Panasonic India Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 479/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7956 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DURAI
• Keywords: Gift; Transfer pricing; International transaction; Question of law
• Section: 92C; 92B; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO. 479/MDS/2016 / ASSESSMENT YEAR : 2007-2008. M/S. PANASONIC INDIA PVT. LTD, SPIC BUILDING ANNEXE, 6 TH FLOOR, 88, MOUNT ROAD, GUINDY, CHENNAI 600 032. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(1) CHENNAI. [PAN AADCP 9391B] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI. PRADEEP DINODIA, FCA /RESPONDENT BY : SHRI.DURAI PANDIAN, SR. A.R /DATE OF HEARING : 16-11-2016 ! /DATE OF PRONOUNCEMENT : 30-11-2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, IT ASSAILS A LEVY OF PENALTY U/S.271(1) (C) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ITA NO. 479/MDS/2016 :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING LOSS OF ?31,55,463/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THERE W AS REFERENCE MADE BY THE LD. ASSESSING OFFICER TO THE LD. TRANSF ER PRICING OFFICER FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNA TIONAL TRANSACTIONS ENTERED BY THE ASSESSEE DURING THE RELEVANT PREVIOU S YEAR WITH ITS ASSOCIATED ENTERPRISES. ONE OF THE ITEMS THAT WAS S UBJECTED TO THE ANALYSIS BY THE LD.TPO WAS MARKETING EXPENDITURE C LAIMED BY THE ASSESSEE. ASSESSEE HAD INCURRED BRAND PROMOTION EX PENDITURE COMING TO 17% OF ITS SALES REVENUE. AS PER LD. TPO SIMILAR EXPENDITURE INCURRED BY THE COMPARABLES AVERAGED ONLY 3.31% OF THEIR REVENUE. LD. TPO WAS OF THE OPINION THAT MARKETING EXPENDIT URE INCURRED WAS FOR BRAND PROMOTION AND SUCH BRAND PROMOTION BENEFI TED THE ASSOCIATED ENTERPRISE ABROAD. THOUGH ASSESSEE ARGU ED THAT THERE WAS NO INTERNATIONAL TRANSACTIONS IN THE MARKETING EXP ENDITURE SINCE THESE WERE INCURRED INTERNALLY, LD. TPO WAS OF THE OPINI ON THAT EXPENDITURE INCURRED OVER AND ABOVE, SIMILAR EXPENDITURE OF COM PARABLE COMPANIES WAS NOTHING BUT A LIABILITY OF THE ASSOCIATED ENTER PRISE ABROAD BORNE BY THE ASSESSEE, SINCE BRAND PROMOTION AND ADVERTIS EMENT BENEFITED SUCH ASSOCIATED ENTERPRISE OR IN OTHER WORDS, AS PE R LD. TPO BRAND PROMOTION EXPENDITURE INCURRED IN INDIA, BENEFITTED THE ASSOCIATED ENTERPRISE ABROAD, AND THIS WAS REFLECTED IN THE E XCESS EXPENDITURE ITA NO. 479/MDS/2016 :- 3 -: INCURRED BY THE ASSESSEE IN SALES PROMOTION AND ADV ERTISEMENT, WHEN COMPARED TO EXPENDITURE SIMILAR INCURRED BY COMPANI ES ENGAGED IN SAME TYPE OF BUSINESS. HE THEREFORE HELD THAT ARMS LENGTH PRICE OF THE SALES PROMOTION EXPENDITURE WAS TO BE DETERMINED AT 3.31% OF THE SALES TURNOVER OF THE ASSESSEE. THE DIFFERENCE BET WEEN THE ACTUAL EXPENDITURE AND ARMS LENGTH PRICE COMING TO ?3,80,8 6,435/- WAS RECOMMENDED FOR ADJUSTMENT. ASSESSMENT WAS THEREAF TER CONCLUDED ACCORDINGLY SINCE ASSESSEE COULD NOT GET ANY FAVOU RABLE DIRECTION FROM LD. DRP. 3. THEREUPON, THE ASSESSEE MOVED IN APPEAL BEFORE THIS TRIBUNAL. THIS TRIBUNAL IN ITA NO.1911/MDS/2011, H ELD AT PARA 14 TO 16 OF ITS ORDER DATED 03.06.2013 AS UNDER:- 14. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERU SED THE CASE FILE. THE STRITE BETWEEN THE PARTIES IS THAT PER ASSESSEE , ITS EXPENSES INCURRED IN ADVERTISEMENT/BUSINESS PROMOTION DO NOT COME WIT HIN THE CONCEPTUAL FRAMEWORK OF INTERNATIONAL TRANSACTION AS SPECIFI ED IN SECTION 92B OF THE ACT. ITS FURTHER PLEA IS THAT SINCE THE EXPENSE S PAYMENTS HAVE NOT BEEN MADE TO ITS OVERSEAS ASSOCIATED ENTERPRISES, T HE PROVISIONS CONTAINED IN CHAPTER X OF THE ACT ARE NOT EXIGIBLE IN THE INSTANT CASE. THE REVENUE STRONGLY CONTESTS THIS. IN THIS BACKDRO P, AFTER PERUSING THE SPECIAL BENCH DECISION, WHEREIN, THE FOLLOWING TWO QUESTIONS HAD ARISEN FOR ADJUDICATION:- 1. WHETHER, ON THE FACTS AND IN CIRCUMSTANCES OF T HE CASE, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING TRANS FER PRICING ADJUSTMENT IN RELATION TO ADVERTISEMENT, MA RKETING AND SALES PROMOTION EXPENSES INCURRED BY THE ASSESS EE? 2. WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN H OLDING THAT THE ASSESSEE SHOULD HAVE EARNED A MARK UP FROM THE ASSOCIATED ENTERPRISE IN RESPECT OF ADVERTISING, MA RKETING ITA NO. 479/MDS/2016 :- 4 -: AND PROMOTION EXPENSES ALLEGED TO HAVE BEEN INCURRE D FOR AND ON BEHALF OF THE ASSOCIATED ENTERPRISE? WE FIND THAT AFTER DETAILED DISCUSSION, IT HAS BEEN HELD THAT THE ADVERTISING, MARKETING AND PROMOTION EXPENSES INCUR RED (AMP EXPENDITURE) MORE THAN THOSE IN CASE OF COMPARABLES , ARE TRANSACTIONS EXIGIBLE TO PROCEEDINGS UNDER CHAPTER X OF THE ACT, BEING A CASE OF BRAND BUILDING. A PERUSAL OF THE SAME ALSO SHOWS TH AT AFTER A MINUTE ANALYSIS OF RELEVANT PROVISIONS IN THE AFORESAID CH APTER X SECTIONS 92, 92B, 92C, 92CA, 92F(V), THE SPECIAL BENCH CONCLUDES THAT SUCH EXPENSES, EVEN IF PAID TO INDIAN ENTITIES, ARE COVE RED BY THE DEFINITION OF TRANSACTION WITHIN THE MEANING OF SECTION 92F(V) OF THE ACT. THEREFORE, SO FAR ASSESSEES ARGUMENTS ON LEGALITY ARE CONCERNED, WE DO NOT FIND ANY MERIT. 15. AT THE SAME TIME, WE FIND FORCE IN THE ASSESSEE S PLEA THAT PER SPECIAL BENCH DECISION, THE EXPENSES WHICH ARE DIRE CTLY RELATED TO THE SALES DO NOT COME WITHIN THE MEANING OF BRAND BUIL DING. IN THIS CONTEXT, IT IS TO BE SEEN THAT THE CONCLUSION OF TH E SPECIAL BENCH READS AS UNDER:- 18.3 HAVING HEARD THE RIVAL SUBMISSIONS ON THIS IS SUE, WE FIND THAT THE AMP EXPENSES REFER ONLY TO ADVERTISEM ENT, MARKETING AND PUBLICITY EXPENSES. A DIVIDER NEEDS T O BE PLACED BETWEEN THE EXPENSES FOR THE PROMOTION OF SA LES ON ONE HAND AND EXPENSES IN CONNECTION WITH THE SALES ON THE OTHER. BOTH THESE EXPENSES ARE REQUIRED TO BE KEPT IN DIFFERENT COMPARTMENTS. WHILE EXPENSES FOR THE PROM OTION OF SALES DIRECTLY LEAD TO BRAND BUILDING, THE EXPEN SES DIRECTLY IN CONNECTION WITH SALES ARE ONLY SALES SP ECIFIC. IN LIGHT THEREOF, WE PROCEED TO EXAMINE THE