Income Tax Appellate Tribunal - Delhi
Daikin Airconditioning India Pvt. ... vs Dcit, New Delhi on 17 April, 2017
1 ITA Nos. 5090/Del/2010, 5685/Del/2011
ita
& 6339/Del/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'I-1' NEW DELHI
BEFORE SHRI R. S. SYAL, VICE PRESIDENT
AND
SMT SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No.-5090/Del/2010 (A.Y 2006-07)
I.T.A .No.-5685/Del/2011 (A.Y 2007-08)
I.T.A .No.-6339/Del/2012 (A.Y 2008-09)
Daikin Air-conditioning India Pvt. vs ACIT
Ltd. F-25/2, Okhla Industrial Area, Circle 10(1), Room No. 406,
Phase-II 4th Floor, C. R. Building
New Delhi New Delhi
AABCD0971F
(APPELLANT) (RESPONDENT)
Appellant by Sh. Vishal Kolra,
Sh. Gaurav Gupta,
Ms. Khayati Dadwal, Advs.
Respondent by Sh. Amrendra Kumar, CIT DR
Date of Hearing 12.04.2017
Date of Pronouncement 17.04.2017
ORDER
PER SUCHITRA KAMBLE, JM
These three appeals are filed by the assessee against the orders of the Assessing Officer passed u/s 143(3) read with Section 144C (13) of the Income-tax Act, 1961 for Assessment Year 2006-07, 2007-08 & 2008-09.
2 ITA Nos. 5090/Del/2010, 5685/Del/2011ita & 6339/Del/2012
2. During the course of hearing the Ld. AR submitted that the Hon'ble Delhi High Court vide order dated 27th July 2016 has remanded the issue regarding the existence of international transaction involving AMP expenses between the assessee and its AE to the ITAT. The Ld. AR further submits that as per the instructions from the assessee/client he is requesting for remand of this issue before the TPO/A.O for determining the existence of international transactions involving AMP expenses. He further submitted that selling expenses should not be considered within the ambit of AMP. For Assessment Year 2007-08 & 2008-09, the Ld. AR submitted that on the legal issue it is covered against the assessee by the Hon'ble High Court judgment in case of Sony Ericson Mobile Communication Pvt. Ltd. vs. CIT (374 ITR 118) but for determining the international transaction as relates to AMP expenses, the factual aspect has to be determined by the TPO. Therefore, the matter needs to be remanded back.
3. The Ld. DR did not object for these submissions of remanding the matter before the TPO/A.P for determining the existence of international transactions involving AMP expenses between the assessee and the A.E. The Ld. DR further submitted that the judgment of Hon'ble Delhi High Court CIT Vs. M/s. Cushman and Wakefield (India) Pvt. Ltd. (2015) 233 Taxman 250 may be considered while determining the selling expenses within the ambit of AMP.
4. The factual aspect of the appeals for the three years as per the Ld. AR are recorded as follows:
Assessment Year 2006-07 4.1. The assessee entered into the following international transactions with its AEs, which were duly accepted to be at arm's length price by the TPO/AO:3 ITA Nos. 5090/Del/2010, 5685/Del/2011
ita & 6339/Del/2012 S. Transfer Pricing Value Action of No. International Transactions Method (INR) the TPO/ AO Import of finished goods and spare 1 TNMM 57,59,03,678 for distribution 2 Import of tools and equipment TNMM 1,446,78,183 3 Commission received on direct TNMM 10,64,39,135 sales by DIL TPO/ AO 4 Payment of technical fee TNMM 91,35,000 accepted the 5 Payment of royalty TNMM 25,98,620
- arm's length 6 Reimbursement of warrants 1,62,30,708 price of the 7 Reimbursement of commission TNMM 2,35,004 transaction 8 Payment of seminar expenses TNMM 2,32,920 9 Reimbursement of freight charges - 8,81,893 10 Other recoverable TNMM 2,97,946 11 Cost reimbursement TNMM 83,87,418 12 Consultancy services TNMM 48,51,450 4.2. The transaction pertaining to import of finished goods for distribution was accepted at arm's length based on the following comparability analysis:
S No Company Name Weighted Average GP/Sales (%)
1. ACI Infocom Limited 0.12
2. Business Link Automation (India) Limited 1.59
3. Compuage Infocom India Limited 1.89
4. Control Print (India) Limited 19.81
5. Iris Computers Limited 1.41
6. Kilburn Office Automation Limited (0.11)
7. Media Video Limited 7.89
8. Priya Limited 0.96
9. Usha International Limited 1.70
10. Videocon Industrial Finance Limited 0.05 Mean 3.53 4 ITA Nos. 5090/Del/2010, 5685/Del/2011 ita & 6339/Del/2012 4.3. However, the TPO observed that the assessee had incurred excessive AMP Expenditure by applying the 'Bright Line Test', wherein the TPO selected 7 out of the 10 comparable companies selected by the Assessee:
Company name AMP/ Sales As per TPO
Order (%)
Business Link Automation (India) Limited 0.42
Control Print (India) Limited 0.64
Iris Computers Limited 0.60
Kilburn Office Automation Limited 2.92
Media Video Limited 1.28
Priya Limited 0.45
Usha International Limited 15.01
Mean 3.05
4.4. The assessee filed an appeal before the Income Tax Appellate Tribunal ("ITAT"). The ITAT, following the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson 374 ITR 118 and decision of the coordinate bench of the ITAT in the case of Toshiba India TS-226-
ITAT-2015, set-aside the impugned order and restored it back to the files of the TPO / AO for determination of the ALP of the international transaction of the AMP spend by the assessee, vide order dated October 8, 2015.
