ITA No. 8060/Del/2018
Casio India Company Pvt. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: Bench `I-1', NEW DELHI
BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER
AND SMT. BEENA A PILLAI, JUDICIAL MEMBER
ITA No. 8060/Del/2018
AY: 2014-15
Casio India Company Pvt. Ltd. vs. DCIT
New Delhi Circle- 5(2)
New Delhi
PAN: AAACC3448H
(Appellant) (Respondent)
Appellant by : Sh. Nageswar Rao, Parth &
Sandeep S. Karhail, Adv.
Respondent by : Sh. Sanjay I Bara, CIT(D.R.)
Date of Hearing : 17/01/2019
Date of Pronouncement : 24/01/2019
ORDER
PER BEENA A PILLAI, JUDICIAL MEMBER
Present appeal has been filed by assessee against the final
assessment order dated 30/10/18 passed by Ld. DCIT, circle 5
(2), New Delhi on following grounds of appeal:
GROUNDS OF APPEAL
Based on the facts and circumstances of the case, Casio India Company
Private Limited (hereinafter referred to as `the Appellant') respectfully
craves leave to prefer an appeal under section 253(1 )(d) of the Income-tax
Act, 1961 (hereinafter referred to as `Act'), against the order dated 31
October 2018 (received by Appellant on 15 November 2018) by the Deputy
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Casio India Company Pvt. Ltd.
Commissioner of Income Tax, Income Tax Circle 5(2) (hereinafter referred
to as the learned `AO') under section 143(3) read with section 144C of the
Act in pursuance of the directions dated 17 September 2018 issued by the
Hon'ble Dispute Resolution Panel (hereinafter referred to as `DRP'), on the
following grounds, which are independent of and without prejudice to
each other.
General Grounds:
1. That on facts and circumstances of the case, Learned Assessing Officer
("Ld. AO")/ Learned Transfer Pricing Officer (`Ld. TPO')/ Hon'ble Dispute
Resolution Panel (`Hon'ble DRP') erred in making transfer pricing
adjustment of I NR 8,25,69,766 (on protective basis) to the total income of
the Appellant under section 92CA(3) of the Act in respect of the
"advertising and marketing expenses" (`AMP expenses') incurred by the
Appellant
Grounds related to validity of proceedings
2. That on the facts and circumstances of the case and in law, the
impugned order passed by Ld. AO/ Ld. TPO computing the total income at
INR 23,44,52,284 is blatantly erroneous since adjustment based on a
protective assessment has been added by the Ld. AO in computing the
total income of the Appellant. While doing so, the Ld. AO has not followed
the directions of Hon'ble DRP mentioning that no demand to be computed
on protective adjustment.
3. That on the facts and circumstances of the case and in law, the final
assessment order passed under section 143(3) read with section 144C of
the Income Tax Act, 1961 ("the Act") by the Ld. AO is bad in law as the
same is not in accordance with the provisions of the Act.
Grounds in relation to treatment of AMP as an international
transaction:
4. That on the facts and circumstances of the case, Ld. TPO/Ld.
AO/Hon'ble DRP have erred in holding the AMP expenditure incurred by
the Appellant, as an `international transaction' u/s 92B of the Act,
disregarding the findings of the Hon'ble Delhi High Court in the case of
Maruti Suzuki India Ltd., Whirlpool of India Ltd., Bausch & Lomb Eye
Care India Pvt. Ltd and Honda Siel Power Products Ltd., etc.
5. That, on facts and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO erred in
treating/ upholding the AMP expenses as an `international transaction',
misinterpreting the decision of the Hon'ble Delhi High Court in the case of
Sony Ericsson Mobile Communications India Pvt. Ltd; without appreciating
the business model and functional profile of the appellant.
5.1 That the Hon'ble DRP/ Ld. TPO/ Ld. AO resorted to the provisions of
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Casio India Company Pvt. Ltd.
Section 92F (v) of the Act and failed to show the existence of an
`understanding' or an `arrangement' or `action in concert' between the
appellant and its AEs with regard to AMP spend byJbe, appellant in
India.
5.2 That, on facts and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO has failed
to appreciate the fact that any benefit to AE from AMP expenditure in
India is purely incidental in nature and does not constitute an
international transaction, disregarding the findings of the Hon'ble Delhi
High Court in the case of Whirlpool of India Ltd.
5.3 That, on facts and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO has erred
in concluding that the appellant has incurred non-routine AMP
expenditure and performed `DEMPE' (``Development, Enhancement,
Maintenance, Protection and Exploitation") related function leading to
creation of marketing intangibles for the AE without providing any
evidence in support of this contention.
5.4 That, on facts and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO have
erred in attributing additional revenues to the assesse from the
"Exploitation" of the intangibles (without prejudice to appellant's
contention that expenditure on AMP does not create any non-routine
intangibles), without appreciating the fact that all the revenues from
exploitation of the intangibles (sales in India) are earned by the assesse
only, and that there is no further revenue from the intangibles, which
could be attributed to the assesse.
6. That the Hon'ble DRP/ Ld. TPO/ Ld. AO have erred in re-
characterization of AMP expenditure incurred by Appellant as rendition of
advertisement and brand promotion services to its overseas associated
enterprises and without satisfying the criteria of re-characterization as
laid out in various judicial precedents.
7. That the Hon'ble DRP/ Ld. TPO/ Ld. AO disregarding the findings of the
Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd and Sony
Ericsson Mobile Communications India Pvt. Ltd., failed to appreciate that
once the appellant has satisfied arm's length basis using Transactional
Net Margin Method ("TNMM") i.e. operating margin of the appellant is more
than the operating margin of comparable companies, no further separate
adjustment for AMP expenditure is warranted.
Grounds in relation to Protective adjustment using Bright Line approach
8.The Hon'ble DRP/ Ld. TPO/ Ld. AO have grossly erred in applying
Bright Line Test (`BLT') for computing adjustment on protective basis on
account of AMP, disregarding the principles laid by the Hon'ble Delhi High
Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd
and subsequently followed in case of Maruti Suzuki India Ltd., which
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Casio India Company Pvt. Ltd.
rejected the application of BLT.
9. The Hon'ble DRP/ Ld. TPO/ Ld. AO have erred by not providing set-
off against appellant's distribution margins while using the de-bundled
approach to benchmark AMP expenditure, as directed by the Hon'ble High
Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd.
10. The Hon'ble DRP/ Ld. TPO/ Ld. AO have erred in quantifying AMP
expenses by considering certain selling and distribution expenses while
performing arm's length analysis without giving cogent reasons for the
purpose of benchmarking alleged AMP expenditure, disregarding the
principles and findings laid down by the Hon'ble High Court in the case of
Appellant.
11. The Hon'ble DRP/ Ld. TPO/ Ld. AO have erred in levying a further
mark-up of service providers on AMP expenses for determination of the
arm's length price of the alleged brand-promotion services rendered by
the Appellant to its AEs and Hon'ble DRP erroneously upheld the
approach of the Ld. TPO/Ld. AO.
12. The Hon'ble DRP/ Ld. TPO/ Ld. AO have erred in making
inappropriate selection of comparable companies for the mark-up on
alleged AMP expenditure while computing adjustment in protective
assessment and Hon'ble DRP erroneously upheld the approach of the Ld.
TPO/AO.
Other Grounds
13. That the Ld. TPO has arbitrarily rejected Allied Photographics India
Limited for the purpose of intensity disregarding the fact that the company
during the year had entire revenue from trading activities.
14. That on the facts and circumstances of the case, the Ld. AO erred in
law and in fact, by initiating penalty proceedings under section 271(1)(c)
of the Act.
2. At the outset, Ld.Counsel submitted that intensity
adjustment on substantive basis has already been made in
respect of comparables, by providing working capital adjustment
as per directions of DRP vide order dated 22/10/18 passed by
Ld.DCIT. Ld.Counsel further submitted that from order giving
effect to directions of DRP passed by Ld.DCIT, substantive
adjustment has been computed at `Nil'. He further submitted that
Ld.DCIT made protective adjustment by applying bright line test,
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Casio India Company Pvt. Ltd.
which has been discarded by Hon'ble Delhi High Court in case of
CIT vs Sony Ericson Mobile Communication India Pvt.Ltd., reported
in [2015] 55 taxmann.com 240
3. on the contrary Ld.CIT DR submitted that enforcement of
protective adjustment would depend on final outcome of decision
of Hon'ble Supreme Court in case of CIT vs Sony Ericson Mobile
Communication India Pvt.Ltd., (supra).
4. We have perused submissions advanced by both sides in
the light of the records placed before us.
In present facts of the case, substantive as well as protective
assessment both has been made in the hands of same assessee
for same year under consideration on AMP expenditure by learnt
TPO. On objection being raised by assessee before DRP against
the adjustment proposed, a direction was issued to Ld.AO/TPO
to make adjustment to in respect of AMP expenditure by following
intensity method, being the plausible method.
8. In our considered opinion, DRP has followed view of Hon'ble
Delhi High Court in case of CIT vs. Sony Ericson Mobile
Communication India Pvt.Ltd., (supra), to reject BLT method for
proposing adjustment for AMP expenditure. Thus respectfully
following Hon'ble Delhi High Court, we hold that adjustment made
on protective basis by following bright line test is not sustainable.
9. Accordingly we allow Grounds 8-12 raised by assessee.
It is observed that Grounds 1-7 has not been argued by
Ld.Counsel and accordingly stands dismissed.
10. Ground No. 13 becomes purely academic in nature insofar
as it relates to Ground No. 8-12 which has already been decided
hereinabove.
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Casio India Company Pvt. Ltd.
11. Ground No. 14 is consequential in nature and therefore do
not require any adjudication.
12. In the result appeal filed by assessee stands partly
allowed.
Order pronounced in the open court on 24/01/2019
Sd/- Sd/-
(R.K.PANDA) (BEENA A PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dt. 24/01/2019
Bidhan
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ITA No. 8060/Del/2018
Casio India Company Pvt. Ltd.
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
- TRUE COPY -
By Order,
ASSISTANT REGISTRAR
ITAT Delhi Benches
S.No. Details Date
Draft dictated on
1 18/01/19
Dragon
Draft placed before 24/01/19
2
author
Draft proposed & placed
3 before the Second
Member
Draft
4 discussed/approved by
Second Member
Approved Draft comes 24/01/19
5
to the Sr. PS/PS
6 Kept for pronouncement 24/01/19
7. Order uploaded on 24/01/19
8 File sent to Bench Clerk 24/01/19
Date on which the file
9
goes to Head Clerk
10 Date on which file goes
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Casio India Company Pvt. Ltd.
to A.R.
Date of Dispatch of
11
order
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