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Avon Beauty Products India Pvt. Ltd.,4th Floor, Tower-C,Global Business Park, Mehrauli Gurgaon Road, Gurgaon. Vs. ACIT, Circle 1(1), New Delhi.
November, 16th 2015
       IN THE INCOME TAX APPELLATE TRIBUNAL
           DELHI BENCHES : I-2 : NEW DELHI

BEFORE SHRI R.S. SYAL, AM AND MS SUCHITRA KAMBLE, JM

                       ITA No.5739/Del/2011
                      Assessment Year : 2007-08


Avon Beauty Products India Pvt. Ltd., Vs.      ACIT,
4th Floor, Tower-C,                            Circle 1(1),
Global Business Park,                          New Delhi.
Mehrauli Gurgaon Road,
Gurgaon.

PAN: AAACA5282H

  (Appellant)                                     (Respondent)


            Assessee By        :   Shri Nageswar Rao &
                                   Shri Shailesh Kumar, Advocates
            Department By      :   Shri Anand Kumar Kedia, CIT, DR

         Date of Hearing              :   12.11.2015
         Date of Pronouncement        :   13.11.2015

                               ORDER
PER R.S. SYAL, AM:
     This appeal by the assessee is directed against the final assessment

order passed by the Assessing Officer (AO) on 24.10.2011 u/s 144C
                                                         ITA No.5739/Del/2011


read with section 143(3) of the Income-tax Act, 1961 (hereinafter called

`the Act') in relation to the assessment year 2007-08.

2.   All the grounds taken in this appeal are against the addition of

Rs.1,26,78,625/- made by the AO on account of transfer pricing

adjustment.

3.   Briefly stated, the facts of the case are that the assessee is a

subsidiary of Avon International Operations, which is, in turn, a

subsidiary of Avon Products Inc., USA. Another Avon group company,

namely, Avon Overseas Capital Corporation holds the remaining 10%

shares of the assessee company. The assessee, an Indian company, is

primarily engaged in the business of marketing , sale and distribution of

Avon Beauty Products in India. Its activity is being done by direct sale

of cosmetics, beauty products, toiletries and fragrance products to

customers in India.     The assessee has also entered into contract

manufacturing agreements with local third party manufacturers, who

manufacture the finished products, such as, cosmetics, beauty products,

toiletries and fragrance products for the assessee. Seven international




                                    2
                                                          ITA No.5739/Del/2011


transactions were reported by the assessee in its Audit report in Form

No.3CEB, which include Import of beauty products for resale;

Rendering of professional support services; Payment of royalty; and

Availing of professional services. The assessee used different methods

for demonstrating that its international transactions were at arm's length

price (ALP). For example, the international transaction of Import of

beauty products for resale was processed for transfer pricing purposes

under `Resale Price Method'; Payment of royalty was done under the

`CUP' method; Rendering of professional support services was done

under the TNMM; and the Availing of professional services was, again,

done under TNMM. The controversy in the instant appeal is only on the

determination of the ALP of the international transaction of `Availing of

professional services' with transacted value at Rs.1,26,78,625/-. The

assessee used the TNMM, with its Foreign AE as a tested party, to

indicate that this transaction was at ALP. On a reference made by the

AO to the Transfer Pricing Officer (TPO), the latter required the

assessee to give details of the international transaction of `Availing of

professional services.' In response, the assessee submitted that it has
                                    3
                                                           ITA No.5739/Del/2011


availed Financial management services, Human resources services,

Legal services, Marketing services and Security services. A further

break-up of these services was given to the TPO. After considering the

submissions advanced on behalf of the assessee, the TPO noticed that

there were two broader issues in the analysis of transfer pricing of these

intra-group services, the first being whether intra-group services were, in

fact, provided and, second, whether charges for such services were at

ALP. He dealt with the first question first to determine whether any

intra-group services were rendered. After entertaining the assessee's

submissions, he came to hold that the claim of the assessee to have

received services was not acceptable inasmuch as the services so availed

were either in the nature of incidental benefits or duplication of services.

In the penultimate page of his order, the TPO observed that payment for

such services can be treated at ALP only when it is proved that the

services were actually received and that such received services benefited

the assessee. Further, rejecting the assessee's application of TNMM as

the most appropriate method, the TPO pressed into service the CUP

method for determining the ALP of this international transaction. Since
                                     4
                                                           ITA No.5739/Del/2011


such services were not required by the assessee in the opinion of the

TPO, he determined the ALP of this international transaction at Nil and

proposed transfer pricing adjustment for the full value of transaction. In

this process, he did not consider any comparable case. The AO, in the

draft order dated 23.12.2010, which runs into two pages, incorporated

the final decision of the TPO in determining the ALP of this

international transaction at Rs. Nil. That is how, an addition of Rs. 1.26

crore was proposed. The assessee objected to the draft order before the

Dispute Resolution Panel (DRP), but, without any success. The AO in

his final assessment order made an addition of Rs.1.26 crore by noticing

the decision taken by the TPO in proposing transfer pricing adjustment

to this extent. The assessee is aggrieved against this addition.

