Toshiba India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 944/DEL/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8263 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 10-03-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: HIMANSHU S SHEKHAR
• Keywords: Transfer pricing; International transaction; Application of stay
• Section: 143(3); 92B; 234B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. BE ENA A. PILLAI, JM ITA NO. 944/DEL/ 2016 ASSESSMENT YEAR : 2011-12 & STAY APPLICATION NO. 121 /DEL/2016 (IN ITA NO. 944/DE L/2016) ASSESSMENT YEAR : 2011-12 TOSHIBA INDIA PVT. LTD. E-20, 1 ST & 2 ND FLOOR, HAUZ KHAS NEW DELHI VS DCIT CIRCLE-25(1), C.R.BUILDING NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCT4829N APPELLANT BY : SH. HIMANSHU S. SHEKHAR, ADV. RESPONDENT BY : SH. AMRENDRA KUMAR, CIT(DR) DATE OF HEARING :10.03.2016 DATE OF PRONOUNCEMENT: 08 .04.2015 ORDER PER N.K. SAINI, A.M. THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28.01.2016 PASSED BY THE AO U/S 143(3) READ WITH SECTION 144(C ) (4) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND THE S TAY APPLICATION HAS BEEN FILED TO GRANT THE STAY OF OUTSTANDING DEMAND OF RS. 11,18, 04,310/-. IN THE APPEAL, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : GENERAL GROUNDS 1. THAT THE LD. ASSESSING OFFICER (AO) / HONBLE DISPU TE RESOLUTION PANEL (DRP) ERRED IN COMPUTING THE TOTAL INCOME OF THE AP PELLANT AT RS. 343,103,020/- AS AGAINST THE RETURNED INCOME OF RS. 129,003,431/-. 2. THAT THE DRP/LD. TRANSFER PRICING OFFICER (TPO) ERR ED IN MAKING AN ADJUSTMENT OF RS. 217,399,859/- UNDER SECTION 92CA( 3) OF THE INCOME TAX S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 2 ACT, 1961 (THE ACT) IN RESPECT OF THE ADVERTISIN G AND MARKETING EXPENSES(AMP EXPENSES) INCURRED BY THE APPELLANT F OR ITS OWN BUSINESS PURPOSES. TRANSFER PRICING GROUNDS 3. THAT THE LD. TPO/AO/DRP ERRED IN SEGREGATING AMP T RANSACTION AFTER HAVING ACCEPTED THE ARMS LENGTH PRICE OF ALL OTHER TRANSACTIONS UNDER TNMM AND HAVING ACCEPTED THAT THE PROFIT MARGIN OF THE APPELLANT WAS WITHIN THE +/- PERCENT RANGE OF COMPARABLE COMPANIE S. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF PRESENT CAS E AND IN LAW, LD. TPO/AO/DRP HAVE ERRED IN HOLDING THAT AMP EXPENDITU RE INCURRED BY THE APPELLANT, IS AN INTERNATIONAL TRANSACTIONU/S 92B JUSTIFYING SEPARATE BENCHMARKING UNDER CHAPTER X OF THE ACT. 5. THAT THE LD. TPO/AO/DRP ERRED IN DETERMINING THE VA LUE OF INTERNATIONAL TRANSACTION PERTAINING TO AMP EXPENDITURE BY APPLYI NG THE BRIGHT LIGHT TEST USING AMP TO GROSS PROFIT AS THE BRIGHT LINE BENCHM ARK. 6. THAT THE LD. TPO/AO/DRP ERRED IN NOT ALLOWING A SET OFF OF SURPLUS REVENUE/ PROFIT EXCEEDING THE ALP MARGIN EARNED FRO M THE DISTRIBUTION BUSINESS AGAINST THE TOTAL AMP EXPENDITURE TO DETER MINE THE VALUE OF INTERNATIONAL TRANSACTION RELATING TO AMP EXPENDITU RE. 7. THAT THE LD. TPO/AO/DRP ERRED IN TAKING CERTAIN ROU TINE AMP EXPENSES AS BRAND PROMOTION EXPENSES FOR CREATION OF INTANGIBLE S. 8. THAT THE LD. TPO/AO/DRP ERRED IN BENCHMARKING THE A MP FUNCTION BY USING COMPARABLE SELECTED BY THE LD. TPO FOR APPLIC ATION OF BRIGHT LINE AND ALSO APPLYING A FURTHER MARK-UP OF GROSS PROFIT TO COGS WITHOUT ANY BASIS WHATSOEVER. 