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2015 Supreme(Online)(DEL) 9462
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* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 346/2015 Reserved on: September 21, 2015 Date of decision: December 23, 2015 HONDA SIEL POWER PRODUCTS LIMITED ..... Appellant Through: Mr. Ajay Vohra, Senior Advocate with Mr. Neeraj Jain and Mr. Aditya Vohra, Advocates.
versus DEPUTY COMMISSIONER OF INCOME TAX ..... Respondent Through: Mr. G.C. Srivastava and Mr. D.S.
Bhardwarj, Advocates.
CORAM:
JUSTICE S.MURALIDHAR JUSTICE VIBHU BAKHRU
JUDGMENT
% 23.12.2015 Dr. S. Muralidhar, J.:
1. This appeal by the Assessee, under Section 260A of the Income Tax Act 1961 ('Act') is directed against the impugned order dated 12th December, 2014 passed by the Income Tax Appellate Tribunal (ITAT)
in ITA No.6023/Del/2012 for the Assessment Year (AY) 2008-2009.
2. Admit.
Background facts
3. The facts are that the Assessee, Honda Siel Power Products Ltd (‘HSPP’), is engaged both in the manufacture of licensed products as well as the distribution of goods manufactured by its associated enterprises. The Assessee is engaged in the business of manufacturing of portable generating sets, IC engines, water pumping sets and manufacturing and processing of pressure die casting parts. The HONDA trademark is owned by Overseas Associated Enterprise (AE), i.e. Honda Motor Company, Japan (‘Honda Japan’). During the AY in question, the Assessee entered into the following international transactions with its AE:
| l. No. | International transactions | Amount (in Rs.) | Method used by Assessee |
| i. | Payment for purchase of raw material and components | 19,69,25,346 | TNMM |
| ii. | Payment for purchase of spares | 35,15,973 | TNMM |
| iii. | Payment for purchase of finished goods | 9,57,55,661 | TNMM |
| iv. | Receipt for Sale of Spare Parts | 21,60,059 | TNMM |
| v. | Receipt for Sale of Finished Goods | 13,28,37,585 | CUP/TNMM |
| vi. | Payment of Royalty | 8,77,14,255 | CUP/TNMM |
| vii | Payment of Technical Guidance Fee | 17,464,121 | TNMM |
| viii. | Payment towards Commission on Exports | 51,996,673 | TNMM |
| ix. | Expenses Reimbursement Received | 199,078 | TNMM |
| x. | Payment for purchase of fixed assets | 12,600,659 | TNMM |
| xi. | Expenses Reimbursement Paid | 513,920 | TNMM |
4. The Assessee filed its return of income for the AY in question on 30th September, 2008, declaring a total income of Rs. 37,15,72,026. The return was picked up for scrutiny and notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961 (‘Act’) were issued. During the course of the assessment proceedings, the Assessing Officer invoked Section 92CA(1) of the Act and referred the case of the Appellant to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price ('ALP’) in relation to the international transactions undertaken by the Appellant with its AEs.
5. The total advertisement, marketing and sales promotion (‘AMP’) expenses of the Assessee was Rs. 12,39,19,327/-, which was 4.46 per cent of its sales, and comprised the following:
| S.No. | Name of Expenses | Amount (Rs.) |
| 1. | Commission on sales | 1,22,95,327 |
| 2. | Advertisement and publicity | 6,26,52,000 |
| 3. | Sales promotion | 3,42,80,000 |
| 4. | Sales discount | 1,46,92,000 |
| Total | 12,39,19,327 |
6. The TPO benchmarked the AMP expenses incurred by the Appellant, by applying the Bright Line Test (‘BLT’), and compared the percentage of such expenses incurred to total sales of the Appellant with that of comparable companies. It was found that the AMP expenses of the Assessee as a percentage of sales at 4.46 per cent was higher than 1.87 per cent incurred by the comparable companies. The TPO concluded that the AMP expenses incurred by the Appellant, in excess of the Bright Line must be regarded as having been incurred for promoting the brand name HONDA and further that this was for creating marketing intangibles owned by the AE and for which the Appellant was required to be suitably compensated by the AE. The TPO passed an order dated 28th October, 2011 determining the ALP of the Assessee’s international transactions with respect to AMP expenses.
7. The TPO further charged a mark-up of 15% and accordingly made a Transfer Pricing (TP) adjustment inter alia of Rs. 8,27,61,669/- on account of AMP expenses. The TPO also passed a rectification order dated 12th January, 2012 wherein it restricted the disallowance of royalty paid to Rs. 53.34 lakhs instead of the inadvertent figure of Rs. 1.53 Crore, as stated in the order. The Dispute Resolution Panel (‘DRP’) by an order dated 24th September, 2012 negated the object
