| 2018-TII-INSTANT-ALL-562 | 18 April 2018 |
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CASE LAWS ORIFLAME INDIA PVT LTD Vs ACIT: DELHI HIGH COURT (Dated: April 10, 2018) Income Tax - Section 92(A). Keywords: Direct marketing - Functional difference - Product segment - Product turnover - TP - TNMM & Trading entities. The assessee company, a wholly owned subsidiary of Oriflame Investments Limited, Mauritius, is involved in the business of distribution and sale of cosmetic products through direct selling channel. This distribution system did not involved other trade intermediaries, as the whole-sellers, distributors and stockist. Since, the assessee was involved in internal transaction of the filing u/s 92(A), it filed the return alongwith the TP reports. The TPO made adjustment for the AY 2009-10 as well as for later AYs. Accordingly, the AO passed the draft assessment order after making the additions as proposed by the TPO. Aggreived assessee approached the DRP, but was unsuccessful for each of the AYs. On further appeal, the Tribunal noted the significant difference between Modicare Ltd. and the assessee. Nevertheless, the Tribunal directed a remand ruling out the case of Modicare Limited. The Tribunal noted that Modicare Ltd. as a standalone comparable since all other comparables were eliminated by the Revenue Authorities at the early stage of the proceedings were "ideally not an appropriate comparable" and had also canvassed that the comparables selected by the taxpayer were wrongly been rejected by the Tax Authorities. On appeal, the High Court held that, Whether mere acceptance of an entity having differential product range as a good comparable for the assessee company in earlier years is also binding on the Revenue - NO: HC + the Tribunal was conscious of the significant differences yet it did not address how these differences could be adjusted so to speak. The assessee is involved solely in the marketing of cosmetics. However, Modicare Ltd. is also engaged in the marketing of other products, "laundary and home care, personal care, tea, agriculture, jewellery, cosmetics and health care" and "others". Each one of these have a separate proportion to the total product turnover. In the opinion of this Court, it is of vital importance and was not addressed by the ITAT which even while noticing the significant differences and seemingly accepting the assessee's arguments nevertheless did not exclude Modicare Ltd. altogether. In the opinion of this Court, this is a very vital infirmity which needs to be corrected; + as far as the reasoning of the Revenue Authorities, which has not been commented upon by the ITAT for excluding the other comparables offered by the assessee goes, for one, it was stated that mere acceptance in the past of such comparable did not bind the Revenue. The other was with respect to the differential marketing strategy adopted for the two sets of entities i.e. the trading entity/comparable on the one hand as opposed to the direct marketing entity i.e. assessee on the other hand. The assessee had stressed that if appropriate marketing was made from the data available, the differential marketing strategy per se would not pose a difficulty with respect to the TP adjustment. The Court finds some merits in the arguments, especially since what the Revenue Authorities would be left with if the ITAT's order was not to be disturbed, would be what a comparable in the form of Modicare Ltd; + the appeal should be re-examined by the ITAT; it should be addressed on these two aspects i.e. firstly, the appropriateness of including Modicare Ltd. having regard to the availability of data with respect to the different product segments, and secondly, involving the comparable, the functional difference with respect to its marketing strategy (i.e. discount, transportation costs, insurance and performing the warranty function). Having regard to the factors mentioned in the disputed order, the ITAT is also directed to re-examine whether and to what extent adjustment can be reasonably made, having regard to the available data in respect to the trading comparables offered for ALP determination, for all the relevant years by the assessee. It is also directed to consider the feasibility again having regard to the available data for all the concerned AYs marking appropriate adjustments (including with respect to the working capital adjustments as is sought to be urged by the assessee) in regard to the trading comparables offered by the assessee for these given years; + the ITAT may task the TPO with specific remand report on these issues and seek a report in a time bound manner and thereafter proceed to return its findings having regard to the parties' submissions. All the rights and contentions of the parties are kept open. It is open to the assessee to urge that TNMM is the MAM instead of RPM. In these circumstances, it is also clarified that in the event the submission is accepted there would be no enlarging of a comparable offered. The parties are directed to be present before the ITAT on 2nd of May, 2018. Assessee's appeal allowed GOOGLE INDIA PVT LTD Vs DCIT: KARNATAKA HIGH COURT (Dated: April 10, 2018) Income Tax - Writ - Sections 156, 201(1) & 201(1A). Keywords - Bank guarantee -Interim order - Notice of demand. The assessee filed writ seeking a direction not to enforce the demand till the disposal of the appeal filed before the Tribunal. The grievance of the assessee was, appeal filed by the Assessee before the Tribunal relating to the AY 2011-12 against the order u/s 201(1) and 201(1A) of the Act had not been disposed of, culminating in the demand raised by the Revenue. In writ petition, the High Court held that, Whether a fresh writ petition is maintainable when the interim order of the Tribunal asking for pre-deposit has already merged with the dispoal order of the writ court granting relief to the assessee - NO: HC + on the application filed by the assessee for extension of interim order, the Tribunal placing reliance on the Judgment of the Court in Writ Petition modified the extended interim order, to deposit 55% of the demand and to retain the balance of another 20% in the account of the assessee maintained with Citi Bank, M.G. Road Branch, Bengaluru. The said order was challenged by the assessee in Writ Petition and connected matters which came to be disposed of on 13.12.2017, modifying the order of the Tribunal to the effect that the assessee shall pay 20% to the Department since 30% of the outstanding dues has already been paid, for the balance of 25%, the assessee shall furnish bank guarantee on or before 31.12.2017. This order of the Single Judge was affirmed by the Division Bench of Court. Hence the interim order of the Tribunal challenged in this petition merges with the order passed by Court in earlier writ petitions. Hence, present petition deserves to be dismissed. Assessee's writ petition dismissed |
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