Sony Mobile Communications India (P) ... vs Assessee

I.T.A. No. 554/DEL/2015 A.Y. : 2010-11 M/s Sony Mobile Communications Deputy Commissioner of (India) Private Limited, VS. Income Tax, A-31, Mohan Cooperative Circle 24(1), Industrial Estate, (erstwhile Circle 9(1), New Delhi - 110 044 C.R. Building, New Delhi (PAN: AAKCS7996N) (APPELLANT) (RESPONDENT)

Assessee by : Sh. Vijay Iyer, CA Department by : Sh. Ajit Kumar Singh, CIT(DR)

Date of Hearing : 25-02-2015 Date of Order : 27-02-2015 ORDER

PER H.S. SIDHU : JM Assessee has filed the present Appeal against the impugned Order dated 22.12.2014 passed by the Assessing Officer for the asstt. year 2010-11, on the following grounds:-

"The following grounds of appeal are mutually exclusive of and without prejudice to each another.

GROUNDS ON JUDICIAL DISCIPLINE AND NATURAL JUSTICE

1. On the facts and circumstances of the case and in law, the assessment order/directions passed

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by the Assessing Office (AO)/Transfer Pricing Officer (TPO)/Dispute Resolution Panel (DRP) are bad in law.

2. On the facts and circumstances of the case and in law, the assessment order/directions passed by the AO/ TPO / DRP are void ab-initio as the order has vitiated judicial discipline by not following the decision of Hon'ble Income Tax Appellate Tribunal and Hon'ble Delhi High Court on similar issues and facts.

GROUNDS ON TRANSFER PRICING ISSUES

3. Whether the AOITPO/ORP has erred in not appreciating that AMP expenses incurred by the Appellant in the normal course of its business were not for the sole benefit of its associated enterprise and thus did not fall within the purview of an 'international transaction' pertaining to rendering of a service, as defined in section 928 of the Act, distinct from its functional profile and responsibility as a distributor?

4. Whether the AOITPO/ORP erred in not appreciating that the AMP expenses were incurred by the Appellant as part of its distribution business and not for the purpose of providing sole benefit to its associated enterprise and thus could not be considered to be a transaction under section 92F(v)of the Act since there was no understanding or arrangement or action in concert for provision of service.

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5. Whether the AOITPOIDRP erred in not appreciating the fact that AMP is one of the functions performed along with other functions such as purchase, inventory management, dealer management, after sales, etc. by the appellant in conducting the "International Transaction" which is import & distribution and in view of the appellant's functional profile, it cannot be benchmarked and compensated separate from the international transaction of import of products.

6. Whether the AOITPO/ORP erred in not appreciating that the 'limited distributor function' performed by the Appellant had already been adequately compensated by the AE since the Appellant's business model allows it to earn an arm's length margin on all costs incurred including AMP expenses?

7. Whether the AOITPO/DRP erred in not appreciating that once the net operating margins of the Appellant had met the arm's length test, there arose no occasion to conclude that the Appellant had performed any non-routine function or had incurred non-routine AMP expenditure?

8. Without prejudice, whether the 'bright line method' could be applied to determine any excessive/non- routine AMP expenses?

9. Without prejudice, even if expenses are held to be 'non-routine', whether any compensation was required from the AE considering that the purported

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benefit caused to the AE on account of incurring of A&M expenses by the Appellant was only incidental?

10. Whether 'sales promotion expenses' could partake the character of AMP expenses for the purposes of making any adjustment on account of alleged excessive AMP expenses?

11. Whether the AO/TPO/DRP erred in concluding that the non-routine functions (being the alleged excessive AMP expenditure) amounted to a 'service' being rendered by the Appellant to its AE and that a mark-up was required to be charged in respect of such services?

12. Without prejudice, even if AM P expenses are held to be a separate transaction, whether AMP should be benchmarked along with the main transaction of import and distribution of goods under the combined transaction approach.

GROUNDS FOR PENALTY

13. That on the facts and circumstances of the case and in law, the AO/DRP erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance additions and in initiating penalty proceedings under section 274 read with section 271 of the Act.

14. That on the facts and circumstances of the case and in law, the AO erred in holding that the Appellant has failed to keep and maintain information and

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document in respect of certain transactions and in initiating penalty proceedings under section 274 read with section 271AA of the Act.

15. That on the facts and circumstances of the case and in law, the AO erred in holding that the Appellant has failed to furnish report under section 92E and in initiating penalty proceedings under section 274 read with section 271BA of the Act.

The appellant craves leave to submit such further grounds at or before the hearing of the appeal, so as to enable your Honour to decide the appeal according to law.

2. The facts narrated by the Revenue Authorities are not disputed, therefore, need not be repeated here for the sake of convenience.

