Income Tax Appellate Tribunal - Delhi
M/S Colaway Golf India Pvt. Ltd.,, Delhi vs Ito, New Delhi on 23 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I-2 : NEW DELHI
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.470/Del/2017
Assessment Year : 2012-13
Callaway Golf India Pvt. Ltd., Vs. ITO,
207-209, DLF Tower-A, Ward 5(3),
Jasola District Centre, New Delhi.
Sarita Vihar,
Delhi.
PAN: AADCC7557J
(Appellant) (Respondent)
Assessee By : Shri Kanchan Kaushal, &
Ms Shruti Khimta, Advocates
Department By : Shri H.S. Choudhary, CIT, DR
Date of Hearing : 22.08.2017
Date of Pronouncement : 23.08.2017
ORDER
PER R.S. SYAL, VP:
This appeal by the assessee is directed against the final assessment order dated 29.12.2016 passed by the Assessing Officer (AO) u/s 143(3) ITA No.470/Del/2017 read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2012-13.
2. The only issue assailed in this appeal is against the addition on account of transfer pricing adjustment on account of advertisement, marketing and promotion (AMP) expenses.
3. Briefly stated, the facts of the case are that the assessee is an indirect subsidiary of Callaway Golf Company and is engaged in the distribution of golf equipment, golf balls, packaged kits and accessories. The assessee reported one international transaction of `Purchase of finished goods' in Form No.3CEB with transacted value of Rs.59,24,242. The Assessing Officer referred the matter of determination of arm's length price (ALP) of this international transaction to the Transfer Pricing Officer (TPO). The TPO accepted that the international transaction of was at ALP. He, however, made transfer pricing adjustment from the international transaction of AMP expenses. This was done by making a protective addition applying bright line test. However, substantive addition was made by treating the entire AMP expenses incurred by the assessee as leading to 2 ITA No.470/Del/2017 brand promotion. Gross profit rate earned by the assessee was applied and added to such cost for determining the amount of substantive transfer pricing adjustment at Rs.4,32,34,167/-. The assessee challenged the draft order, incorporating the proposed transfer pricing adjustment, before the Dispute Resolution Panel (DRP). Apart from upholding the substantive transfer pricing adjustment made by the Assessing Officer, the DRP also directed the Assessing Officer to consider making adjustment on account of AMP intensity. The Assessing Officer, in the final order, made addition on account of transfer pricing adjustment on AMP expenses on substantive basis at Rs.4.32 crore. He also computed transfer pricing adjustment on protective basis at Rs.3.70 crore and computed total income at Rs.8.19 crore as under:-
Income as per return (including intt. On FDR Rs.6007/- Rs.16,33,420/- Add: Difference in ALP u/s 92CA of IT Act on substantive basis (as per draft order which has been upheld by the DRP and subsequently by the TPO in order dt. 28.12.2016. Rs.4,32,34,167/-
Add: Difference in ALP u/s 92CA of IT Act on
protective basis as per final order dt.
16.12.2016/28.12.2016 of TPO Rs.3,70,51,737/-
Total income Rs.8,19,19,324/-
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ITA No.470/Del/2017
4. The assessee is aggrieved against the additions so made.
5. We have heard the rival submissions and perused the relevant material on record. The ld. AR initially contended that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm's length price of this transaction or making any addition thereon. He relied on the judgments of the Hon'ble 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. It was submitted that there was no international transaction of AMP expenses on the basis of the principles laid down in these judgments and, hence, the entire exercise of determining its ALP and, ex consequenti, making the transfer pricing adjustment, be set aside.
6. In the oppugnation, the ld. DR, relied on the judgment of the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt.
Ltd. vs. CIT (2015) 374 ITR 118 (Del) in which AMP expenses have been 4 ITA No.470/Del/2017 held to be an international transaction and the matter of determination of its ALP has been restored. He also relied on a later judgment of the Hon'ble 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 Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expense is an international transaction has been restored for a fresh determination. It was argued, that the judgment in the case of Yum Restaurants and Sony Ericson (for AY 2010-11) delivered in January, 2016 is later in point of time to the earlier judgments in the case of Maruti Suzuki and Whirlpool, etc. and, hence, the matter should be restored for a fresh determination. It was further submitted that there is no blanket rule of the AMP expenses as a non-international transaction. He stated that the Hon'ble High Court in Whirlpool (supra) has made certain observations, which should be properly weighed for ascertaining if an international transaction of AMP expense, exists. It was argued that the Tribunal in several cases, including the assessee's own case for the preceding year, has restored this issue to the file of TPO to be decided afresh in the light of the 5 ITA No.470/Del/2017 judgment of the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del). He also relied on another judgment dated 28.1.2016 of the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expense is an international transaction, has been restored for a fresh determination. He still further referred to three later judgments of the Hon'ble 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 restored for fresh determination in the light of the earlier judgment in Sony Ericsson Mobile Communications India Pvt. Ltd. (supra). The ld. DR argued that the Hon'ble 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.
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7. We find that when the TPO held AMP expense to be an international transaction, he did not have any occasion to consider the ratio laid down in several judgments of the Hon'ble jurisdictional High Court, which is now available for consideration. We, therefore, set aside the impugned order and send the matter back to the A.O./TPO for deciding this issue afresh in light of the foregoing discussion. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in the resulting fresh proceedings.
8. It has been noticed above that the Assessing Officer has not only made addition amounting to Rs.4.32 crore on substantive basis, but also added the protective addition amounting to Rs.3.70 crore. In essence, both the protective and substantive additions have been made and the notice of demand has also been issued accordingly. It is, but, natural that when substantive addition is made, the protective addition cannot stand. In the given circumstances, we order for the deletion of protective addition made by the Assessing Officer to the tune of Rs.3.70 crore and odd. 7 ITA No.470/Del/2017
9. In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 23.08.2017.
Sd/- Sd/-
[SUCHITRA KAMBLE] [R.S. SYAL]
JUDICIAL MEMBER VICE PRESIDENT
Dated, 23rd August, 2017.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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