Grohe India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 958/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3383 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 06-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.479/DEL./2015 (ASSESSMENT YEAR : 2010-11) ITA NO.958/DEL./2016 (ASSESSMENT YEAR : 2011-12) M/S. GROHE INDIA PRIVATE LTD., VS. ACIT, CIRCLE 10 (2), C/O PERFECT ACCOUNTING AND SHARED NEW DELHI. SERVICES PRIVATE LIMITED, E 20, FIRST AND SECOND FLOOR, HAUZ KHAS, NEW DELHI. (PAN : AACCG6062B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KANCHUN KAUSHAL, CA MS. SHRUTI KHIMTA,ADVOCATE REVENUE BY : SHRI AMRENDRA KUMAR, CIT DR DATE OF HEARING : 06.04.2017 DATE OF PRONOUNCEMENT : 06.04.2017 O R D E R PER R.S. SYAL, VP: THESE TWO APPEALS FILED BY THE ASSESSEE RELATE TO T HE ASSESSMENT YEARS 2010-11 AND 2011-12. SINCE COMMON ISSUES ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 2 ARE RAISED IN THESE APPEALS, WE ARE, THEREFORE, DIS POSING THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIE NCE. ASSESSMENT YEAR 2010-11 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS AGAINST THE ADDITION OF RS.3,55,87,494 MADE BY THE AO ON AC COUNT OF TRANSFER PRICING ADJUSTMENT OF ADVERTISING, MARKETI NG AND PROMOTION EXPENSES (AMP EXPENSES). 3. THE LD. AR SUBMITTED THAT THE INCURRING OF AM P EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF T HIS TRANSACTION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE J UDGMENTS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE J UDGMENTS AND SOME OTHER TRIBUNAL ORDERS, IT WAS SUBMITTED THAT T HERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BA SIS OF PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 3 EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, MAKING TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 4. BEFORE TAKING UP THE ISSUE, IT IS RELEVANT T O SUMMARILY MENTION THAT THE LD. AR ARGUED THE ISSUE OF AMP EXP ENSES ON SIMILAR LINES AS HAS BEEN ARGUED IN DIFFERENT CASES , INCLUDING THE CASE OF REEBOK INDIA COMPANY VS. DCIT (ITA NO. 954/DEL/2016 FOR THE AY. 2011-12), WHICH WAS ARGUED BY THE LD. A R HIMSELF AND NIKON INDIA PVT. LTD. VS. DCIT (2016) 47 CCH 0458 D ELTRIB CONTENDING THAT THE INCURRING OF AMP EXPENSES IS NO T AN INTERNATIONAL TRANSACTION. THE TRIBUNAL VIDE ITS OR DER DATED 20.3.2017 IN REEBOK (SUPRA) AND 15.7.2016 IN THE CASE OF NIKON (SUPRA) HAS NOT ACCEPTED SUCH CONTENTION AT ITS LEVEL AND REMITTED THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERM INATION. 5. THE LD. DR, SIMILAR TO REEBOK (SUPRA) AND NIKONS CASE (SUPRA), ALSO RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRANSACTION AND TH E MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. IT WAS CONTENDED THAT ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 4 THE INSTANT ASSESSEE IS A DISTRIBUTOR AND HENCE COV ERED BY THE RATIO OF THE JUDGMENT BY THE HONBLE HIGH COURT IN THE C ASE OF SONY ERICSON MOBILE COMMUNICATIONS (SUPRA) . HE ALSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONB LE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WH ETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION HAS BEEN RE STORED FOR A FRESH DETERMINATION. IT WAS ARGUED, SIMILAR TO REEBOK AND NIKONS CASE (SUPRA), THAT THE JUDGMENT IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON ( FOR THE AY 2010-11) DELIVERED IN JANUARY, 2016 IS LATER IN POINT OF TIME TO THE EARLIER JUDGM ENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. , AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. SIMI LAR TO REEBOK AND NIKONS CASES (SUPRA) , IT WAS SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON-INTERNATI ONAL TRANSACTION. HE FURTHER STATED THAT THE HONBLE HI GH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 5 BE PROPERLY WEIGHED FOR ASCERTAINING IF AN INTERNAT IONAL TRANSACTION OF AMP EXPENSES EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGME NT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS . HE ALSO RELIED ON STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. SIMILAR TO REEBOK AND NIKONS CASES (SUPRA), HE STILL FURTHER REFERRED TO THREE LATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS 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 R ESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JU DGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUP RA) . THE LD. ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 6 DR ARGUED THAT THE HONBLE DELHI HIGH COURT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS A MATTER OF RECO RD THAT THE HONBLE HIGH COURT IN SONY ERICSSON (SUPRA) HAS HELD AMP EXPENSES AS AN INTERNATIONAL TRANSACTION. IT CAN BE SEEN THAT IN SOME LATER DECISIONS, VIEW TAKEN IS AT VARIANCE. E QUALLY, THE TRIBUNAL IS ALSO NOT CONSISTENT IN ITS STAND. WHEN THE TPO IN THE INSTANT CASE HELD AMP EXPENSES TO BE AN INTERNATION AL TRANSACTION, HE DID NOT HAVE ANY OCCASION TO CONSID ER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURIS DICTIONAL HIGH COURT, WHICH IS NOW AVAILABLE FOR CONSIDERATION. RE SPECTFULLY FOLLOWING THE PREDOMINANT VIEW TAKEN IN SEVERAL TRI BUNAL ORDERS OF CO-ORDINATE BENCHES, WE ARE OF THE CONSIDERED OP INION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED O RDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FO R A FRESH ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 7 DETERMINATION OF THE QUESTION AS TO WHETHER THERE E XISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, TH E MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FO UND TO BE EXISTING, THEN THE TPO WILL DETERMINE THE ALP OF SU CH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEV ANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SIMILAR VIEW HAS B EEN RECENTLY TAKEN BY THE DELHI TRIBUNAL IN ITS ORDER DATED MARC H, 2017 IN THE CASE OF LOUIS VUITTON INDIA RETAIL P. LTD. VS. DCIT (ITA NO.775/MUM/2015) . 7. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS AG AINST THE ADDITION AMOUNTING TO RS.16,72,848/- ON ACCOUNT OF DIFFERENCE IN THE CLOSING STOCK VALUATION AS PER SECTION 145A OF THE ACT ON ACCOUNTING OF NON-INCLUSION OF SPECIAL ADDITIONAL D UTY (SAD). 8. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSES SEE VALUED ITS STOCK ON `EXCLUSION METHOD OF VALUATION', THAT IS, WITHOUT INCLUDING THE EFFECT OF ANY TAX, DUTY OR CESS ETC. THE AO INVOKED ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 8 THE PROVISIONS OF SECTION 145A AND HELD THAT THE AM OUNT OF DUTY OUGHT TO HAVE BEEN INCLUDED IN THE VALUATION OF CLO SING STOCK. THAT IS HOW, HE REDRAFTED THE ASSESSEES TRADING AC COUNT BY INCLUDING VAT/SAD ETC. IN THE VALUE OF CLOSING STOC K. THIS RESULTED INTO AN ADDITION AMOUNTING TO RS.16,72,848 /-. THE ASSESSEE IS AGGRIEVED AGAINST THE INCLUSION OF SAD IN THE VALUE OF CLOSING STOCK ONLY. 9. HAVING HEARD BOTH SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSMENT YEAR U NDER CONSIDERATION IS 2010-2011. SECTION 145A, WHICH WA S INSERTED BY THE FINANCE (NO.2) ACT, 1998 WITH EFFECT FROM 1. 4.1999, HAS BEEN MADE APPLICABLE FROM THE ASSESSMENT YEAR 1998- 1999. IT PROVIDES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOM E CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTED TO IN CLUDE THE AMOUNT OF ANY TAX, DUTY, CESS ETC. PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AS ON THE DATE OF ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 9 VALUATION. ACCORDING TO THE PRESCRIPTION OF THIS SE CTION, WHICH IS APPLICABLE TO THE YEAR UNDER CONSIDERATION, THE AMO UNT OF TAX, DUTY, CESS ETC. IS LIABLE TO BE INCLUDED IN THE VAL UE OF PURCHASES, SALES, OPENING AND CLOSING STOCK. IT IS NOT APPROPR IATE TO INCLUDE THE FIGURE OF SAD ONLY IN THE FIGURE OF CLOSING STO CK WITHOUT MODIFYING THE FIGURES OF PURCHASES, SALES AND OPEN ING STOCK. THE HONBLE DELHI HIGH COURT IN CIT VS. MAHAVIR ALLUMINIUM (2008) 297 ITR 77 (DEL.) AND THE HONBLE BOMBAY HIGH COURT IN CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. (2009) 318 ITR 116 (BOM.) HAVE HELD TO THIS EXTENT. AS THE AO HAS NOT ADJUSTE D ALL THE RELEVANT FIGURES WITH THE AMOUNT OF TAX, DUTY, CESS ETC., WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF A.O. FOR DECIDING IT AFRESH IN ACCORDANCE WITH THE AFORE-NOTED JUDGEMENTS AND THE PROVISIONS OF SECTION 145A. NEED LESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNI TY OF HEARING IN THIS REGARD. 10. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ASSESSMENT YEAR 2011-12 ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 10 11. ONLY TWO ISSUES RAISED IN THIS APPEAL ARE CHALL ENGE TO THE TRANSFER PRICING ADDITION OF RS.1,83,92,706/- ON AC COUNT OF AMP EXPENSES AND ADDITION OF RS.84,73,680/- UNDER SECT ION 145A. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF BOTH THE GROUNDS FOR THE INSTANT YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE PRECEDING YEAR. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER ON BOTH THE SCORES AND REMIT THEM TO THE FILE OF AO TO BE DECIDED AFRESH IN ACCORDANCE WITH THE OBSERVATIONS MADE ABOVE IN DECIDING THE APPEAL FOR THE IMMEDIATELY PRECEDIN G YEAR. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF HEARING. 13. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 6 TH DAY OF APRIL, 2017. SD/- SD/- (SUCHITRA KAMBLE) (R.S. SYAL) JUDICIAL MEMBER VICE PRESID ENT DATED THE 6 TH DAY OF APRIL, 2017 TS ITA NO.479/DEL./2015 ITA NO.958/DEL./2016 11 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.