The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the transactions in question would not constitute international transaction relating to AMP expenditure.
The Assessee Company, Kellogg India, claimed to be a wholly owned subsidiary of Kellogg USA and having principal activity of manufacturing and selling of breakfast cereal products in India and neighboring countries. The Assessee company is also engaged in the business of distributing Pringles products in the Indian market. The key product of Kellogg India Pvt. Ltd. includes Chocos, Corn Flakes, Honey Loops Muesli, Oats and Special K. etc.
The Assessee, by filling its return of income in original for the Assessment Year under consideration on dated 30.11.2018 had declared its total income of Rs.72,32,70,720/- which was determined at Rs.73,49,49,580/- after adjustment of Rs.1,16,78,865/-. Subsequently, the case of the Assessee was selected for scrutiny under CASS.
Accordingly, statutory notices under section 143(2) & 142(1) of the Act were issued to the Assessee, in response to which, the Assessee submitted details through e-mail on ITBA portal.
The AO by perusing financials of the Assessee noticed that during the year under consideration, the Assessee-Company has entered into International transactions as detailed in Form No. 3CEB filed along with return of income and therefore the AO referred the case to the Transfer Pricing Officer as per provisions of Section 92CA(1) of the Income Tax Act for computation of Arm’s Length Price qua International Transactions.
Subsequently, an order under section 92CA(3) of the Income-tax Act, 1961 dated 26.07.2021 was passed by the Transfer Pricing Officer/Assistant Commissioner of Income tax -2(3)(1), Mumbai, wherein the Arm’s Length Price was computed at Rs.113,59,72,724/-.
In pursuance to the order of Transfer Pricing Officer, the A.O. being agreed with the views taken by the TPO for determining the Arm’s Length Price, accordingly framed the draft order under Section 144C of the Income-tax Act, 1961 dated 28/09/2021, and issued to the Assessee proposing the taxable income at Rs.1,87,50,05,741/- after considering the adjustments of Rs.113,59,72,724/- as per TPO order and disallowing meetings and seminar expenses of Rs.58,30,192/- and Repairs to Buiings expenses of Rs.99,32,105/-.
The Assessee being aggrieved with the Draft assessment order, preferred objections under section 144C(2) of the Act on 26/10/2021 before the Dispute Resolution Panel-1, Mumbai, who vide order dated 07-06-2022 under section 144C (5) of the Act, decided the objections raised by the Assessee-Company and in its order issued the directions and directed the Assessing Officer to give effect to the said order, and the AO gave effects as recorded in final assessment order.
The Assessing officer ultimately computed the income the income of the Assessee at Rs. 187,09,22,300/- by making the additions of Rs. 113,19,65,878/- on account of Transfer pricing adjustment qua AMP expenses and Rs. 40,06,846/- qua Transfer pricing adjustment qua IT related services. The Assessee being aggrieved against the final assessment order dated 31 July 2022 passed by the AO under section 143(3) r.w.s. 144(c) of the Act, preferred this appeal.
The tribunal noted that the Assessee has claimed and not refuted by the DR that the identical issue remained a subject matter before the Hon’ble Tribunal in the cases pertains to AY’s 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 and the Tribunal consistently held that AMP expenditure incurred by the Assessee in India cannot come within the purview of international transaction.
The two member bench consisting of B.R Baskaran (Accountant member) and N.K Choudhary (Judicial member) held that the said transactions would not constitute international transaction relating to AMP expenditure. It was also observed that BLT method as adopted by the TPO was not a valid method to benchmark the transactions. The technical collaboration agreement as referred to by . TPO did not envisage any such express arrangement / agreement between the assessee and its AE and therefore, the same could not support the case of the revenue. Thus the addition was deleted and the appeal was allowed.
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