RayBan Sun Optics India Ltd., Gurgaon V. DCIT, New Delhi

ITA 5282/DEL/2011

• Counselvise Citation: 528220114 RSA 2011
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 28-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: MANONEET DALAL; G C SRIVASTAVA; VIJAY IYER
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 5282/DEL/11 A.YR: 2007-08 RAYBAN SUN OPTICS INDIA LTD. VS. DCIT CIR. 15(1), 7 TH FLOOR, TOWER 9B, NEW DELHI. DLF CYBERGREEN, GURGAON-122001. PAN: AABCR8209G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI G.C. SRIVASTAVA ADV. & SHRI VIJAY IYER CA & SH. MANONEET DALAL RESPONDENT BY : SHRI PEEYUSH JAIN CIT (DR) O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST DIRECTIONS OF THE DISPUTE RESOLUTION PANEL-II, NEW DELHI DATED 26-09-2011 U/S 144C(5) OF THE INCOME-TAX ACT, 1961, RELATING TO A.Y. 2007-08. 2. GROUND NOS. 1 TO 4 RAISE A GROUND OF TRANSFER PR ICING AND GROUND NOS. 7, 8 & 9 ARE PLEADED TO BE CONSEQUENTIAL IN NATURE. THE SUMMARIZED GROUNDS FOR ADJUDICATION ARE AS UNDER: A. THAT THE DRP HAS COMMITTED GROSS ERRORS WHEN IT CONFIRMED THE ADJUSTMENTS AGGREGATING TO RS. 421,00,000 OUT OF TH E PROPOSED ADJUSTMENTS OF RS. 44,200,000 MADE BY THE LEARNED T PO UNDER SECTION 92CA OF THE ACT AND ONLY GRANTING A PARTIAL AND MEAGER RELIEF OF RS. 2,100,000 B. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN REDUCING THE RATE OF DEPRE CIATION ON 2 UPS FROM 60 PERCENT TO 15 PERCENT, BY TREATING THE SAME AS PLANT AND MACHINERY WITHOUT APPRECIATING THAT UPS I S INTEGRAL PART OF THE COMPUTER SYSTEM AND HAVE BEEN HELD TO BE IN THE NATURE OF COMPUTERS BY THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF BSES RAJDHANI POWERS LTD. (ITA NO. 1 266/2010) AND BY THE HONBLE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASES OF DATACRAFT INDIA LIMITED (133 TTJ 377). C. THAT ON THE FACTS AND IN LAW, THE LEARNED ASSESS ING OFFICER /DRP HAS ERRED IN DISALLOWING EXPENSES AMOUNTING RS . 293,379 ON ACCOUNT OF NON DEDUCTION OF TDS BY THE ASSESSEE COMPANY ON THE TRAVELING EXPENSES REIMBURSED TO LUXOTTICA S .R.L ITALY. 3. APROPOS T.P. ADJUSTMENT, LEARNED COUNSEL FOR THE ASSESSEE MADE DETAILED ARGUMENTS WHICH IN FINE CONTEND THAT: 3.1. THE IMPUGNED TP ADJUSTMENT WAS MADE ON THE GRO UND THAT THE ADVERTISEMENT AND MARKETING PROMOTION EXPENSES INCU RRED BY THE ASSESSEE WERE TO PROMOTE THE RAYBAN AND OTHER BRANDS OWNED B Y LUXOTTICA GROUP, ITALY, WHICH IS ASSESSEES ASSOCIATED ENTERPRISE. T HE BRIGHT LINE TEST APPLIED BY THE LOWER AUTHORITIES IS NOT A PRESCRIBED METHOD UNDER THE PURVIEW OF SEC. 92C OF THE ACT. WHEN THE TPO HAD ACCEPTED THAT THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WERE AT ARMS LENGTH ON THE BASIS OF TRANSACTIONAL NET MARGIN METHOD (TNMM) BEING THE MO ST APPROPRIATE METHOD, IT WAS NOT OPEN TO ANALYZE THE INTEGRAL ELE MENTS OF COST AND MAKE THE ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT AND SALE PROMOTION EXPENSES. 