3. At the time of hearing, Sh. Vijay Iyer, CA, Ld. Counsel of the Assessee has stated that Transfer Pricing issues in dispute on the same facts and circumstances that the AMP expenses arose in the case of the assessee in the preceding years i.e. Asstt. Year 2008-09 in ITA No. 6410/Del/2012 vide order dated 30.8.2013 which has been set aside and restored back the issues to the file of the AO to decide the same afresh, in view of the ITAT, Special Bench Judgment in the case of LG Electronics Pvt. Ltd. vs. ACIT (2013) 140 ITD 41 (Del.) (SB).

3.1 He further stated that ITAT, Delhi 'F' Bench, New Delhi in the assessee's own case for the asstt. year 2009-10 in ITA No. 836/Del/2014 vided order dated 31.3.2014 has restored back the

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issue in dispute to the file of the AO to decide the same afresh, in view of the ITAT, Special Bench decision in LG Electronics (Supra).

3.2 Ld. Counsel of the assessee further stated that Hon'ble Delhi High Court has also decided the similar issue in case of associated concern Sony India P. Ltd. in ITA No. 1285/2009 vide Order dated 22.2.2012. He requested that the issue in dispute may be set aside to the AO to decide the same, in view of the ITAT, Special Bench judgment in the case of LG Electronics (Supra).

3.3 Ld. Counsel for the assesee has also filed the Written Submissions alongwith the copy of the Order dated 30.8.2013 passed by the ITAT, Delhi 'I' Bench in the assesse's own case for the Asstt. Year 2008-09 in ITA No. 6410/Del/2012 vide order dated 30.08.2013.

4. On the other hand, Shri Ajit Kumar Singh, CIT(DR) has not raised any objection on the request of the assessee's counsel.

5. After hearing both the parties and perusing the relevant records available with us, especially the orders passed by the Revenue Authorities and the order passed by the ITAT, Delhi 'I' Bench in the assesse's own case for the Asstt. Year 2008-09 in ITA No. 6410/Del/2012 vide order dated 30.08.2013 as well as the order passed by the ITAT, 'F' Bench in the case of Sony Mobile Communications India Pvt. Ltd. vs. Addl. CIT in ITA No. 836/Del/2014 for Asstt. Year 2009-10 vide order dated 31.3.2014. For the sake of convenience the relevant para no. 6.14 of ITA No. 6410/Del/2012 vide order dated 30.08.2013 in the assesse's own case for the Asstt. Year 2008-09, is reproduced as under:-

"6.14. According on account of the detailed reasons given hereinabove, we hold that the grounds qua the

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application of Bright-line test is decided against the assessee, thereafter holding that the assessee has rendered higher intensity functions qua the comparables by which the AE of the assessee has been benefited by brand building exercise on the part of the assessee affecting the profit of the assessee thereby eroding the tax base by the said international transaction. On consideration of facts, the issue for calculating the correct AMP expense is resorted to the TPO/AO who is further directed to consider on facts whether compensation was still due on account of the pricing adjustment considering para 4.8.8 and 4.4.9 in the TP study report available on record and the credit notes of Rs.78 crore odd received by the assessee and Question NO-1,9,l0 & 12 of para 17.4 of L.G. Electronic case keeping in mind our finding that the assessee is a distributor whose remuneration model is not only supported by International Tax Jurisprudence as available in the OECD Guidelines and Australian Tax Guidelines but is also found supported by Questions 1.9 & 10 of the L.G. Electronics case as considered by the Special Bench. The assessee has made a reference to its Global Pricing Policy on which the TP Study is based, the same may be produce before the TPO/AO. As such the arguments of the assessee to the above extent are upheld."

6. Keeping in view of above discussions and precedent, we find that the issues in dispute are similar and identical to the issues raised in assessee's own case in ITA No. 6410/Del/2012 for A.Y. 2008-09, therefore, we respectfully follow the orders of the ITAT, Delhi 'I' Bench in the assesse's own case for the Asstt. Year 2008-

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09 in ITA No. 6410/Del/2012 vide order dated 30.08.2013 as well as the order passed by the ITAT, 'F' Bench in the case of Sony Mobile Communications India Pvt. Ltd. vs. Addl. CIT in ITA No. 836/Del/2014 for Asstt. Year 2009-10 vide order dated 31.3.2014, we set aside the issues in dispute to the file of the AO with the direction to decide the same, in view of the ITAT, Special Bench decision in the case of LG Electronics (Supra).

7. In the result, the Appeal filed by the Assessee stands allowed for statistical purposes.

Order pronounced in the Open Court on 27/02/2015.

Sd/- Sd/-

[S.V. MEHROTRA] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 27/02/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant -

2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT

TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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