4.   We have considered the rival submissions and perused the relevant

material on record. It is observed that the TPO has computed the ALP

of the international transaction of `Availing of professional services' at

Nil by holding that the assessee did not avail any benefit of such services

and the services provided by the foreign AE were either incidental or


                                     5
                                                          ITA No.5739/Del/2011


duplicate and hence unwarranted. In doing so, he rejected the assessee's

adoption of TNMM as the most appropriate method and followed the

CUP method. Since, in his opinion, the assessee failed to provide any

evidence about the services rendered by the AE necessitating the

payment of such professional charges, he computed the ALP of this

international transaction at Rs. Nil. The AO in the draft order as well as

the final assessment order, has simply incorporated the conclusion of

the TPO in determining the ALP of this international transaction at Nil

without carrying out any independent analysis or evaluation as to

whether or not such intra-group services were required/availed by the

assessee.

5.   The Hon'ble Delhi High Court in the case CIT v. Cushman &

Wakefield (India) (P.) Ltd. (2014) 367 ITR 730(Del) has held that the

authority of the TPO is limited to conducting transfer pricing analysis

for determining the ALP of an international transaction and not to decide

if such services exist or benefits did accrue to the assessee. Such later

aspects have been held to be falling in the exclusive domain of the AO.


                                    6
                                                          ITA No.5739/Del/2011


In that case, it was observed that the E-mails considered by tribunal from

Mr. Braganza and Mr. Choudhary dealt with specific interaction and

related to benefits obtained by assessee, providing a sufficient basis to

hold that benefit accrued to assessee. Since the details of specific

activities for which cost was incurred by both AEs (for activities of Mr.

Braganza and Mr. Choudhary), and attendant benefits to assessee were

not considered, the Hon'ble High Court remanded the matter to file of

concerned AO for an ALP assessment by TPO, followed by AO's

assessment order in accordance with law considering the deductibility or

otherwise as per section 37(1) of the Act.

6.   When we advert to the facts of the instant case, it is found that the

TPO proposed the transfer pricing adjustment with Nil ALP of the

international transaction of payment made for `Availing of professional

services' on the ground that no evidence was furnished about any

services rendered by the foreign AE and further no cost benefit analysis

on account of such services was brought to his notice and as such the

services were not required by it. The AO in his draft order/final





                                    7
                                                          ITA No.5739/Del/2011


assessment order dated 23.12.2010/24.10.2011 has taken the ALP at Nil

on the basis of recommendation of the TPO without carrying out any

independent investigation in terms of the deductibility or otherwise of

such payment in terms of section 37(1) of the Act. As per the ratio

decidendi of Cushman & Wakefield India (P.) Ltd. (supra), the TPO

was required to simply determine the ALP of this transaction

unconcerned with the fact, if any benefit accrued to the assessee and

thereafter, it was for the AO to decide the deductibility of this amount

u/s 37(1) of the Act.

7.    Since the authorities below have acted in contradiction to the ratio

laid down in Cushman & Wakefield (supra), we set aside the impugned

order on this score and remit the matter to the file of AO/TPO for

deciding it in conformity with the law laid down by the Hon'ble

jurisdictional High Court in the case of Cushman & Wakefield (India)

(P.) Ltd. (supra).

8.   Before parting with this appeal, we want to make it clear that we

have desisted from examining the correctness of any aspect of

                                    8
                                                              ITA No.5739/Del/2011


determination of ALP of this international transaction, such as, the most

appropriate method and comparables etc. because the matter is being

sent to the AO/TPO for redoing in accordance with the judgment in the

case of Cushman & Wakefield (India) (P.) Ltd. (supra). Now the ball is

in the court of the lower authorities to independently do the needful as

per this judgment.

9.    In the result, the appeal is allowed for statistical purposes.

          The order pronounced in the open court on 13.11.2015.

               Sd/-                                          Sd/-

[SUCHITRA KAMBLE]                                   [R.S. SYAL]
 JUDICIAL MEMBER                                ACCOUNTANT MEMBER

Dated,13th November, 2015.
dk
Copy forwarded to:
     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                                   AR, ITAT, NEW DELHI.
                                       9

 
 
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