The Delhi Income Tax Appellate Tribunal (ITAT), while deleting orders against Marks and Spencer India recently found that the income tax department derived Arm Length Price (ALP) without resorting to methods prescribed under the Income Tax Rules.
Ravi Sharma, Advocate appeared for assessee and Bhaskar Goswami appeared for the revenue.
Assesee Marks & Spencer (India) Pvt. Ltd. engaged in the wholesale business of procuring and selling branded apparels and accessories including leather products and toiletries.
Under the trading business of the Assessee , it procures branded apparels and accessories from third party suppliers who manufactures for and on behalf of it, for further resale to affiliate joint venture entities in India.
The Assessee had entered into an agreement with Marks and Spencer pic, UK (AE) wherein royalty at 1% o f revenue was paid by the Assessee to AE on account of grant of trademark.
Thereafter Assessee entered into a revised agreement with its AE for license of valuable rights and business services for efficient conduct of business operations of the Assessee in India. For getting the rights assessee pays royalty at 6% on revenue to its AE.
During the course of the assessment TPO disallowed the incremental royalty that is 5% on revenue and proposed an adjustment of INR 11,06,15 ,455. Assessee submitted evidence to justify the payment made by the assessee to its AE. But the TPO rejected the documents furnished by the assessee.
Pursuant to the remand report, the AO confirmed the addition determined by the TPO and confirmed by the Panel, and made final assessment order.
Counsel for the assessee submitted that TPO has disregarded the benchmarking analysis conducted by the assessee.
The tribunal of Dr. B. R. R. Kumar, (Accountant Member) Yogesh Kumar US, (Judicial Member), while allowing the appeal of the assessee, observed that revenue has derived ALP without resorting to any method prescribed as per the Income Tax Rules. The disallowance of 6% during the current year has been merely made on the pretext that in the earlier year, the royalty paid was at 1%.
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