IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `I', NEW DELHI
Before Sh. R. S. Syal, AM And Sh. George George K., JM
ITA No. 2800/Del/2013 : Asstt. Year : 2008-09
ITA No. 6368/Del/2013 : Asstt. Year : 2009-10
Sharp Business Systems (India) Ltd. Vs Deputy Commissioner of Income-
214-221, Ansal Tower, 38, Nehru tax, Circle-8(1), Central Revenue
Place, New Delhi-110019 Building,
New Delhi-110002
(APPELLANT) (RESPONDENT)
PAN No. AAECS2980A
Assessee by : Sh. G. C. Srivastava, Adv. & Saurabh Srivastava, CA
Revenue by : Sh.Peeyush Jain & Yogesh K. Verma, CIT DRs
Date of Hearing : 26.8.2014 Date of Pronouncement : 28.8.2014
ORDER
Per R. S. Syal, AM:
These two appeals by the assessee relating to the assessment years
2008-09 and 2009-10 involve common issue. We are, therefore,
proceeding to disposed them off by this consolidated order for the sake
of convenience.
Assessment Year 2008-09
2. The assessee is aggrieved only against the inclusion of certain
expenses in the overall base of advertising, marketing and promotion
(AMP) expenses for the purposes of making Transfer Pricing
2 ITA No. 2800 & 6368/Del/2013
Sharp Business Systems (India) Ltd.
adjustment. The ld. Counsel for the assessee contended that the
Assessing Officer erred in including certain selling expenses within the
ambit of AMP expenses for computing the ALP of the transaction by
applying the bright line test. It was contended that out of total such
expenses, the A.O excluded only `Liquidated damages claimed by
customers' from the AMP expenses. When the assessment order was
assailed before the ld. CIT(A), he, after considering the Special Bench
order in the case of LG Electronics India Pvt. Ltd. Vs ACIT (2013) 140
ITD 41 (Delhi) (SB), directed to exclude Installation commission and
Employees sales incentive from the overall base of AMP expenses. The
ld. AR argued that several sales expenses have been included in the
AMP expenses, which merit exclusion. In the opposition, the ld. DR
relied on the impugned order.
3. We have heard the rival submissions and perused the relevant
material on record. The scope of AMP expenses came up consideration
before the Special Bench in the case of LG Electronics India Pvt. Ltd.
(supra). The Bench, after considering the arguments from both the sides,
held in para 18.3 to 18.6 of the order that AMP expenses are only such
expenses which are incurred for the promotion of sales which, in turn,
lead to brand building. The Bench noticed that the expenses which are
directly in connection with sales are only sales specific and hence cannot
be brought within the domain of AMP expenses. It was further observed
that the expenses which are not in the nature of advertisement,
3 ITA No. 2800 & 6368/Del/2013
Sharp Business Systems (India) Ltd.
marketing or promotion, cannot help in creating any marketing
intangibles or brand promotion for the foreign A.E. The Bench further
examined the erstwhile provisions of sec. 37(3A) and (3B) and held
them to be relevant in the correct interpretation of the scope of AMP
expenses. It was eventually held that the expenses in connection with the
sales which do not lead to brand promotion should not be brought within
the purview of AMP expenses for determining the cost/value of the
international transaction.
4. Adverting to the facts of the instant case, it is discernible that the
ld. CIT(A) misdirected himself by holding in para 7.5 of the impugned
order that the focus should be on "marketing intangibles" and not just
"brand promotion" and in LG's case it was only `brand building'
expenditure which was relevant since the question was not on the
creation of marketing intangibles but on the building of brand LG. These
observations, which formed basis for the ld. CIT(A) to decide the issue,
run contrary to the clear-cut mandate of the Special Bench in LG
Electronics India Pvt. Ltd. (supra). Under these circumstances, we are of
the considered opinion that the impugned order cannot be sustained on
this issue.
5. It is vivid from the special bench decision that a distinction has
been made between sales specific expenses on one hand and the
expenses which are incurred for the promotion of sales on the other, so
4 ITA No. 2800 & 6368/Del/2013
Sharp Business Systems (India) Ltd.
that only the latter can be considered within the purview of AMP
expenses. It is evident that the TPO simply applied the bright line test
for making the disallowance by including both the above segments of
expenses within the base of AMP expenses, which is not in consonance
with the ratio decidendi of the special bench decision in LG Electronics
India Pvt. Ltd. (supra). The action of the AO was prompted because he
did not have the benefit of special bench decision at that time. As this
exercise can be carried out only after examining the correct nature of
each and every item of expense, we are of the considered opinion, that
the ends of justice would meet adequately, if the impugned order on this
issue is set aside and the matter is restored to the file of AO/TPO. We
order accordingly and direct him to decide this issue in the light of the
mandate of the special bench decision by excluding such expenses from
the base of AMP expenses which are directly in connection with sales
and are only sales specific. It is only thereafter that the amount of
disallowance on account of transfer pricing adjustment, if any, will be
determined. Needless to say, the assessee will be allowed an
opportunity of hearing in such fresh proceedings.
Assessment Year 2009-10
6. Both the sides are in agreement that the facts and circumstances of
the appeal for assessment year 2009-10 are mutatis mutandis similar to
those for assessment year 2008-09. Following the view taken
hereinabove, we set aside the impugned order and remit the matter to the
5 ITA No. 2800 & 6368/Del/2013
Sharp Business Systems (India) Ltd.
file of A.O/TPO for deciding this issue afresh in accordance with our
above directions.
7. In the result, both the appeals are allowed for statistical purposes.
Order pronounced in the open Court on 28/8/2014.
Sd/- Sd/-
(George George K.) (R. S. Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28/8/2014
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
Date
Initial
1. Draft dictated on 26.8.2014 PS
2. Draft placed before author 27.8.2014 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 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.
*
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