NATURE OF ASSESSEES EXPENDITURE OF 16,16,17,537/- (SUPRA). UNDISPUTEDLY, THE ASSESSEE ITSELF HAS CATEGORIZED THE EXPENDITURE INTO TWO SUB-HEADS HEREINABOVE, I.E. THE ADVERTISEMENT HEAD COMPRISES OF EXPENSES WHICH HAVE BEEN INCURRED FOR BRAND BUILDING. THE OTHER HEAD IS OF BUSINESS PROMOTION EXPENSES OF 71,668,064/-. ADMITTEDLY, THERE IS NO DISPUTE ABOUT THE CATEGORY AND NATURE THEREOF. HENCE FOLLOWING THE OBSERVATIONS OF THE SPECIAL BENCH, WE HOLD THE ADVERTISEMENT EXPENSES HAVE BEEN INCUR RED FOR BRAND BUILDING; WHEREAS, THE BUSINESS PROMOTION EXPENSES DESERVE TO BE TREATED AS DIRECTLY CONNECTED WITH THE SALES UNDERT AKEN BY THE ASSESSEE. THOUGH THE ASSESSEE HAS PLEADED THAT EVEN SOME OF T HE ADVERTISEMENT EXPENSES ARE BUSINESS PROMOTION EXPENSES, I.E. DEAL ER MEET EXPENSES, TRAINING/SEMINAR/CLASSES, PRODUCT DEMONSTRATORS, PR ODUCT FINANCE SCHEME, CONSUMER GIFT (SUPRA) ETC, HOWEVER, IN VIEW OF THE FACT THAT SINCE IT ITSELF HAS INCLUDED THE SAME UNDER THE HEA D ADVERTISEMENT, WE DO NOT FIND ANY REASON TO CHANGE THE HEAD OF EXPENS ES FROM ADVERTISEMENT EXPENDITURE TO BUSINESS PROMOTION EXP ENDITURE. HENCE, THIS LATTER PLEA OF THE ASSESSEE STANDS DECLINED. W E ALSO MAKE IT CLEAR ITA NO. 479/MDS/2016 :- 5 -: THAT BEFORE US, NO ARGUMENTS HAVE BEEN ADVANCED IN SUPPORT OF GROUND 4(D). 16. IN VIEW OF OUR ABOVE DISCUSSION, WE PARTLY ACCE PT THE ASSESSEES SUBMISSIONS AND HOLD THAT ONLY ADVERTISEMENT EXPENS ES OF 89,949,473/-, OUT OF THE TOTAL AMOUNT OF 16,16,17,537/- ARE LIABLE TO BE CONSIDERED FOR THE PURPOSE OF ADVERTISEMENT, MARKET ING AND PROMOTION LEADING TO BRAND BUILDING OF THE PANASONIC LOGO. RESULTANTLY, WE DIRECT THE TRANSFER PRICING OFFICER TO PASS A CONSE QUENTIAL ORDER BY VERIFYING THE FACT AFTER AFFORDING OPPORTUNITY OF H EARING TO THE ASSESSEE. THE TRIBUNAL FOLLOWING THE SPECIAL BENCH DECISION I N THE CASE OF L.G. ELECTRONICS INDIA (P) LTD VS. ACIT (2013) 22 ITR (T RIB) 1 HELD THAT THE COMPONENT OF BUSINESS PROMOTION EXPENDITURE HAD TO BE CONSIDERED AS EXPENDED FOR THE PURPOSE OF THE BUSINESS OF THE ASS ESSEE IN INDIA AND NOT RELATABLE TO ANY BRAND BUILDING. HOWEVER, AS P ER THE TRIBUNAL, ADVERTISEMENT EXPENDITURE COMPONENT OF ?8,99,49,47 3/- OUT OF THE TOTAL ADVERTISEMENT AND SALES PROMOTION EXPENDITURE OF ?16,16,17,537/-, COULD BE CONSIDERED AS INCURRED F OR MARKETING AND PROMOTION OF THE BRAND PANASONIC. THE MATTER WAS REMITTED BACK TO THE TPO TO REWORK THE ARMS LENGTH PRICE FOR THE ADV ERTISEMENT EXPENDITURE. IT IS TO BE NOTED THAT THROUGH THERE WERE CERTAIN OTHER ARMS LENGTH PRICE ADJUSTMENT APART FROM THAT DONE F OR BRAND PROMOTION RECOMMENDED BY LD. TPO, THE LD. DRP HAD N OT ACCEPTED ANY SUCH RECOMMENDATION BUT HAD ONLY SUSTAINED THE UPWA RD ADJUSTMENT FOR BRAND PROMOTION EXPENDITURE. THE LD. TPO IN HIS ORDER DATED 26.11.2013 GAVE RELIEF OF ?1,93,98,799/- TO THE ASS ESSEE BASED ON THE ITA NO. 479/MDS/2016 :- 6 -: DIRECTIONS OF THE TRIBUNAL AND ARMS LENGTH PRICE AD JUSTMENT ON ADVERTISEMENT WAS BROUGHT DOWN TO ?1,86,87,616/-. 