BMW INDIA PVT. LTD. Vs. ACIT
LAWS(IT)-2014-10-28
INCOME TAX APPELLATE TRIBUNAL
Decided on October 21,2014

Bmw India Pvt. Ltd. Appellant
VERSUS
ACIT Respondents

JUDGEMENT

Diva Singh, Member (J) - (1.) THE present appeal filed by the assessee is arising out of the assessment order u/s. 144C/143(3) dated 18.12.2013 passed by the AO in pursuance to the order dated 27.11.2013 by the Dispute Resolution Panel -III, New Delhi. The assessee before us has raised the following grounds: - 1. "The Ld. Additional Commissioner of Income -tax (Ld. AO) pursuant to the directions of the Ld. Dispute Resolution Panel (DRP'), erred in enhancing the income of the appellant by Rs. 78.62 crores by holding that the appellant should have received reimbursement for "alleged excessive" Advertising Marketing and Promotion ('AMP') expenses from its Associated Enterprises CAEs) and in doing so have grossly erred by: 1.1. not controverting or even taking cognizance of the ruling pronounced by the Hon'ble Income -tax Appellate Tribunal (ITAT), Delhi Bench in the appellant's own case for AY 2008 -09 which was submitted before the Ld. DRP during the hearing on August 23, 2013 and rehearing on November 13, 2013 wherein the appellant had received a favourable order deleting the adjustment on account of "alleged excessive" AMP expenses incurred by the appellant; even though the facts of the case has remained unchanged in AY 2009 -10 from those in AY 2008 -09; 1.2. disregarding the fact that the premium profits earned by the appellant more than compensate the allegedly excessive AMP spends, if any, incurred by it: 1.3. misinterpreting or placing incorrect reliance on the international guidance in relation to the 'marketing intangibles' and 'bright line test' from Organisation for Economic Co -operation and Development ('OECD'), US TP Regulations and Australian Tax Office ('ATO') and relying on several erroneous/factually incorrect and contradictory statements/observations in the TP order, which are not relevant to the instant case, only in order to justify an otherwise inappropriate and unwarranted TP adjustment; 1.4 incorrectly holding the AMP expenses incurred by the appellant to be "excessive' on the basis of a "bright line limit" arrived at by deriving a distorted set of comparables by rejecting Mahindra First Choice Wheels Ltd. from the set originally produced by the appellant in its TP documentation and including AVG Motor Ltd., Competent Automobiles Company Ltd. and Sai Service station Ltd.; 1.5 in upholding that the appellant has rendered services to its AEs by incurring the AMP expenses and by holding that a mark -up of 15.27% has to be earned by the appellant in respect of the "alleged excessive" AMP expenses, without any basis for the same whatsoever; 1.6 without prejudice to its above contentions, not excluding certain components of cost from the computation of AMP expenses of the appellant even though such expenses have been directed to be removed from computation of AMP expenses of the appellant by the Ld. DRP and thereafter by the Hon'ble ITAT in the appellant's own case in AY 2008 -09; and
(2.) FURTHER , the Ld. DRP/AO erred in enhancing the income of the appellant by Rs. 3.12 crores by holding that the transaction pertaining to receipt of Information Technology ('IT') support services does not satisfy the arm's length principle envisaged under the Income -tax Act, 1961 ('the Act') and in doing so grossly erred in: 2.1. rejecting the Transaction Net Margin Method ('TNMM') as the most appropriate method to test the said transaction without appreciating that the transaction is closely linked to the distribution/assembling functions of the appellant and applying Comparable Uncontrolled Price ('CUP') Method in contravention of the provisions of Rule 10B of the Income -tax Rules, 1962 ('the Rules') merely based on presumptions and holding the arm's length value of the transaction as 'NIL'; 2.2 disregarding the arm's length price as determined in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules and determining the same as NIL as against the sum of INR 3.12 crores actually incurred; 2.3 failing to acknowledge the business efficacy of the transaction and the benefits received by the appellant from the same; thereby challenging the commercial wisdom of the appellant in making such payments while passing the order in contrast with the judicial pronouncements in this regard; and 2 -4 ignoring that the facts and circumstances of the appellant's case during the year remained unchanged when compared to previous years in which detailed audit and scrutiny was done with regard to the pricing and methodology of this transaction and subsequently no adverse inference drawn. CORPORATE TAX MATTER The Ld. AO has erred in law and on facts and circumstances of the case, in reclassifying certain assets under the Block of "Plant and Machinery" eligible for depreciation @ 15% which were originally classified by the appellant under the Block of "Computers" eligible for depreciation @ 60%.
(3.) WITHOUT prejudice to the above, the Ld. AO has erred in law and on facts and circumstances of the case, in disallowing an amount of INR 0.48 crores towards the depreciation allowance on individual assets so reclassified by calculating depreciation on the original cost of the assets instead of the Written Down Value ('WDV') and without appreciating that depreciation allowance of only INR 0.17 crores has actually been claimed on such assets in the return of income, where computed on a standalone basis.;


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