Expenses incurred in brand promotion and marketing expenses of foreign AE fall within purview of 'International Transaction' and accordingly, TP adjustment has to be made in ALP

IT/ILT: Where cash discounts had been offered after completion of sales and were entirely different in nature from trade discounts, they could not have been reduced from selling price and similarly outward freight and storage charges were to be treated as selling and distribution expenses instead of reducing same from selling price
IT/ILT: Where gross profit margin of assessee after deletion of downward adjustment of purchase cost fell within ± 5 per cent range of gross profits margin of comparables re-worked by TPO, arithmetic mean determined by TPO would have no bearing on TP study
IT/ILT: Expenses incurred in brand promotion and marketing expenses of foreign AE fall within purview of 'International Transaction' and accordingly, TP adjustment has to be made in ALP
■■■
[2014] 51 taxmann.com 413 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Panasonic Sales & Services (I) Company Ltd.
v.
Assistant Commissioner of Income-tax, Company Circle-V (1), New Delhi*
DR. O.K. NARAYANAN, VICE-PRESIDENT
AND VIKAS AWASTHY, JUDICIAL MEMBER
IT APPEAL NO. 1957 (MDS.) OF 2012
[ASSESSMENT YEAR 2008-09]
JUNE  30, 2014
Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm’s length price (Comparables and adjustments) - Assessment year 2008-09 - Assessee, a subsidiary of Panasonic Holdings (Netherlands BV), imported electronic products and home appliances from foreign AEs and marketed same in India - During relevant assessment year under consideration, assessee had entered into international transactions with its AE - TPO vide order made downward adjustment of purchase cost from AE and upward adjustment of development and business promotion expenses - It was found that TPO while making adjustment in purchase cost had reduced cash discount given by assessee to its debtors and outward freight charges from selling price - Whether cash discounts in instant case had been offered after completion of sales and were entirely different in nature from trade discounts, therefore, could not have been reduced from selling price- Held, yes - Whether similarly expenditure incurred by assessee on outward freight was in nature of selling and distribution expenses and, therefore, could not have been reduced from selling price to determine cost of goods sold - Held, yes - Whether thus, Assessing Officer was to be directed to treat cash discount and outward freight and storage charges towards selling and distribution expenses instead of reducing same from selling price - Held, yes [Para 8][In favour of assessee]
Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm’s length price (Comparables and adjustments) - Assessment year 2008-09 - Assessee, a subsidiary of Panasonic Holdings (Netherlands BV), imported electronic products and home appliances from foreign AEs and marketed same in India - During relevant assessment year under consideration, assessee had entered into international transactions with its AE - For determining gross profit margin, assessee had taken into consideration multiple year data of comparables and computed weighted average of PLI for three years - TPO rejected gross profit margin of comparables determined by assessee on ground that assessee had failed to demonstrate that previous year's data could have an influence on determination of ALP and proceeded on to determine PLI of comparables on basis of results for financial year 2007-08 alone - Whether since gross profit margin of assessee after deletion of downward adjustment of purchase cost would fall within ± 5 per cent range of gross profit margin of comparables re-worked by TPO, arithmetic mean determined by TPO will have no bearing on TP study - Held, yes [Para 9][In favour of assessee]
Section 92B of the Income-tax Act, 1961 - Transfer pricing - International transaction (Brand promotion/marketing expenses) - Assessment year 2008-09 - Whether following decision of co-ordinate bench of Tribunal in assessee's own case in Panasonic Sales & Services India (P.) Ltd. v. Asstt. CIT [2013] 143 ITD 733/34 taxmann.com 276 (Chennai) for assessment year 2007-08 it was to be held that expenses incurred in brand promotion and marketing expenses of foreign AE fell within purview of 'International Transaction' and accordingly, TP adjustment was to be made in ALP - Held, yes [Para 10][in favour of assessee]