4. THEREAFTER PROCEEDINGS FOR PENALTY U/S.271(1) (C) O F THE ACT WAS INITIATED ON THE ASSESSEE. AS PER ASSESSING OF FICER ARMS LENGTH PRICE ADJUSTMENT FOR THE CLAIM MARKETING EXPENDITU RE WAS DETERMINED ?1,86,87,616/-, AFTER THE RELIEF GIVEN BY THE TRIBU NAL. ACCORDING TO LD. ASSESSING OFFICER ASSESSEE HAD CONCEALED TAXABLE I NCOME TO THAT EXTENT. ASSESSEE IN HIS REPLY STATED THAT THERE WA S NO CONCEALMENT OF ANY PARTICULARS OR FURNISHING ANY INACCURATE PARTIC ULARS OF INCOME. RELIANCE WAS PLACED BY THE ASSESSEE ON THE JUDGMEN T OF SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT LTD 322 ITR 158 . HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED . ACCORDING TO HIM, ASSESSEE HAD CHARGED EXCESS EXPENDITURE IN IT S ACCOUNT FOR BUILDING FOREIGN BRAND OF AN ASSOCIATED ENTERPRIS E ABROAD, THEREBY SHIFTING THE PROFITS TO THE FOREIGN ENTITY. AS PER LD. ASSESSING OFFICER BY VIRTUE OF JUDGMENT OF SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARAMENDRA TEXTILES PROCESSORS (2007) 295 ITR 244 MENSREA WAS NOT AN INGREDIENT ESSENTIAL FOR LEVY OF PENALTY U/S .271(1) (C) OF THE ACT. HE CONSIDERED THE SUM OF ?1,86,87,616/- AS CONCEALE D INCOME AND LEVIED PENALTY OF ?62,90,246/-. ITA NO. 479/MDS/2016 :- 7 -: 5. ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THERE WAS NO CONCEALMENT OR FURNISHING OF ANY INACCURATE PART ICULARS. ASSESSEE ALSO POINTED OUT THAT IT HAD MOVED THE HONBLE JUR ISDICTIONAL HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL WHEREIN PA RT OF THE SALES PROMOTION AND ADVERTISEMENT EXPENDITURE WAS TREATED AS INCURRED FOR BRAND BUILDING OF THE ASSOCIATED ENTERPRISE ABROAD. AS PER ASSESSEE LEVY OF PENALTY ON A LEGITIMATE CLAIM WAS INCORREC T. 6. HOWEVER, LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS NOT IMPRESSED BY THE ABOVE ARGUMENTS. ACCORDING TO HIM , ASSESSEE CASE FELL SQUARELY TO EXPLANATION 7 TO SEC. 271(1)(C) OF THE ACT. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY VIRTUE OF EXPLANATION 7 TO SEC. 271(1) (C) OF THE ACT, LEVY OF PENALTY WAS MANDATORY. HE CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. 7. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBM ITTED THAT BRIGHT LINE TEST WHICH WAS APPLIED BY THE LD. TPO ITSELF WAS D EBATABLE. ACCORDING TO HIM, DECISION OF SPECIAL BENCH IN THE CASE OF L. G. ELECTRONICS INDIA (P) LTD (SUPRA) RELIED ON BY THIS TRIBUNAL HAD NOT FOUND FAVOUR WITH THE HONBLE DELHI HIGH COURT. RELIANCE WAS PLACED ON THE JUDGMENT OF ITA NO. 479/MDS/2016 :- 8 -: SUCH COURT IN THE CASE OF BACARDI INDIA PVT LTD VS. DCIT & ANR, WP (C) NO.4221/2016, DATED 2.11.2016 AND DAIKIN AIRCONDITIONING INDIA PVT. LTD. VS. ACIT (ITA NO.269/MDS/2016) DATED 27. 07.2016 . LD. AUTHORISED REPRESENTATIVE ALSO POINTED OUT CERTAIN ADDITIONAL GROUNDS QUESTIONING THE VERY JURISDICTION TO LEVY PENALTY U /S. 271(1) (C) OF THE ACT. AS PER THE LD. AUTHORISED REPRESENTATIVE NO TICE ISSUED BY THE ASSESSING OFFICER U/S.274 R.W.S. 271(1) (C) OF THE ACT WAS VAGUE, AND HENCE THE ORDER PURSUANT TO SUCH NOTICE WAS INVALID . RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY 359 I TR 565 . 