9. THAT THE LD. TPO/ AO/ DRP GROSSLY ERRED IN ADOPTING METHODOLOGY (STATED AS CPM) FOR DETERMINING ARMS LENGTH PRICE OF AMP T HAT IS CONTRARY TO THE RULES AND ECONOMIC LOGIC AND WITHOUT ANY BASIS WHAT SOEVER. CORPORATE TAX GROUND 10. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN NOT FOL LOWING THE DIRECTIONS OF DRP TO CORRECT THE AMOUNT OF CLAIM OF WARRANTY EXPE NSE MADE BY THE APPELLANT WITH RESPECT TO THE WARRANTY PROVISION WH ILE COMPUTING THE TAXABLE PROFITS DURING THE FINANCIAL YEAR. COMMON GROUND 11. LD. AO HAS ERRED, IN CHARGING INTEREST UNDER SECTIO NS 234B AND 234C OF THE ACT. 12. THAT ON FACTS AND IN LAWS, THE LD. AO ERRED IN HOLD ING THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPE CT OF EACH ITEM OF DISALLOWANCE/ ADDITIONS AND IN INITIATING PENALTY P ROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT. S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 3 2. GROUND NO. 1 AND 2 ARE GENERAL IN NATURE A ND GROUND NO. 12 IS RAISED PREMATURELY SO THESE GROUNDS DO NOT REQUIRE ANY CO MMENTS ON OUR PART. 3. GROUND NOS. 3 TO 9 RELATE TO THE ADDITION ON A CCOUNT OF AMP ADJUSTMENT. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE A SSESSEE E-FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 12,90,03,431/-. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF CONSUMERS DURABLES ETC. AND ALSO PROVIDING REPRESENTATIVE AND MARKETING SPO RTS SERVICES TO TOSHIBA GROUPS COMPANY WORLDWIDE. SINCE THE ASSESSEE HAD EN TERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AE), THE AO REFERRED THE CASE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. THE TPO VIDE ORDER DATED 30.01.2015 U/S 92CA(3) OF THE ACT RECOMMENDED AN ENHANCEMENT OF THE ASSESSEES RE TURN INCOME BY AMOUNT OF RS. 71,23,76,838/- BEING THE DIFFERENCE BETWEEN TH E ARMS LENGTH PRICE OF REIMBURSEMENT OF AMP EXPENSES AND THE REIMBURSEMENT OF AMP RECEIPT BY THE ASSESSEE FROM ITS AES AS UNDER :- VALUE OF GROSS SALES 4,08,82,37,238/- AMP/SALES OF THE COMPARABLES 2.75% AMOUNT THAT REPRESENT BRIGHT LINE 11,24,26,524/- EXPENDITURE ON AMP BY ASSESSEE 79,59,43,275/- MAKEUP @12.50% 8,54,39,594/- REIMBURSEMENT THAT ASSESSEE SHOULD HAVE RECEIVED 76,89,56,345/- LESS:- RE-IMBURSEMENT RECEIVED 5,65,79,507/- ADJUSTMENT 71,23,76,838/- 4. THE A.O. MADE THE ADDITION OF RS. 71,23,76,83 8/- ON T.P.ADJUSTMENT IN DRAFT ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO ALSO S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 4 NOTICED THAT THE ASSESSEE CLAIMED A SUM OF RS. 82,3 99/- ON ACCOUNT OF SAD WRITTEN OFF. WHEN CONFRONTED TO EXPLAIN THE CLAIM, THE AS SESSEE SUBMITTED THAT THE SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2010-1 1 WHICH WAS CONFIRMED BY THE DRP. THE AO THEREFORE, MADE THE SIMILAR DISALLO WANCE FOR THIS YEAR ALSO. THE AO PROPOSED THE DRAFT ASSESSMENT ORDER AND RECOMPUT ED THE INCOME AT RS. 105,03,22,510/- AS