Perfetti Van Melle India Pvt Ltd. Vs ACIT (ITAT Delhi)
Thus, in order to be characterized as an ‘international transaction’, it would have to be demonstrated that the transaction arose pursuant to an arrangement, understanding or action in concert. A ‘transaction’, per se involves a bilateral arrangement or contract between the parties. Unilateral action by one of the parties, without any binding obligation, in absence of a mutual understanding or contract, could not be termed as a ‘transaction’. A unilateral action, therefore, could not be characterized as an ‘international transaction’ invoking the provisions of Section 92 of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
The aforesaid appeal has been filed by the assessee company against the Final Assessment Order passed by National e-Assessment Centre, New Delhi on 31.03.2021 under section 143(3) read with sections 143(3A) & 143(3B) of the Income-tax Act, 1961 (hereinafter called “the Act”) pertaining to Assessment Year 2016-17.
2. The assessee has raised as many as 49 grounds of appeal. However, for the sake of brevity, the same can be categorized as under-
(a). Ground No. 1 and 2 – General in nature.
(b). Ground No. 3 to 8 – Regarding the Transfer pricing addition – jurisdictional grounds.
(c). Ground No’s. 9 to 21 – on merits of the AMP adjustment regarding Advertising and marketing expenses (AMP Adjustment).
(d). Ground No’s. 22 to 26 – Regarding the erroneous finding given the Dispute Resolution Panel (DRP) on the issue of AMP adjustment.
(e). Ground No’s. 27 to 35 – Regarding the applicability of the Profit Split Method by the TPO.
(f). Ground No’s. 36 to 39 – Regarding the protective adjustment made by applying the Bright Line Method (BLT).
(g). Ground No’s. 40 to 46 – Regarding the reduction of deduction under section 80IC of the Act on account of apportionment of expenses between the eligible and non-eligible units.
(i). Ground No. 47 – Against disallowance of loss owing to floods.
(j). Ground No’s. 48 and 49 – Relating to applicability of interest under sections 234B/234C of the Act and initiation of penalty proceedings under section 271(1)(c) of the Act.
3. That apart, the assessee has also moved an application raising an additional ground regarding the allowability of education cess vide letter dated 23.07.2021.
4. However, the principle issue which arises in this appeal for consideration is the transfer pricing adjustment on account of AMP expenses. There are two other corporate tax issues, which would be addressed and dealt with separately. We propose to address the transfer pricing grounds first.
Brief Facts and Background:
5. Briefly stated, the facts relevant to the issue under consideration are that the assessee is a subsidiary of PVM, Netherlands and started it operations in India in 1994. It is engaged in manufacturing and selling of variety of confectionary products from its factories in Tamil Nadu, Haryana and Uttarakhand. The assessee’s products include Big Babool, Alpenliebe, Centre Fresh, Centre Fruit, Chloromint, Fruitella, Cofitos, Happydent white, Mentos, etc. These brands are owned by the Associated Enterprises (AE) of the assessee and are licensed to it.
6. For the assessment year under consideration, the assessee had filed its return of income on 29.11.2016 thereby declaring an income of Rs. 19,41,49,790/-. Thereafter, the assessee company revised its return of income declaring an income of Rs. 17,94,93,210/- on 03.08.2017. The case of the assessee was selected for scrutiny through CASS and notices under section 143(2) read with section 142(1) of the Act, were issued. During the year under consideration, the assessee reported certain international transactions in Form 3CEB. A reference was made by the AO to the Transfer Pricing Officer under section 92CA(1) of the Act for determination of the Arms’ Length Price (ALP) of the international transactions entered into by the assessee with its AE’s.
7. By way of an order dated 28.10.2019 the TPO passed an order under section 92CA(3) of the Act proposing a substantive adjustment of Rs. 135.52 crores on account of AMP expenses, while also retaining the protective adjustment of Rs. 144.92 crores. However, in the computation of income in the final assessment order dated 31.3.2021, only the substantive adjustment of Rs. 135.52 crores has been retained. The assessee has, nevertheless, impugned both the substantive and protective adjustments made relating to the AMP expenses.
8. Accordingly, Draft Assessment Order was passed by the Assessing Officer on 19.12.2019 and the income of the assessee was proposed to be determined at Rs. 171,60,34,368/- on the account of the following additions / disallowances:-
