Case Number: ITA 873/DEL/2021
Appellant: Olympus Medical Systems India Pvt. Ltd., Gurugram
Respondent: ACIT, Circle-3(1), Gurugram
Assessment Year: 2016-17
Result: Appeal Allowed and Assessment Order Quashed
Case Filed on: 2021-07-19
Order Type: Final Tribunal Order
Date of Order: 2022-01-13
Pronounced on: 2022-01-13
Olympus Medical Systems India Pvt. Ltd., a subsidiary of Olympus Corporation, filed its return of income for the assessment year 2016-17. The Assessing Officer (AO) framed the assessment under section 143(3) read with sections 144C(1) and 144B of the Income Tax Act, 1961, following the directions of the Transfer Pricing Officer (TPO) regarding transfer pricing adjustments. The case primarily involved adjustments related to Advertisement, Marketing, and Promotion (AMP) expenses and interest on receivables.
The AO made significant adjustments to Olympus Medical Systems’ income, primarily focusing on AMP expenses, which were treated as non-routine and attributed to the promotion of the foreign associated enterprise (AE). The AO also made adjustments for interest on receivables from the AE. Olympus Medical Systems contested these adjustments, arguing that the AMP expenses were routine selling expenses and not specifically incurred for the AE’s benefit. They also contended that the AO’s methodology, including the application of the Bright Line Test (BLT), was not appropriate.
Olympus Medical Systems, represented by Shri Nageshwar Rao and Ms. Deepika Agarwal, argued that the AMP expenses were routine selling expenses aimed at generating domestic sales and that any benefit to the AE was incidental. They cited the Delhi High Court’s ruling in Sony Ericsson Mobile Communications India Pvt. Ltd., which rejected the BLT approach. They also challenged the procedural aspects of the assessment, asserting that the AO failed to follow the directions of the Dispute Resolution Panel (DRP) and did not properly incorporate the DRP’s findings in the final assessment order.
The respondent, represented by Shri Mahesh Shah, CIT-DR, supported the AO’s adjustments and argued that the AMP expenses were indeed aimed at promoting the AE’s brand, thus constituting an international transaction requiring transfer pricing adjustments. The respondent also maintained that the AO followed the correct procedures and the DRP’s directions.
The Tribunal, presided over by Shri Saktijit Dey, Judicial Member, and Shri N.K. Billaiya, Accountant Member, examined the submissions and the relevant facts of the case. The key observations are as follows:
Based on the above observations, the Tribunal quashed the final assessment order dated 18.05.2021 as it did not conform to the mandatory provisions of section 144C of the Income Tax Act. The Tribunal directed that the assessment be redone in accordance with the DRP’s directions and proper legal procedures.
In conclusion, ITA No. 873/DEL/2021 filed by Olympus Medical Systems India Pvt. Ltd. was allowed, and the final assessment order was quashed. The case underscores the importance of adhering to procedural norms and the correct application of transfer pricing methodologies in tax assessments.
Order pronounced in the open court on 13.01.2022.
Sd/- (Saktijit Dey)
JUDICIAL MEMBER
Sd/- (N.K. Billaiya)
ACCOUNTANT MEMBER
Date: 13.01.2022
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR: ITAT
Assistant Registrar, ITAT, New Delhi
Olympus Medical Systems vs ACIT: Dispute Over AMP Expenses and Transfer Pricing Adjustments
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