×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
12-04-2019, Brown Forman Worldwide, Section 92C(2), 234B, Tribunal Delhi
This appeal by the assessee is directed against final assessment order dated 17/02/2014 passed by the Ld. Dy. Director of Income-tax, Circle-3(2), International Taxation, New Delhi [hereinafter referred to as ‘the Assessing Officer’], in pursuant to the direction dated 27/12/2013 of the learned Dispute Resolution Panel (in short ‘the learned DRP’) for assessment year 2009-10. The grounds of the appeal are reproduced as under:
1. That on the facts and in the circumstances of the case and in law, the order passed by the Deputy Director of Income Tax, Circle 3(2), International Taxation, New Delhi (“Learned Assessing Officer” or
“Ld. AO”) is bad in law and void ab-initio.
2. That on facts and circumstances of the case and in law, the Ld. AO/ Deputy Director of Income Tax, Transfer Pricing Officer - 1(4), New Delhi (Ld. TPO) Learned Dispute Resolution Panel -1 (“Ld. DRP”) erred in re-computing the arm’s length price (“ALP”) of the Appellant’s international transaction at Rs. 91,360,882 as against Rs. 79,280,797 determined by the Appellant and thereby making an addition of Rs. 12,080,085 on that account to the Appellant’s income.
3. That on facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO/Ld. DRP erred while making an aforesaid addition of Rs. 12,080,085 to the value of international transactions by:
(i) rejecting the Transfer pricing documentation (and the search process adopted therein) required to be maintained u/s 92D(1) of the Act read with Rule 10D of the Income Tax Rules, 1962 (“the Rule”) and performing a fresh search without any cogent reason;
(ii) rejecting all the comparable companies (Except Excellent Insurance Br king Services Ltd.) selected by the Appellant in its transfer pricing documentation;
(iii) selecting “Global Procurement Consultants Limited” and “TSR Darashaw” as companies comparable to the Appellant by disregarding the functional dissimilarities between the Appellant and these companies;
(iv) resorting to cherry picking by proposing KITCO Ltd. as comparable and subsequently in the TP Order rejecting the same without appreciating the functional profile of KITCO Ltd. as well as other comparable companies proposed by Ld. TPO; and
(v) rejecting additional comparable companies proposed by the Appellant based on the comparable set proposed by Ld. TPO.
4. That on facts and in law the Ld. AO/TPO erred in not granting relief under proviso to section 92C (2) of the Act.
5. That on facts and in law the Ld. AO erred in proposing to charge interest u/s 234B of the Income Tax Act.
6. That on the facts and circumstances of the case and in law, the Ld. DRP erred in not examining the validity of initiation of penalty proceedings u/s 271(1 )(c) of the Act.
The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the hearing before the Hon’ble Tribunal. The aforesaid grounds are mutually exclusive and without prejudice to each other.
2. Briefly stated facts of the case are that the assessee before us is a branch office in India of M/s Brown-Forman Worldwide LLC (BFWBO). The Brown-Forman (BF) group is engaged in the
“Wine” and “spirit” business and also diversified producer and marketer of fine quality consumer product. The beverages segment include various “Kentucky whiskey”; “Kentucky Bourbon”; “California sparkling wine” etc. During the year under consideration, the branch was primarily engaged in providing marketing support services and other auxiliary sales support/assistance services to its group companies. The assessee filed its return of income on 30/09/2009 declaring total income of Rs.84,39,560/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. During assessment proceeding, the Ld. Assessing Officer noted International transaction of market support services of Rs.7,92,80,797/- and therefore, referred the matter of determination of the arm’s length price (ALP) of the said international transaction to the learned Transfer Pricing Officer (TPO). The learned TPO proposed adjustment of Rs.1,91,30,582/- to the income of the assessee.The learned Assessing Officer in the draft assessment order dated
06/03/2013, included the above transfer pricing adjustment. Aggrieved, the assessee filed objection before the learned DRP. The learned DRP issued directions to the Ld. AO/TPO for excluding one of the comparable and also allow the working capital adjustment. Pursuant to the direction of the learned DRP the learned TPO recomputed the adjustment to Rs.1,20,80,085/-. The assessee, being aggrieved with the above adjustment, has filed appeal before the Tribunal raising the grounds as reproduced above.
3. The sole addition in dispute is in respect of the transfer pricing adjustment to the International transaction of marketing support services.
3.1 The facts qua the issue in dispute are that the learned TPO, noted the agreement between the assessee and AE in respect of the following services and characterized the assessee as limited risk-taking service provider:
“BFWBO will provide Marketing support services and other similar auxiliary sales support services in respect of BFC products. BFWBO shall use its best effort to support BFC, identify and predict market trends, analyze customers needs, improve customer relation and facilities the information flow between BFC and its customers.”
3.2 The assessee used Transactional Net Margin Method (TNMM) and Operating Profit/Operating Cost (OP/OC) as the profit level indicator. The assessee chosen 19 companies as comparable with average margin of 5.32% using multiple year data. The assessee worked out own margin at 9.97% and submitted that the margin of the assessee being more than the comparables, international transaction was at arm’s length.