO.470/DEL/2017 6 JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL). HE ALSO RELIED ON ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERRED TO THREE LATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LI GHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COU RT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MATTER SHOULD BE RE STORED FOR A FRESH DETERMINATION. ITA NO.470/DEL/2017 7 7. WE FIND THAT WHEN THE TPO HELD AMP EXPENSE TO B E AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE ANY OCCASION TO CONSID ER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURISDICTIONAL HIG H COURT, WHICH IS NOW AVAILABLE FOR CONSIDERATION. WE, THEREFORE, SET ASI DE THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE A.O./TPO FOR DECIDI NG THIS ISSUE AFRESH IN LIGHT OF THE FOREGOING DISCUSSION. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN THE RESULTING FRESH PROCEEDINGS. 8. IT HAS BEEN NOTICED ABOVE THAT THE ASSESSING OFF ICER HAS NOT ONLY MADE ADDITION AMOUNTING TO RS.4.32 CRORE ON SUBSTAN TIVE BASIS, BUT ALSO ADDED THE PROTECTIVE ADDITION AMOUNTING TO RS.3.70 CRORE. IN ESSENCE, BOTH THE PROTECTIVE AND SUBSTANTIVE ADDITIONS HAVE BEEN MADE AND THE NOTICE OF DEMAND HAS ALSO BEEN ISSUED ACCORDINGLY. IT IS, BU T, NATURAL THAT WHEN SUBSTANTIVE ADDITION IS MADE, THE PROTECTIVE ADDITI ON CANNOT STAND. IN THE GIVEN CIRCUMSTANCES, WE ORDER FOR THE DELETION OF P ROTECTIVE ADDITION MADE BY THE ASSESSING OFFICER TO THE TUNE OF RS.3.70 CRO RE AND ODD. ITA NO.470/DEL/2017 8 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 23 RD AUGUST, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.