UNDER :- TOTAL INCOME AS PER RETURN FILED 33,78,63,271/- ADD:- TRANSFER PRICING ADJUSTMENT 71,23,76,838/- DISALLOWANCE OF SAD WRITTEN OFF 82,399/- TOTAL INCOME 1,05,03,22,508/- TOTAL INCOME (ROUNDED OFF U/S 288A) 1,05,03,22,510/ - 5. THE ASSESSEE FILED OBJECTION DATED 17.02.2015 TO THE DRAFT ASSESSMENT ORDER BEFORE THE DRP-II, NEW DELHI WHO VIDE ORDER DATED 1 5.12.2015 DIRECTED THE TPO TO EXCLUDE CERTAIN COMPARABLES FROM THE FINAL LIST OF COMPARABLES. THE AO GAVE THE EFFECT TO THE DIRECTIONS OF THE DRP AND WORKED OUT THE AMP ADJUSTMENT AT RS. 21,73,99,859/- AS AGAINST RS. 71,23,76,838/- PROPOS ED IN THE ORDER PASSED U/S 92CA(3) OF THE ACT. NOW THE ASSESSEE IS IN APPEAL. 6. DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THE ISSUE UNDER CONSIDERATION DESERV ES TO BE SET ASIDE TO THE TPO/AO AS THE ISSUE NOW HAS BEEN SETTLED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICA TIONS PVT. LTD. VS. CIT REPORTED AT 374 ITR 118 AND IN THE CASE OF MARUTI SUZUKI INDIA LTD. VS. CIT IN ITA NO. 110/214 AND 710/2015 ORDER DATED 11 DECEMBE R, 2015. IT WAS FURTHER SUBMITTED THAT THE AFORESAID ORDERS WERE NOT AVAIL ABLE TO THE T.P.O. / D.R.P. AT THE TIME OF PASSING OF THEIR RESPECTIVE ORDERS. IT WAS ALSO SUBMITTED THE TPO/AO/DRP S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 5 HAVE NOT BROUGHT ANY EVIDENCE ON RECORD TO DEMONSTR ATE THE EXISTENCE OF ANY MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN THE ASSE SSEE AND THE A.E. IT WAS STATED THAT THE DRP DECLINED TO APPLY THE DECISIONS OF M/S MARUTI SUZUKI INDIA LTD. VS. C.I.T. (SUPRA) ON THE GROUND THAT IT WAS GIVEN IN THE CONTEXT OF A MANUFACTURER AND NOT A DISTRIBUTOR, HOWEVER, SUBSEQUENT TO THE SAID DECISION THE HONBLE JURISDICTIONAL H.C. IN THE CASE OF WHIRLPOOL OF IND IA VS. DCOT IN I.T.A. 228/2015 & C.M.NO. 5751/2015 ORDER DATED 22.12.2015 AND IN T HE CASE OF BAUSCH & LOMB EYECARE (INDIA) PVT. LTD. VS. A.C.I.T. IN I.T.A. NO . 643 & 675/14 ORDER DATED 23.12.2015 EXAMINED THIS ASPECT AND APPLIED THE SAM E PRINCIPLE TO DISTRIBUTION BUSINESS AS WELL. IT WAS FURTHER SUBMITTED THAT DR P AND THE TPO FAILED TO GIVE ANY COGENT REASON FOR DE-BUNDLING THE AMP FUNCTION OF THE ASSESSEE AS A SEPARATE TRANSACTION WHICH IS IN VIOLATION OF THE PRINCIPLE S LAID DOWN IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD REPO RTED AT (2015) 55 TAXMAN.COM.240(DEL.) (SUPRA). 7. IN HIS RIVAL SUBMISSIONS, THE LD. DR ALTHOU GH SUPPORTED THE ORDER OF THE AO COULD NOT CONTROVERT THE AFORESAID CONTENTION OF TH E LD. COUNSEL FOR THE ASSESSEE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT IS AN ADMITTED FACT THAT THE T.P.O. PROPOSED THE ADJUSTMENT BY APPLYING THE BR IGHT LINE TEST, ON ACCOUNT OF EXCESSIVE AMP INCURRED BY THE ASSESSEE ON BEHALF OF THE A.E. BUT SUBSEQUENTLY THE D.R.P. HELD THAT THE APPLICATION OF BRIGHT LI NE TEST HAS BEEN OVER RULED IN THE CASE OF M/S. SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD. (SUPRA). HOWEVER, THE D.R.P. DECLINED TO APPLY THE DECISION OF MARUTI SUZUKI INDIA LTD. (SUPRA) ON THE GROUND THAT IT WAS RENDERED IN