3.2. TPO ERRED IN RECHARACTERIZING THE ASSESSEE CO MPANY AS A LIMITED RISK DISTRIBUTOR AND THE SALE PROMOTION AND ADVERTISEMEN T EXPENSES BEING FOR PROMOTION OF BRAND. IT HAS BEEN IGNORED THAT THESE EXPENSES HAVE BEEN INCURRED ONLY FOR PROMOTION OF THE PRODUCTS AND BEN EFIT, IF ANY, TO THE BRAND NAME RAYBAN IS ONLY INCIDENTAL IN NATURE. 3 3.3. EVEN IF IT IS ASSUMED THAT THE ASSESSEE IS TO BE RECHARACTERIZED AS A LIMITED RISK DISTRIBUTOR/ AGENT, EVEN THEN THE ASS ESSEE HAD EARNED ARMS LENGTH RETURN OF A LIMITED RISK DISTRIBUTOR ALONG W ITH REMUNERATION FOR ITS ALLEGED EXCESSIVE ADVERTISEMENT EXPENDITURE. TPO HA S ERRED IN APPLYING THE MARK UP OF 13.04% IN RESPECT OF ALLEGED EXCESSIVE A DVERTISEMENT EXPENSES AND THE CALCULATION HAS NO BASIS. 3.4. LD. COUNSEL FURTHER CONTENDS THAT EXPLANATION (D) TO SEC. 92B(1) PRESCRIBED THAT INTERNATIONAL TRANSACTION SHALL INC LUDE (D) PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SE RVICE. THUS, THE INTERNATIONAL TRANSACTION IS FOR PROVISIO N OF SERVICES AND NOT FOR ARRANGEMENT OF EXPENSES. IN THE ASSESSEES CASE THE RE WAS NO PROVISION OF SERVICE AND ISSUE OF ADVERTISEMENT AND MARKETING EX PENSES IS ONLY ARRANGEMENT OF EXPENSE. ASSESSEE HAS NOT TRANSFERRE D ANY DISPROPORTIONATE PROFITS AT ENTITY LEVEL. HOWEVER, LEARNED COUNSEL F OR THE ASSESSEE FAIRLY CONCEDED THAT THE AGREEMENT ABOUT THE ARRANGEMENT O F ADVERTISEMENT EXPENSES BY VARIOUS ENTITIES OF THE SUBSIDIARY CON CERNS WAS NOT PRODUCED BEFORE ASSESSING OFFICER OR TPO AS THEY WERE NOT ASKED FOR. IN THIS EVENTUALITY, IT IS PLEADED THAT THE ISSUE MAY BE SE T ASIDE, RESTORED BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE T.P. ISSUE ABOUT AMP EXPENSES AFRESH. 4. LD. D.R. IS HEARD. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS RAIS ED A LEGAL PLEA THAT THE ISSUE OF AMP EXPENSES IS NOT COVERED BY SEC. 92B(1) EXPLANATION (D) AS 4 THEY DO NOT AMOUNT TO PROVISION OF SERVICES AND ARE ACTUALLY ARRANGEMENT OF EXPENSES. AS THE ASSESSEE AND OTHER ENTERPRISES ARE CLAIMED TO HAVE SEPARATE AGREEMENTS ABOUT THE ARRANGEMENTS OF ADVERTISEMENT AND SALE PROMOTION EXPENSES, IT WILL BE DESIRABLE THAT THIS ASPECT IS TAKEN INTO CONSIDERATION. IN VIEW OF THESE FACTS, WE SET ASIDE THIS ISSUE BACK T O THE FILE OF ASSESSING OFFICER FORE DECISION AFRESH IN ACCORDANCE WITH LA W. 6. APROPOS THE ISSUE OF DEPRECIATION, BY VARIOUS RU LINGS COMPUTER UPS HAS BEEN HELD TO BE INTEGRAL PART OF THE COMPUTER S YSTEM ELIGIBLE FOR DEPRECIATION @ 60%. THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. APROPOS THIRD GROUND, IT IS PLEADED THAT THE AMO UNT WAS REIMBURSED TO LUXOTTICA S.R.L ITALY. THERE IS NO PRESCRIPTION OF TDS ON REIMBURSEMENT OF EXPENSES INCURRED. IN VIEW OF THESE FACTS, THIS GRO UND OF THE ASSESSEE IS ALSO ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 09-08-2012. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED: 09-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 5