4.5. Aggrieved by the order of the ITAT, the Assessee filed an appeal before the Hon'ble Delhi HC. The HC vide order dated July 27, 2016 held that the ITAT has not rendered any categorical finding on the central issue of existence of international transaction between Assessee and its AE involving AMP expenses. Accordingly, the HC remanded the matter back to the file of the ITAT, to first decide the question regarding the existence of international transaction with the direction that the Tribunal shall not remand the matter to lower authorities for decision.
5 ITA Nos. 5090/Del/2010, 5685/Del/2011ita & 6339/Del/2012 4.6. Exclusion of direct selling expenses from AMP expenditure for the purpose of determination of ALP, as per the directions of the Delhi HC in Sony Ericsson 374 ITR 118 Particulars Amount (INR) Sales Commission (Refer pg 281 vol 1 of PB) 60,660,239 Publicity & Sales Promotion (Refer pg 281 Vol 1 of PB) 40,301,259 Total AMP considered by TPO 100,961,498 Less: Sales Commission 60,660,239 Less: Selling and Dealer incentive 15.491250 AMP without direct selling expenses ( 24,810,009 ) Assessment Year 2007-08 4.7 The Assessee entered into the following international transactions with its AEs:
International Transactions Transfer Pricing Value of transaction Action of the Method / PLI (INR) TPO / AO Import of finished goods and spare TNMM 72,81,15,693 for distribution NP/Sales Import of tools and equipment TNMM 38,16,053 NP/Sales TPO/ AO TNMM accepted the Commission received on direct sales (Market support services) NP/Total Cost 6,54,87,184 arm's length price of the Payment of technical fee TNMM 17,35,906 transaction NP/Sales Reimbursement of training TNMM 1,70,89,777 expenses, freight charges, etc. NP/Sales Reimbursement of warranty claims - 1,97,96,770 4.8 The transaction pertaining to import of finished goods for distribution was accepted at arm's length based on the following comparability analysis:6 ITA Nos. 5090/Del/2010, 5685/Del/2011
ita & 6339/Del/2012 SNo Company Name Weighted Average (%) NP/Sales
1. ACI Infocom Limited -1.89
2. Business Link Automation (India) Limited 7.3
3. Compuage Infocom India Limited 3.21
4. Kilburn Office Automation Limited 14.63
5. Media Video Limited 8.23
6. Priya Limited 1.43
7. Iris Computers Limited 1.26
8. Control Print (India) Limited 15.87
9. Usha International Limited 3.67
10. SES Technologies Limited 0.74 Mean (%) 5.43 4.9 However, the TPO observed that the Assessee had incurred excessive AMP Expenditure by applying the 'Bright Line Test' wherein he selected 7 out of the 10 comparable companies selected by the Assessee Company name AMP/ Sales - as per TPO Order (%) ACI Infocom limited 0.44% Business Link Automation (India) Limited 1.51% Compuage Infocom India Limited 0.00% Kilburn Office Automation Limited 1.07% Priya Limited 0.08% Iris Computers Limited 0.56% Control Print (India) Limited 1.00% Mean 0.66% 4.10 The Assessee preferred an appeal before the Income Tax Appellate Tribunal ("ITAT") and the ITAT vide order dated July 31, 2013, followed the Special Bench decision in the case of L.G. Electronics; [2013] 22 ITR(T) 1 and granted partial relief by excluding sales commission amounting to INR 7,79,07,784 at the threshold itself. However, the legal issues in respect of AMP expenses were decided against the Appellant.
4.11 Aggrieved by the ITAT order, the Assessee filled an appeal before the 7 ITA Nos. 5090/Del/2010, 5685/Del/2011 ita & 6339/Del/2012 Delhi High Court ("HC") and the HC vide judgment dated March 16, 2015 in the case of Sony Ericsson; 374ITR118 remanded the matter back to the ITAT for de novo consideration on the basis of legal principles laid down in the said decision.