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUPPOR TED THE ORDERS OF THE LOWER AUTHORITIES. RELIANCE WAS ONCE AGAIN PLACED TO EXPLANATION 7 TO SEC. 271(1) (C) OF THE ACT. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONT ENTION. IT IS NOT DISPUTED THAT THIS TRIBUNAL HAD APPLIED B RIGHT LINE TEST FOR DETERMINING ARMS LENGTH PRICE OF BRAND PROMOTION EX PENDITURE, SO FAR AS IT RELATED TO BENEFITS ENJOYED BY THE ASSOCIATED ENTERPRISE ABROAD BY VIRTUE OF PROMOTING BRAND NAME PANASONIC. IT IS ALSO NOT DISPUTED THAT THIS TRIBUNAL HAD RELIED ON SPECIAL BENCH DECI SION IN THE CASE OF L.G. ELECTRONICS INDIA (P) LTD (SUPRA) FOR APPLYING BRIGHT LINE TEST. ITA NO. 479/MDS/2016 :- 9 -: UNDISPUTEDLY, THE EXPENDITURE FOR MARKETING, SALES PROMOTION ETC., WHICH WAS CONSIDERED AS AN INTERNATIONAL TRANSACTIO N FOR THE PURPOSE OF ARMS LENGTH PRICE WAS INCURRED IN INDIA. AGAINST THE DECISION OF THE TRIBUNAL, ASSESSEE HAD MOVED JURISDICTIONAL HIGH C OURT. HONBLE JURISDICTIONAL HIGH COURT IN T.C.NO194/2014 ADMITTE D THE APPEAL OF THE ASSESSEE FRAMING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW. 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ADVERTISING, MARKETING AND SALES PROMOTION EXPENSES INCURRED BY THE APPELLANT WITH UNRELATED PARTIES ARE TRANSACTIONS WITHIN THE MEANING OF SECT ION 92F(V) READ WITH SECTION 92B OF THE ACT AND THUS INTERNATIONAL TRANSACTIONS? 2. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN RELYING ON TH E DECISION OF THE SPECIAL BENCH IN L.G. ELECTRONICS CASE, WITHOUT ASSIGNING REASONS WHEN THE SAME IS DISTINGUISHABLE FROM THE FACTS AND THE NATURE OF ACTIVITY OF THE APPELLANT? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN MAKING TRANSFER PRICING ADJUSTMENT IN RELATION TO ADVERTISEMENT EXPENSES ON THE BASIS OF THE RATIO LA ID DOWN BY SPECIAL BENCH IN L.G. ELECTRONICS, WHEN THE SAME IS NOT LEGITIMATE IN LAW? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN SUSTAININ G ADDITIONS WITH RESPECT TO ADVERTISEMENT EXPENSES WITHOUT EXAMINING THE NATURE AND CATEGORY OF EXPENSES UNDER THIS HEAD? 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN RELYING O N THE DECISION OF THE SPECIAL BENCH IN THE CASE OF L. G. ELECTRONICS, WHEREIN THE SPECIAL BENCH HAD ADOPTED BRIGHT LINE TEST METHOD TO COMPUTE THE ALP, WHEN NO SUCH METHOD WAS PRESCRIBED UNDER SECTION 92C ITA NO. 479/MDS/2016 :- 10 -: OF THE ACT READ WITH RULE 10B OF THE INCOME-TAX RULES, 1962? 6. WHETHER THE TRIBUNAL WAS JUSTIFIED IN ADJUDICATING AN ISSUE MERELY BASED ON DESCRIPTION OF EXPENSES IN THE BOOKS OF THE APPELLANT? 