THE C ONTEXT OF A MANUFACTURER AND NOT A DISTRIBUTOR. RECENTLY, THE HONBLE DELHI HIGH COU RT, SUBSEQUENT TO THE SAID S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 6 DECISION OF MARUTI SUZUKI INDIA LTD. (SUPRA), EXAMI NED THIS ASPECT AND APPLIED THE SAME PRINCIPLE TO THE DISTRIBUTION BUSINESS ALSO IN THE CASES OF BAUSCH & LOMB EYECARE (INDIA) PVT. LTD. VS. A.C.I.T. (SUPRA) AND C.I.T. & ORS VS. WHIRLPOOL OF INDIA LTD. (SUPRA) VIDE ORDER DATED 23.12.2015 AND 22.12.2015 RESPECTIVELY. THESE DECISIONS OF THE HONBLE JURISIDCTIONAL COURT WHICH ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE WERE NOT CONSIDERED BY THE T.P.O. AND THE D.R.P. SINCE THESE WERE NOT AVAILABLE TO THEM. WE, THEREFORE, BY CONSID ERING THE TOTALITY OF THE FACTS AND THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE AFORESAID JUDICIAL PRONOUNCEMENTS, DEEM IT APPRECIATE TO SET ASIDE THE ISSUE RELATING TO THE ADJUSTMENT ON ACCOUNT OF AMP TO THE FILE OF THE TPO/AO TO BE DECIDED AFRESH IN ACCORDANCE WITH THE LAW AFTER PROVIDING DUE AND REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. THE NEXT ISSUE VIDE GROUND NO. 10 RELATES TO THE CLAIM OF WARRANTY EXPENSES. THE ONLY GRIEVANCE OF THE ASSESSEE RELATING TO THIS ISSUE IS THAT THE AO HAS NOT FOLLOWED THE DIRECTIONS GIVEN BY THE DRP WHILE DECI DING THIS ISSUE. IT IS NOTICED THAT THE OBJECTION OF THE ASSESSEE BEFORE THE DRP W AS THAT THE AO HAD NOT CORRECTED THE CLAIM OF WARRANTY EXPENSES MADE BY TH E ASSESSEE WITH RESPECT TO THE WARRANTY PROVISIONS WHILE COMPUTING THE TAXABLE PRO CESS. THE DRP DIRECTED THE AO TO VERIFY AND CORRECT, IF ANY ERRORS WERE DETEC TED. IT APPEARS THAT THE AO DID NOT FOLLOW THE SAID DIRECTIONS GIVEN BY THE D.R.P. RELATING TO WARRANTY CLAIM, THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF T HE AO TO BE DECIDED AFRESH AS DIRECTED BY THE DRP. 10. AS REGARDS TO GROUND NO. 11 IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT IT IS CONSEQUENTIAL IN NATURE, WE, ORDER AC CORDINGLY. S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 7 11. SINCE THE APPEAL OF THE ASSESSEE HAS BEEN DEC IDED, THEREFORE THE STAY APPLICATION NO. 121/DEL/2016 FOR THE ASSESSMENT YEA R 2011-12 BECOMES INFRUCTUOUS. ACCORIDNGLY, THE SAME IS DISMISSED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES AND THE STAY APPLICATION IS DISMISSED AS INFRUCTUOUS. (ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL, 2016.) SD/- SD/- ( BEENA A. PILLAI) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08/04/2016 *BINITA* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY ASSTT. REGISTRAR ITAT, NEW DELHI S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 8 SL. NO. DESCRIPTION DATE 1. DATE OF DICTATION BY THE AUTHOR 01.04.2016 2. DRAFT PLACED BEFORE THE DICTATING MEMBER 01.04.2016 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT APPROVED BY THE SECOND MEMBER 5. DATE OF APPROVED ORDER COMES TO THE SR. PS 6. DATE OF PRONOUNCEMENT OF ORDER 7. DATE OF FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 9 S.A. NO.121/DEL/2016 (IN ITA NO. 944/DEL/2016) 10