AMP Expenditure to be considered by applying the HC principles:
Particulars Amount (INR)
7,27,88,356
Publicity & Sales Promotion (Refer page No. 476 Vol 2 PB) Sales Commission (B) (Refer Page 476 Vol 2 PB) 7,79,07,784 Total AMP considered by the TPO (C) = (A+B) 15,06,96,140 Less: Sales Commission (77,907,784) Less: Selling and dealer incentives (24,239,105) Total AMP to be considered by applying HC principles 48,549,251 Assessment Year 2008-09 4.12 The Assessee entered into the following international transactions with its AEs :
Transfer Pricing Value of Action of the International Transactions Method / PLI transaction TPO / AO (INR) Import of air conditioners and spare TNMM 98,37,35,533 parts OP/OR Management and technical training TNMM 13,90,100 services OP/OR Receipt of consultancy services TNMM TPO/ AO 89,02,817 OP/OR accepted the Import of fixed assets TNMM arm's length 29,03,096 OP/OR price of the Market support and maintenance TNMM transaction 9,29,91,747 services OP/OC Reimbursement of expenses NA 1,68,00,247 Recovery of expenses NA 2,39,33,406 8 ITA Nos. 5090/Del/2010, 5685/Del/2011 ita & 6339/Del/2012 4.13 The transaction pertaining to import of finished goods for distribution was accepted at arm's length based on the following comparability analysis:
S No Company Name Weighted Average (%) OP/OR
1. Bajaj Electricals Limited 9 08
2. Khaitan (India) Limited 8.84
3. Media Video Limited 8.25
4. Modi Hoover International Limited 2.91
5. Usha International Limited 10.40 Mean (%) 7.89 4.14 However, the TPO observed that the Assessee had incurred excessive AMP Expenditure by applying the 'Bright Line Test', wherein 3 comparable companies were selected for application of bright line:
Company name AMP/ Sales - as per TPO Order (%) Kilburn Office Automation Limited 1.07 Priya Limited 0.24 Vivek Limited 3.99 Mean (%) 1.77 4.15 The Assessee preferred an appeal before the Income Tax Appellate Tribunal ("ITAT") and the ITAT vide order dated July 31, 2013, followed the Special Bench decision in the case of L.G. Electronics 22 ITR(T) 1 and granted partial relief by excluding sales commission amounting to INR 9,73,58,499 at the threshold itself. However, the legal issues in respect of AMP expenses were decided against the Assessee.
4.16 Aggrieved by the ITAT order, the Assessee filed an appeal before the Delhi High Court ("HC") and the HC vide judgment dated March 16, 2015 in the case of Sony Ericsson 374 ITR118 remanded the matter back to the ITAT for de novo consideration on the basis of legal principles laid down in 9 ITA Nos. 5090/Del/2010, 5685/Del/2011 ita & 6339/Del/2012 the said decision.
AMP Expenditure to be considered by applying the HC principles:
Particulars Amount (INR)
Publicity & Sales Promotion (A) (Refer Page 270 of PB) 8,10,18,516
Sales Commission (B )(Refer page No. 270 of PB) 9,73,58,499
178,377,015
Less: Sales Commission (97,358,499)
Less: Selling and dealer incentives (33,802,245)
Total AMP to be considered by applying HC principles 47,216,271
5. We have heard both the sides and perused all the records. As per the Hon'ble Delhi High Court's direction given in an appeal by the assessee, while remanding back the matters before the ITAT, the Hon'ble High Court in Para 12
(b) directed ITAT to itself decide the question regarding the existence of an international transaction involving AMP Expenses between the assessee and its AE. The Ld. AR fairly, at the outset, accepting that the decision on the question of AMP as an international transaction requires in-depth analysis of a large numbers of documents and facts, therefore, requested that the matter be restored to the TPO for decision. The Ld. DR also supported the Ld. AR in this regard. As such, we are accepting this submission and remanding the matter relating to the existence of international transaction to the TPO/AO. The TPO/AO is further directed that selling expenses should not be considered within the ambit of AMP. The Ld. AR's contention in the tabulated form for Annexure 3 annexed to his submissions for all the years has to be considered by the TPO/AO. For Assessment Year 2007-08 & 2008-09 though the Hon'ble High Court in case of Sony Ericson Mobile Communication India Pvt. Ltd. has decided the legal issue against the assessee, the factual aspect related to international transaction related to AMP in assessee's case has to be dealt with by the TPO/AO. Therefore, the issue related to these three appeals filed by the 10 ITA Nos. 5090/Del/2010, 5685/Del/2011 ita & 6339/Del/2012 assessee are remanded back to the TPO/A.O for deciding as per the directions given hereinabove.
6. In result, all the three appeals are partly allowed for statistical purposes.
Order pronounced in the Open Court on this 17th Day of April, 2017.
Sd/- Sd/-
(R. S. SYAL) (SUCHITRA KAMBLE)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 17/04/2017
R. Naheed *
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date
1. Draft dictated on PS
12/04/2017
2. Draft placed before author PS
12/04/2017
3. Draft proposed & placed before .2017 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the 17.04.2017 PS/PS
11 ITA Nos. 5090/Del/2010, 5685/Del/2011
ita
& 6339/Del/2012
Sr.PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 17.04.2017 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.