7. WHETHER THE TRIBUNAL WAS JUSTITIED IN HOLDING THAT ADVERTISEMENT & SALES PROMOTION EXPENSES INCURRED BY THE APPELLANT FOR DOING ITS BUSINESS IN INDIA RESULTS IN BRAND PROMOTION OF ITS PARENT AE? THAT APART, THE HONBLE DELHI HIGH COURT IN THE CAS E OF BACARDI INDIA PVT LTD (SUPRA) HAD HELD THAT EXPENDITURE INCURRED ON BRAND PROMOTION DEVELOPMENT FOR ASSESSEES OWN BENEFIT C ANNOT BE SUBJECTED TO BRIGHT LINE TEST BY RELYIN ON ITS OWN JUDGMENT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD VS. CIT 374 ITR 118. THOUGH THE ASSESSING OFFICER HAD NOT APPLIED EXPL ANATION 7 TO SEC. 271(1) (C) OF THE ACT, LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS MADE A REFERENCE IN HIS ORDER. SAID EXPLANATIO N IS REPRODUCED HEREUNDER:- EXPLANATION 7. WHERE IN THE CASE OF AN ASSESSEE WHO HAS ENTERED INTO AN INTERNATIONAL TRANSACTION O R SPECIFIED DOMESTIC TRANSACTION DEFINED IN SECTION 9 2B, ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME UNDER SUB-SECTION (4) OF SECTION 92C, THEN, THE AMOUNT SO ADDED OR DISALLOWED SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED, UNLESS THE ASSESSE E PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE PRINCIPAL COMMISSIONER OR COMMISSIONER THAT THE PRICE ITA NO. 479/MDS/2016 :- 11 -: CHARGED OR PAID IN SUCH TRANSACTION WAS COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 92C AND IN THE MANNER PRESCRIBED UNDER THAT SECTION , IN GOOD FAITH AND WITH DUE DILIGENCE. A READING OF THE ABOVE EXPLANATION WOULD CLEARLY SH OW THAT WHERE A ASSESSEE WAS ABLE TO DEMONSTRATE THE COMPUTATION OF PRICING OF ITS INTERNATIONAL TRANSACTIONS TO HAVE BEEN DONE IN AC CORDANCE TO SEC. 92(1) OF THE ACT, THE SAID EXPLANATION WOULD NOT AP PLY. THE ONLY CONDITION IS THAT SUCH COMPUTATION SHOULD HAVE BEEN DONE IN GOOD FAITH AND WITH DUE DILIGENCE. NOTHING HAS BEEN B ROUGHT ON RECORD BY REVENUE TO SHOW THAT ASSESSEE HAD COMPUTED ARMS LEN GTH PRICE OF ITS INTERNATIONAL TRANSACTIONS IN A MANNER WHICH REFLEC TED ABSENCE OF GOOD FAITH AND DUE DILIGENCE. BY VIRTUE OF HONBLE DEL HI HIGH COURT DECISION IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P) LTD.(SUPRA ), THE QUESTION WHETHER EXPENDITURE INCURRED IN IND IA CAN BE SUBJECT TO APPLICATION OF A TEST LIKE BRIGHT LIN E TEST ITSELF IS DEBATABLE. WE ARE OF THE OPINION THAT ASSESSEE IN SUCH CIRCUMSTANCES COULD NEVER BE DEEMED TO HAVE CONCEALED INCOME OR FURNISHED AN INACCURATE PARTICULARS. HONBLE DELHI HIGH COURT IN THE CASE OF HAIER APPLIANCES INDIA PVT. LTD (SUPRA ) HAD HELD THAT EVEN NON DISCLOSURE OF TRANSACTIONS OF THE LIKE NATURE AS ENTERED BY THE A SSESSEE HERE IN ITS FORM 3CEB WOULD NOT MAKE IT EXIGIBLE TO A LEVY OF PENALTY. WE ARE OF THE OPINION THAT LEVY OF PENALTY WAS NOT JUSTIFIED, AND DELETE THE ITA NO. 479/MDS/2016 :- 12 -: SAME. SINCE WE HAVE DELETED THE PENALTY ON MERITS, THE QUESTION WHETHER NOTICE ISSUED ON ASSESSEE U/S.271(1) (C) R. W.S. 274 OF THE ACT WAS VAGUE OR NOT HAS BECOME ACADEMIC AND IS NOT NEC ESSARY TO BE ADJUDICATED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 30TH DAY OF NO VEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 30TH NOVEMBER, 2016 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF