Case Number: ITA 804/DEL/2021
Appellant: Amway India Enterprises Pvt. Ltd., New Delhi
Respondent: Addl. National E-Assessment Centre, New Delhi
Assessment Year: 2016-17
Case Filed on: 2021-06-29
Order Type: Final Tribunal Order
Date of Order: 2022-03-30
Pronounced on: 2022-03-30
This case involves Amway India Enterprises Pvt. Ltd., which filed an appeal against the Additional National E-Assessment Centre, New Delhi, challenging the adjustments made by the AO/TPO/DRP regarding Advertisement, Marketing, and Promotion (AMP) expenses and sundry creditors for the assessment year 2016-17.
The appellant raised multiple grounds of appeal, primarily focusing on two main issues:
The assessee, a wholly-owned subsidiary of Amway Corporation, engaged in the direct selling of consumer products, filed its return of income declaring a loss of Rs. 113,69,23,009/-. The AO referred the matter to the TPO for determination of the Arm’s Length Price (ALP) of the international transactions entered into by the assessee. During the TP assessment proceedings, the TPO noted significant AMP expenses and proposed an upward adjustment of Rs. 68,74,84,700/- on substantive basis, asserting that these expenses generated significant marketing intangible assets for the AEs. Additionally, the AO made an adjustment of Rs. 26,72,67,895/- on account of sundry creditors due to lack of supporting evidence.
The Dispute Resolution Panel (DRP) upheld the TPO’s action, confirming the treatment of AMP expenses as an international transaction and directing the AO to verify the correct operating margins and recompute the adjustment. The DRP also upheld the addition regarding sundry creditors.
The case was heard by the Income Tax Appellate Tribunal (ITAT) Delhi Bench “I-1” with Shri R.K. Panda, Accountant Member, and Shri Challa Nagendra Prasad, Judicial Member, presiding over the matter. The appellant was represented by Shri Sudesh Kumar Garg, Advocate, Ms. Bhavya Garg, CA, and Shri Prince Bansal, CA, while the respondent was represented by Shri Surender Pal, CIT (DR).
The ITAT noted that the TPO had proposed an adjustment of Rs. 68,74,84,700/- based on the AMP expenses incurred by the assessee. However, the tribunal found that similar adjustments had not been made in the preceding assessment years from 2009-10 to 2015-16, despite the business model and facts remaining unchanged. The tribunal emphasized the rule of consistency and observed that no adjustment on AMP expenses was made in the final order for AY 2015-16 after considering the assessee’s submissions.
The tribunal held that the TPO’s assumption regarding AMP expenses was incorrect and that the adjustment was not warranted for the year under consideration. The tribunal directed the AO/TPO to delete the addition related to AMP expenses.
Regarding the addition of Rs. 26,72,67,895/- on account of sundry creditors, the ITAT noted that the AO had issued a show cause notice on 12.12.2019, giving the assessee limited time to respond. Despite the assessee’s submission of relevant details, the AO made the addition in a hurried manner without proper consideration.
The tribunal found that the provisions of section 68 of the Income Tax Act could not be applied to sundry creditors and that the addition was unjustified. The ITAT highlighted that no such disallowance had been made in the subsequent assessment years and directed the AO to delete the addition related to sundry creditors.
In conclusion, the ITAT ruled in favor of Amway India Enterprises Pvt. Ltd., quashing the adjustments made by the AO/TPO/DRP regarding AMP expenses and sundry creditors. The tribunal’s decision was based on the principle of consistency and the inappropriate application of section 68 to sundry creditors. This case underscores the importance of consistency in tax assessments and the proper application of legal provisions.
Order Pronounced in the Open Court on 30/03/2022
Signed:
R.K. Panda, Accountant Member
Challa Nagendra Prasad, Judicial Member
Assistant Registrar, ITAT, New Delhi
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform