Relief to Ferrero India Pvt Limited was granted by the Income Tax Appellate Tribunal (ITAT), Pune as on absence of international transaction determination of ALP (Arm Length Price) not necessary.
Ferrero India Private Limited (Assessee) is a subsidiary of, Ferrero International S.A., Luxembourg, which is the holding company of the Ferrero Group. It was incorporated in 2 June 2004 under the Companies Act, 1956. The Company is engaged in distribution of finished goods in the Indian market. In this regard, the Company purchases finished goods, i.e., chocolates and confectionery from Associated Enterprises (AE’s) for distribution to agents who subsequently sell to retailers and the final consumers.
During the year under consideration, the assessee filed its return of income declaring the total loss of Rs. 562,721,541/-. The return was processed for scrutiny and notice under section 143(2) of the Income-tax Act was served on the Appellant by the AO. The AO referred the case of the assessee to the Transfer Pricing Officer (TPO) for determination of arm’s length price of international transactions entered into by the Assessee with its Associated Enterprises. The TPO determined the arm length price of the AMP (advertising, marketing and promotions) expenditure as Rs. 9,82,82,571/- and made the transfer pricing adjustment.
The AO in the assessment order passed u/s 143(3) added the amount of transfer pricing adjustment to the assessee’s total income determining the total loss of the assessee at Rs. 46,44,38,9701- as against the returned loss of Rs. 56,27,21,541/-. The AO also proposed to initiate penalty proceedings under section 271 (1)(c) of the Act.The AO passed the assessment order u/s 143(3) and 144C of the Act. Aggrieved by the assessment order passed by the AO, the Assessee has filed the appeal before the CIT(A).
Therefore, the CIT(A) held that 90.42% of the AMP expenditure does not constitute of international transaction. The entire T.P adjustment of Rs. 9,82,82,571/- was also deleted. It is in this background that the assessee had filed Cross Objection submitting that in its case there is no question of international transaction at all since prima facie the revenue was unable to discharge its onus of establishing international transaction in respect of the assessee. Rather, there was no machinery nor any specific agreement through which the revenue could establish that there was an international transaction.
The bench consisting of Inturi Rama Rao, Accountant Member and Partha Saradhi Chaudhar, Judicial Member held that “There does not exist any international transaction and therefore, the question of determination of ALP of such transaction does not arise. Furthermore, the onus is on the Revenue for establishing that there is an international transaction has not been discharged in this case. Consequently, the relief provided by the CIT(A) to the assessee is sustained and furthermore since there is no international transaction at all, the question of determining ALP does not exist.”
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