Nike India Private Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that in the absence of no written agreement exists between the assessee and its AE requiring the assessee to incur advertisement, marketing and promotion (AMP) expenses, the same cannot be regarded as an international transaction at all and hence TP adjustment not sustainable
Facts-
During the course of assessment proceedings, the matter was referred to TOP to determine the ALP of the international transaction undertaken by the assessee with its associates. TPO passed the order u/s 92CA proposing adjustment of Rs. 63,27,41,494/-.
Thereafter, draft assessment order was passed incorporating TP adjustments. Being aggrieved, assessee filed objections before Dispute Resolution Panel (DRP). DRP provided partial relief to the assessee.
Being aggrieved, the assessee preferred the present appeal.
Further, the assessee had incurred certain advertisement, marketing and promotion (AMP) expenses. The assessee did not consider incurring of AMP expenses as an international transaction and did not file any transfer pricing analysis benchmarking the AMP expenses. The TPO held that there has been an agreement to incur AMP expenses, and therefore, incurring of AMP expenses was an international transaction. The TPO made TP adjustment of Rs.12,92,01,122 on account of AMP expenses incurred by the assessee. The DRP confirmed the view of the TPO. Aggrieved, the assessee has raised this issue before the Tribunal.
The assessee had paid outsourcing commission of RS.30,57,35,722 to NIKE Global Trading Private Limited, Singapore (NGTPS). The outsourcing commission was calculated at 7% of FOB value of products sourced by the assessee from NGTPS. The TPO held that there is no evidence for substantiating the claim of receipt of services and the entire outsourcing commission paid to NGTPS was treated as an addition on determination of ALP. The DRP confirmed the order of the TPO. Aggrieved, the assessee has raised this issue before the Tribunal.
Conclusion-
With regard to AMP expenses it is held that the Tribunal in assessee’s own case for assessment year 2015-2016 (supra) had held that the assessee is a full-fledged distributor of NIKE product and on examination of royalty agreement, it was held by the Tribunal for assessment year 2015-2016 that there is no clause which mandated incurring of any AMP expenses. It was held by the Tribunal that in the absence of no written agreement exists between the assessee and its AE requiring the assessee to incur AMP expenses, the same cannot be regarded as an international transaction at all.
With regard to outsourcing commission it is held that we restore the matter back to the files of the TPO to consider the issue de novo. The TPO shall analyse the evidence on record and the additional evidence which is now filed by the assessee before the Tribunal to determine whether NGPTS had rendered services to the assessee for receipt of sourcing commission amounting to Rs.30,57,35,722.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against final assessment order dated 27.03.2021 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2016-2017.
2. The brief facts of the case are as follows:
The assessee is a wholesale distributor of Nike brand products in India. For the assessment year 2016-2017, the return of income was filed on 30.11.2016 declaring total loss of Rs.164,42,63,191. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was served. During the course of assessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) of the international transaction undertaken by the assessee with its Associate Enterprises (AEs). The TPO vide order dated 31.10.2019, passed u/s 92CA of the I.T.Act, proposed the TP adjustment totaling to Rs.63,27,41,494 under various segments. The details of the same are as follows:-
