Chanel (India) Private Limited Vs DCIT (ITAT Delhi)
The Delhi ITAT allowed the assessee’s appeal against the assessment order passed under Sections 143(3) read with Sections 147 and 144C of the Income-tax Act, 1961 for Assessment Year 2012-13. The appeal challenged the reassessment proceedings and a transfer pricing adjustment of ₹3,08,28,457 arising from the treatment of subsidy income received from its associated enterprise as non-operating income.
The assessee submitted that its original assessment had been completed under Section 143(3), the Transfer Pricing Officer had accepted its international transactions, and the Assessing Officer had accepted the returned income. The notice under Section 148 was issued after four years without any fresh tangible material. The assessee contended that it had fully disclosed the subsidy transaction in its return, Form 3CEB, transfer pricing study report, submissions before the TPO, and the distribution agreement, and that the reassessment was based merely on a change of opinion.
On the transfer pricing issue, the assessee submitted that it acted as a distributor of Chanel products in India and received subsidy from its associated enterprise under the distribution agreement to compensate unabsorbed costs arising from the start-up nature of its business. It benchmarked the purchase of traded goods and receipt of subsidy together using the Transactional Net Margin Method (TNMM), treating the subsidy as operating income. The subsidy was also reflected as “Other Operating Revenue” in the financial statements and had been accepted during the original transfer pricing assessment. The assessee further submitted that treating the subsidy as non-operating would result in double taxation, and alternatively sought a set-off if any adjustment was sustained.
