Sharp Business Systems (India)Ltd., New Delhi V. DCIT, New Delhi

ITA 6368/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7405 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 26-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; YOGESH K V ERMA CIT DRS
• Assessee Lawyers: G C SRIVASTAVA; SAURABH SRIVASTAVA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SH. R. S. SYAL, AM AND SH. GEORGE GEORGE K. , JM ITA NO. 2800/DEL/2013 : ASSTT. YEAR : 2008-09 ITA NO. 6368/DEL/2013 : ASSTT. YEAR : 2009-10 SHARP BUSINESS SYSTEMS (INDIA) LTD. 214-221, ANSAL TOWER, 38, NEHRU PLACE, NEW DELHI-110019 VS DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-8(1), CENTRAL REVENUE BUILDING, NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AAECS2980A ASSESSEE BY : SH. G. C. SRIVASTAVA, ADV. & SAURABH SRIVASTAVA, CA REVENUE BY : SH.PEEYUSH JAIN & YOGESH K. V ERMA, CIT DRS DATE OF HEARING : 26.8.2014 DATE OF PRONOUNCEMENT : 28.8.2014 ORDER PER R. S. SYAL, AM: THESE TWO APPEALS BY THE ASSESSEE RELATING TO THE A SSESSMENT YEARS 2008-09 AND 2009-10 INVOLVE COMMON ISSUE. WE ARE, T HEREFORE, PROCEEDING TO DISPOSED THEM OFF BY THIS CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2008-09 2. THE ASSESSEE IS AGGRIEVED ONLY AGAINST THE INCLU SION OF CERTAIN EXPENSES IN THE OVERALL BASE OF ADVERTISING, MARKET ING AND PROMOTION (AMP) EXPENSES FOR THE PURPOSES OF MAKING TRANSFER PRICING ITA NO. 2800 & 6368/DEL/2013 SHARP BUSINESS SYSTEMS (I NDIA) LTD. 2 ADJUSTMENT. THE LD. COUNSEL FOR THE ASSESSEE CONTEN DED THAT THE ASSESSING OFFICER ERRED IN INCLUDING CERTAIN SELLIN G EXPENSES WITHIN THE AMBIT OF AMP EXPENSES FOR COMPUTING THE ALP OF THE TRANSACTION BY APPLYING THE BRIGHT LINE TEST. IT WAS CONTENDED THA T OUT OF TOTAL SUCH EXPENSES, THE A.O EXCLUDED ONLY LIQUIDATED DAMAGES CLAIMED BY CUSTOMERS FROM THE AMP EXPENSES. WHEN THE ASSESSME NT ORDER WAS ASSAILED BEFORE THE LD. CIT(A), HE, AFTER CONSIDERI NG THE SPECIAL BENCH ORDER IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. VS ACIT (2013) 140 ITD 41 (DELHI) (SB), DIRECTED TO EXCLUDE INSTALLATION COMMISSION AND EMPLOYEES SALES INCENTIVE FROM THE OVERALL BASE OF AMP EXPENSES. THE LD. AR ARGUED THAT SEVERAL SALES EXPENSES HAVE BEEN INCLUDED IN THE AMP EXPENSES, WHICH MERIT EXCLUSION. IN THE OPPOSIT ION, THE LD. DR RELIED ON THE IMPUGNED ORDER. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SCOPE OF AMP EXPENSES CAME UP CONSIDERATION BEFORE THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. (SUPRA) . THE BENCH, AFTER CONSIDERING THE ARGUMENTS FROM B OTH THE SIDES, HELD IN PARA 18.3 TO 18.6 OF THE ORDER THAT AMP EXP ENSES ARE ONLY SUCH EXPENSES WHICH ARE INCURRED FOR THE PROMOTION OF SA LES WHICH, IN TURN, LEAD TO BRAND BUILDING. THE BENCH NOTICED THAT THE EXPENSES WHICH ARE DIRECTLY IN CONNECTION WITH SALES ARE ONLY SALES SP ECIFIC AND HENCE CANNOT BE BROUGHT WITHIN THE DOMAIN OF AMP EXPENSES. IT W AS FURTHER OBSERVED THAT THE EXPENSES WHICH ARE NOT IN THE NATURE OF AD VERTISEMENT, ITA NO. 2800 & 6368/DEL/2013 SHARP BUSINESS SYSTEMS (I NDIA) LTD. 3 MARKETING OR PROMOTION, CANNOT HELP IN CREATING A NY MARKETING INTANGIBLES OR BRAND PROMOTION FOR THE FOREIGN A.E. THE BENCH FURTHER EXAMINED THE ERSTWHILE PROVISIONS OF SEC. 37(3A) AN D (3B) AND HELD THEM TO BE RELEVANT IN THE CORRECT INTERPRETATION O F THE SCOPE OF AMP EXPENSES. IT WAS EVENTUALLY HELD THAT THE EXPENSES IN CONNECTION WITH THE SALES WHICH DO NOT LEAD TO BRAND PROMOTION SHOULD N OT BE BROUGHT WITHIN THE PURVIEW OF AMP EXPENSES FOR DETERMINING THE COS T/VALUE OF THE INTERNATIONAL TRANSACTION. 4. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS DISCERNIBLE THAT THE LD. CIT(A) MISDIRECTED HIMSELF BY HOLDING IN PARA 7 .5 OF THE IMPUGNED ORDER THAT THE FOCUS SHOULD BE ON MARKETING INTANG IBLES AND NOT JUST BRAND PROMOTION AND IN LGS CASE IT WAS ONLY BR AND BUILDING EXPENDITURE WHICH WAS RELEVANT SINCE THE QUESTION W AS NOT ON THE CREATION OF MARKETING INTANGIBLES BUT ON THE BUILDI NG OF BRAND LG. THESE OBSERVATIONS, WHICH FORMED BASIS FOR THE LD. CIT(A) TO DECIDE THE ISSUE, RUN CONTRARY TO THE CLEAR-CUT MANDATE OF THE SPECI AL BENCH IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA) . UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED ORDER CANN OT BE SUSTAINED ON THIS ISSUE. 5. IT IS VIVID FROM THE SPECIAL BENCH DECISION THAT A DISTINCTION HAS BEEN MADE BETWEEN SALES SPECIFIC EXPENSES ON ONE HA ND AND THE EXPENSES WHICH ARE INCURRED FOR THE PROMOTION OF SA LES ON THE OTHER, SO ITA NO. 2800 & 6368/DEL/2013 SHARP BUSINESS SYSTEMS (I NDIA) LTD. 4 THAT ONLY THE LATTER CAN BE CONSIDERED WITHIN THE P URVIEW OF AMP EXPENSES. IT IS EVIDENT THAT THE TPO SIMPLY APPLIED THE BRIGHT LINE TEST FOR MAKING THE DISALLOWANCE BY INCLUDING BOTH THE A BOVE SEGMENTS OF EXPENSES WITHIN THE BASE OF AMP EXPENSES, WHICH IS NOT IN CONSONANCE WITH THE RATIO DECIDENDI OF THE SPECIAL BENCH DECISION IN LG ELECTRONICS INDIA PVT. LTD. (SUPRA) . THE ACTION OF THE AO WAS PROMPTED BECAUSE HE DID NOT HAVE THE BENEFIT OF SPECIAL BENCH DECISION AT THAT TIME. AS THIS EXERCISE CAN BE CARRIED OUT ONLY AFTER EXAMINING TH E CORRECT NATURE OF EACH AND EVERY ITEM OF EXPENSE, WE ARE OF THE CONS IDERED OPINION, THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY, IF THE I MPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO TH E FILE OF AO/TPO. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISS UE IN THE LIGHT OF THE MANDATE OF THE SPECIAL BENCH DECISION BY EXCLUDING SUCH EXPENSES FROM THE BASE OF AMP EXPENSES WHICH ARE DIRECTLY IN CONN ECTION WITH SALES AND ARE ONLY SALES SPECIFIC. IT IS ONLY THEREAFTER THAT THE AMOUNT OF DISALLOWANCE ON ACCOUNT OF TRANSFER PRICING ADJUSTM ENT, IF ANY, WILL BE DETERMINED. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED AN OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. ASSESSMENT YEAR 2009-10 6. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS A ND CIRCUMSTANCES OF THE APPEAL FOR ASSESSMENT YEAR 2009-10 ARE MUTATIS MUTANDIS SIMILAR TO THOSE FOR ASSESSMENT YEAR 2008-09. FOLLOWING THE VI EW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER AND RE MIT THE MATTER TO THE ITA NO. 2800 & 6368/DEL/2013 SHARP BUSINESS SYSTEMS (I NDIA) LTD. 5 FILE OF A.O/TPO FOR DECIDING THIS ISSUE AFRESH IN A CCORDANCE WITH OUR ABOVE DIRECTIONS. 7. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/8/2014. SD/- SD/- (GEORGE GEORGE K.) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28/8/2014 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 26.8.2014 PS 2. DRAFT PLACED BEFORE AUTHOR 27.8.2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *