M/s Perfetti Van Melle India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 892/DEL/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3147 (ITAT-DELHI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 15-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Revision of order; Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI S.V. MEHROTRA, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.892/DEL/2017 ASSESSMENT YEAR : 2009-10 PERFETTI VAN MELLE INDIA PVT. LTD., GLOBAL BUSINESS PARK, TOWER , 1 ST FLOOR, MEHRAULI-GURGAON ROAD, GURGAON 122002, HARYANA. PAN: AAACP2626A VS. DCIT, CIRCLE-3, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR & SHRI NEERAJ KUMAR, SR. DR DATE OF HEARING : 04.05.2017 DATE OF PRONOUNCEMENT : 16.05.2017 ORDER PER S.V. MEHROTRA, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) READ W ITH SECTION 144C OF ITA NO.892/DEL/2017 2 THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 24.01.2017 IN RELATION TO THE ASSESSMENT YEAR 2009- 10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN MANUFACTURING OF VARIETY OF CONF ECTIONARY PRODUCTS FROM ITS FACTORIES IN TAMIL NADU, HARYANA AND UTTAR AKHAND. THE ASSESSEE E-FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER, 2009 SHOWING THE TOTAL INCOME OF RS.13,19,79,440/-. DRAFT ASSES SMENT ORDER U/S 144C WAS PASSED ON 6 TH MARCH, 2013, PROPOSING TRANSFER PRICING ADJUSTMENT OF RS.163,04,12,982/- TO THE INCOME OF THE ASSESSEE. THE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP-III, DELHI, WHICH VID E ITS ORDER DATED 18.12.2013, CONFIRMED THE ADDITIONS AS PROPOSED IN THE DRAFT ORDER. ACCORDINGLY, THE ASSESSEES TOTAL INCOME WAS DETERM INED U/S 143(3) READ WITH SECTION 144C AT RS.176,23,92,422/-. THE ASSESS EE PREFERRED APPEAL BEFORE THE TRIBUNAL AGAINST THE ASSESSMENT ORDER DA TED 7 TH JANUARY, 2014 AND THE TRIBUNAL, VIDE ITS ORDER DATED 15 TH APRIL, 2014 (ITA NO.6559/DEL/2014), SET ASIDE THE MATTER TO THE FILE OF ASSESSING OFFICER/TPO TO DECIDE THE ISSUE OF DETERMINATION OF THE ARMS LENGTH ITA NO.892/DEL/2017 3 PRICE (ALP) OF AMP EXPENSES IN CONFORMITY WITH THE DECISION FO THE SPECIAL BENCH IN THE CASE OF L.G. ELECTRONICS. ACC ORDINGLY, THE ASSESSING OFFICER MADE REFERENCE U/S 92CA(1), VIDE LETTER DATED 5 TH FEBRUARY, 2015 TO TPO FOR DETERMINATION OF THE ALP FOR THE INTERNATIONAL TRANSACTION OF AMP UNDERTAKEN BY THE ASSESSEE DURING THE FINANCIAL YEAR 2008-09. THE LD. TPO, VIDE HIS ORDE R DATED 28 TH JANUARY, 2016, RECOMPUTED THE TRANSFER PRICING ADJUSTMENT IN REGARD TO AMP EXPENSES AT RS.123,62,94,959/-. THE ASSESSEE FILED ITS OBJECTIONS AGAINST THE PROPOSED DRAFT ASSESSMENT ORDER WITH THE DRP AN D THE DRP, VIDE ITS ORDER DATED 28 TH NOVEMBER, 2016, CONFIRMED THE TP ADJUSTMENT MADE B Y THE LD. TPO USING THE BRIGHTLINE TOOL AS THIS WAS I N CONFORMITY WITH THE DECISION OF LG ELECTORNICS AND THE TP ADJUSTMENT MA DE BY THE TPO USING THE COST PLUS METHOD WAS DELETED AS THAT WAS NOT IN CONFORMITY WITH THE DECISION IN LG ELECTRONICS. THE LD. TPO HA D ALSO BENCHMARKED THE AMP EXPENSES ON A PROTECTIVE BASIS RESULTING IN AN ADJUSTMENT OF RS.205,31,96,324/- ON BRIGHTLINE METHOD. ACCORDINGL Y, THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER ON 24 TH JANUARY, 2017 DETERMINING THE TOTAL INCOME AT RS.266,44,84,900/-, AFTER MAKIN G AN ADDITION OF ITA NO.892/DEL/2017 4 RS.205,31,96,324/- ON ACCOUNT OF DETERMINATION OF A LP OF AMP EXPENSES. THE ASSESSING OFFICER ALSO DENIED THE DED UCTION U/S 80IC IN VIEW OF THE DIRECTION CONTAINED IN THE ORDER OF LD. PRINCIPAL CIT, PASSED U/S 263 OF THE ACT, DATED 14.12.2016 U/S 143(3) REA D WITH SECTION 263. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S AND HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- WITHOUT PREJUDICE TO THE APPEAL FILED BY THE APPEL LANT BEFORE PUNJAB & HARYANA HIGH COURT IN RELATION TO THE ASSESSMENT YE AR UNDER CONSIDERATION, THE APPELLANT SUBMITS THE FOLLOWING GROUNDS OF APPEAL WHICH ARE MUTUALLY EXCLUSIVE OF AND WITHOUT PREJUDI CE TO EACH OTHER. 1. THAT ASSESSING OFFICER ('LD. AO') / TRANSFER PRI CING OFFICER ('LD. TPO')/ DISPUTE RESOLUTION PANEL ('LD. DRP') E RRED IN ASSESSING THE INCOME OF THE APPELLANT AT INR 2,66,44,84,9001- AS AGAINST RETURNED INCOME OF INR 13,19,79,440. 3. THAT THE IMPUGNED ORDERS PASSED BY AO PURSUANT T O DRP DIRECTIONS MAKING AN ADDITION OF INR 2,05,31,96,324 /- TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN RELATION TO ADVERTISING, MARKETING & PROMOTION EXPENSES (,AMP') USING BRIGHT LINE TEST ('BL T) ARE CONTRARY TO CATENA OF DECISIO NS OF HON'BLE HIGH COURTS/ TRIBUNAL AND IS BAD IN LAW. 3. THAT ON THE PRETEXT OF FOLLOWING REMAND DIRECTIO NS OF HON'BLE TRIBUNAL DATED 15.04.2014, DRP/ TPO/ AO HAVE GROSSL Y ERRED IN MAKING ADJUSTMENT ON ACCOUNT OF AMP AFRESH AND RAISING IMP UGNED DEMAND IN TOTAL DISREGARD TO OVERRIDING FINDINGS OF THE HON'B LE DELHI HIGH COURT IN THE CASES OF MARUTI SUZUKI INDIA LTD, WHIRLPOOL OF INDIA LTD ETC., AS ALSO ITA NO.892/DEL/2017 5 DECISION OF SPECIAL BENCH IN CASE OF LG ELECTRONICS , AS IMPUGNED DEMAND APPLIES PORTIONS OF SUCH DECISION ALSO SELEC TIVELY. 4. THAT ID. DRP/ TPO/ AO HAVE GROSSLY ERRED IN APPL YING BRIGHT LINE TEST ('BLT) FOR COMPUTING ADJUSTMENT ON ACCOU NT OF AMP IN TOTAL DISREGARDING DECISIONS OF HON'BLE DELHI HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD, MARUTI SUZUKI INDIA LTD WHICH HAVE HELD THE SAME TO BE INVALID IN LAW. 5. WITHOUT PREJUDICE TO THE ABOVE, DRP/ TPO/ AO HAV E GROSSLY ERRED IN NOT EVEN APPLYING DECISION OF SPECIAL BENC H IN CASE OF LG ELECTRONICS IN ENTIRETY, AS THERE IS NO WHISPER ON 14 FACTORS RELATING TO COMPARABLES, DIRECT SELLING EXPENSES HAVE NOT BEEN EXCLUDED AND GROSS PROFIT MARGIN HAS BEEN USED TO MARK-UP FOR COMPUTIN G THE ADJUSTMENT THUS COMPLETELY DISREGARDING DIRECTIONS OF HON'BLE TRIBUNAL DATED 15.04.2014 WHILE REMANDING THE MATTER TO DECIDE AFR ESH. 6. THAT DRP/ TPO/ AO HAVE ERRED IN TREATING EXPENSE S INCURRED BY APPELLANT TOWARDS AMP AS AN 'INTERNATIONAL TRANSACT ION', DISREGARDING GUIDELINES OF HON'BLE DELHI HIGH COURT IN THE CASES OF MARUTI SUZUKI INDIA LTD., WHIRLPOOL OF INDIA LTD., BAUSCH & LOMB EYE CARE INDIA PVT. LTD AND HONDA SIEL POWER PRODUCTS LTD., WHICH DEALT WITH SIMILAR FACTS IN CASE OF MANUFACTURERS. 7. THAT DRP/ TPO/ AO COMPLETELY FAILED TO ESTABLISH EXISTENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION I N CONCERT' BETWEEN APPELLANT AND ITS AES WITH REGARD TO AMP SPEND BY A PPELLANT IN INDIA, WITHOUT APPLICATION OF BRIGHT LINE TEST. 8. THAT DRP/ TPO/ AO FAILED TO APPRECIATE THAT ONCE APPELLANT HAS SATISFIED ARM'S LENGTH BASIS USING TRANSACTIONAL NE T MARGIN METHOD ('TNMM') I.E., OPERATING MARGIN OF APPELLANT IS MOR E THAN OPERATING MARGIN OF COMPARABLE COMPANIES, NO FURTHER ADJUSTME NT FOR AMP EXPENDITURE IS WARRANTED IN LAW. ITA NO.892/DEL/2017 6 9. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE DRP/ TPO/ AO ERRED IN FAILING TO APPRECIATE THAT AMP WAS BENCHMA RKED AS FUNCTION BY APPELLANT BEING CLOSELY LINKED TO OVERALL BUSINESS ACTIVITIES AND IT WOULD BE UNJUSTIFIED TO SEGREGATE THE SAME, WITHOUT PREJU DICE IMPUGNED ORDER COMPLETELY MISINTERPRETED THE DECISIONS OF HON'BLE COURTS / TRIBUNAL. 10. THAT LD. AO ERRED IN INCLUDING ISSUES ARISING F ROM SEPARATE PROCEEDINGS U/S 263, WHICH ARE DISTINCT AND DIFFERE NT PROCEEDINGS, RESULTING IN DUPLICATIVE AND UNLAWFUL DEMAND. 11. THAT ON FACTS OF THE CASE AND IN LAW, THE LD. A O ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271 OF THE ACT. APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY, SUBST ITUTE OR WITHDRAW ANY OF THE ABOVE GROUND AND TO SUBMIT SUCH FURTHER GROU NDS AT OR BEFORE THE HEARING OF THE APPEAL, SO AS TO ENABLE DECISION IN ACCORDANCE WITH LAW. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE ISSUES ARE COVERED BY THE DECISION OF THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 VIDE ITA NO.78 9/DEL/2016, WHEREIN THE TRIBUNAL HAS REMANDED BOTH THE ISSUES T O THE FILE OF ASSESSING OFFICER AS FOLLOWS:- 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED ALL TH E RECORDS. THE ISSUES INVOLVED IN THESE PARTICULAR APPEALS ARE THREE FOLD S. GROUND NO. 2 TO 13 IS RELATED TO AMP ADJUSTMENT OF RS.146.19 CRORES, GROU ND NO. 14 TO 25 IS RELATED TO DENIAL OF DEDUCTION U/S 80IC OF RS.102.3 1 CRORES AND GROUND NOS. 26 & 27 ARE RELATED TO DISALLOWANCE OF DEPRECI ATION TO THE EXTENT OF CAPITAL SUBSIDY RS.13.12 LAKHS. THE ASSESSEE IS ENG AGED IN MANUFACTURING OF VARIOUS CONFECTIONARY PRODUCTS AND IS A SUBSIDIARY OF PVM, ITALY. THE ASSESSEE HAS THREE FACTORIES AT TAM IL NADU, HARYANA AND ITA NO.892/DEL/2017 7 UTTRAKHAND. THE AMP EXPENDITURE OF RS.194.02 CRORES WHICH INCLUDED RS.91.54 CRORES OF SELLING AND DISTRIBUTION EXPENSE S AND RS.102 CRORES IS MARKED UP BY GROSS PROFIT MARGIN IN MANUFACTURING A ND SELLING BUSINESS AT 42.66% RESULTING IN DISPUTED TRANSFER PRICING AD JUSTMENT OF RS.146.19 CRORES. THE LD. AR DURING THE HEARING CLE ARLY STATED THAT THE TPO WAS NOT DEALT WITH THE JUDGMENT IN CASE OF SONY ERICSON 374 ITR 118 & MARUTI SUZUKI 381 ITR 117 PASSED BY THE HON'B LE HIGH COURT. BEFORE THE DRP THESE TWO DECISIONS WERE PLACED BY T HE ASSESSEE BUT DRP HAS NOT TAKEN INTO CONSIDERATION OF MARUTI SUZU KI AND HELD THAT EXISTENCE OF INTERNATIONAL TRANSACTION OF AMP SOLEL Y ON BASIS OF SONY ERICSON AND OTHER DECISIONS REFERRED THEREIN. THE T PO PRESUMED EXISTENCE OF INTERNATIONAL TRANSACTION OF AMP BY AD OPTING BRIGHT LINE TEST BY RELYING SPECIAL BENCHS DECISION IN CASE OF LG E LECTRONICS. THE TPO FURTHER HELD THAT A.E WAS BENEFITTED FROM INCREASED BUSINESS AS ALL PURCHASES FROM A.E ACCOUNTED FOR 3% OF TURNOVER OF RS.1311 CRORES AMOUNTS TO INTERNATIONAL TRANSACTION AND IS ONLY TO THE TUNE OF 6.09%. WHEN THE DECISION IN CASE OF MARUTI SUZUKI WAS PRES ENTED BEFORE THE DRP, THE DRP SHOULD HAVE TAKEN COGNIZANCE OF THESE DECISIONS WHILE DETERMINING THE ISSUE OF AMP ADJUSTMENT. BUT THE DR P CHOSE NOT TO COMMENT ON THE SAID DECISION. WHILE HOLDING AMP EXP ENSES AS AN INTERNATIONAL TRANSACTION, THE TPO DID NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABLE FOR CONSIDERATION, IN SOME OF WHICH THE TRANSACTION OF AMP EXPENSES HAS BEEN HELD AS AN INT ERNATIONAL TRANSACTION, IN OTHERS AS NOT AN INTERNATIONAL TRAN SACTIONS, WHILE STILL IN SOME OTHERS, THE MATTER HAS BEEN RESTORED FOR FRESH CONSIDERATION IN THE LIGHT OF THE JUDGMENT IN SONY ERICSSON MOBILE COMMU NICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL), IN WHIC H THE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION HAS BEEN ACCEPTED. IN ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR A.Y. 2 010-11), THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATI ONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. THERE ARE THREE RECENT JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN O PTICS 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 LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBI LE COMMUNICATIONS INDIA PVT. LTD. (SUPRA). RESPECTFULLY FOLLOWING THE PREDOMINANT VIEW OF THE HONBLE HIGH COURT, WE ARE OF THE CONSIDERED OP INION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER I S SET ASIDE AND THE ITA NO.892/DEL/2017 8 MATTER IS RESTORED TO FILE OF TPO/AO FOR FRESH DETE RMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONA L TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WOULD END THERE AND THEN, CALLIN G FOR NO TRANSFER PRICING ADDITION. IF ON THE OTHER HAND, THE INTERNA TIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE T HE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEV ANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. 8.1 TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER ON THE ISSUE OF TRANSFER PRICING ADDITIONS TOWARDS AMP EXPENSES AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERM INATION OF THEIR ALP IN CONSONANCE WITH OUR ABOVE OBSERVATIONS AND DIREC TIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPO RTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. THUS, GROUND NO. 2 TO 13 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8.2. AS RELATES TO BENEFI T OF DEDUCTION UNDER SECTION 80IC THE SAME WAS CLAIMED ONLY FOR THE UNIT SITUATED IN RUDRAPUR (UTTRAKHAND). THERE IS NET LOSS IN THE UNI TS OF MANESSAR (HARYANA) & CHENNAI (TAMILNADU) AND THERE IS A NET PROFIT IN RUDRAPUR UNIT. THE TPO HAS ONLY DISALLOWED THIS CLAIM AS THE ASSESSEE WAS NOT INVOLVED IN MANUFACTURE OF ANY ITEM COVERED BY SCHE DULE XIV, WHERE AS THE ASSESSEE HAS REFERRED SCHEDULE XIII AND SUBMITT ED THAT IT IS NOT CONSIDERED BY THE TPO. AFTER VERIFYING SCHEDULE XII I & XIV IT IS PERTINENT TO NOTE THAT THE ASSESSEES LOCATION AT R UDRAPUR IS COMING UNDER THE SCOPE OF 80IC BUT THE ADDRESS WAS NOT PROPERLY VERIFIED BY THE TPO. THEREFORE, THIS NEEDS TO BE VERIFIED. WE THEREFORE, REMIT THIS ISSUE BACK TO THE FILE OF THE TPO TO EXAMINE THE SAME AS RELAT ES TO THE APPLICABILITY OF THE SCHEDULE XIII. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. THEREFORE, GROUND NO. 14 TO 25 IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. 4. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL IN THE ASSESSEES OWN CASE, THE ASSESSEES APPEAL IS ALLOW ED FOR STATISTICAL PURPOSES IN TERMS OF THE DIRECTIONS CONTAINED IN TH E AFOREMENTIONED ORDER OF THE TRIBUNAL. ITA NO.892/DEL/2017 9 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.05.201 7. SD/- SD/- [KULDIP SINGH] [S.V. MEHROTRA] JUDICIAL MEMBER VICE PRESIDENT DATED, 16 TH MAY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.