$~29

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IN THE HIGH COURT OF DELHI AT NEW DELHI

+

ITA 313/2022

THE PR. COMMISSIONER OF INCOME TAX -3

..... Appellant

Through:

Mr. Sanjay Kumar, Advocate.

versus

M/s AMWAY INDIA ENTERPRISES

..... Respondent

Through:

None.

%

Date of Decision: 8^thSeptember, 2022

CORAM:

HON'BLE MR. JUSTICE MANMOHAN

HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA

J U D G M E N T

MANMEET PRITAM SINGH ARORA, J (ORAL):

1.

Present Income Tax Appeal has been filed challenging the order dated

8^thOctober, 2021 passed by Income Tax Appellate Tribunal (‘ITAT’) in

ITA No. 2833/Del/2018 for the Assessment Year (‘AY’) 2013-14.

2.

The respondent assessee is engaged in the business of direct selling of

consumer products through multi-level marketing. The assessee filed its

return for AY 2013-14 declaring an income of Rs.3,04,03,40,790/-. Since,

the assessee admittedly had international transaction with its Associated

Enterprises (‘AEs’), the case was referred to the Transfer Pricing Officer

(‘TPO’) for determination of Arm’s Length Price (‘ALP’). The TPO vide

order dated 31.10.2016, recommended an adjustment of Rs.15,66,27,250/-

on account of ALP determined for royalty payment and Rs.7,54,77,412/- on

account of managerial remuneration to the director. The Assessing Officer

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/003715

(‘AO’) vide order dated 31.01.2017 confirmed the addition made by the

TPO

and

assessed

the

income

of

the

assessee

to

the

tune

of

Rs.3,27,24,45,452/-.

3.

Aggrieved by the same, the assessee preferred an appeal before the

Commissioner of Income Tax (Appeals) [‘CIT(A)’], which was partly

allowed vide order dated 28.02.2018, the AO/TPO was directed to delete the

addition made on account of transfer pricing adjustment for transaction

related to royalty.

4.

Aggrieved by the order of the CIT(A), the Revenue herein preferred

an appeal before the ITAT, challenging the deletion of the adjustment of

transaction related to royalty, however vide the impugned order, the ITAT

dismissed the appeal by confirming the order of the CIT(A).

5.

In the present appeal, the learned counsel for the Appellant states that

the ITAT erred in confirming the order of the CIT(A) and failed to

appreciate the fact that the royalty payment is excessive and not at arm’s

length on consideration of Advertisement, Marketing and Promotion

(‘AMP’) expenses incurred by the assessee for the benefit of the AE’s

trademark and brand. He states that the ITAT erred in not appreciating that

the foundation of the adjustment with respect to royalty payment suggested

by the TPO was that the assessee was incurring huge commission

expenditure, which has created marketing intangibles for its AEs, and, for

incurring this expenditure, the assessee should be compensated with a

payment from the AE and that there may not be a need for a huge payment

of royalty as rightly noted by the TPO. He also states that the ITAT and

CIT(A) has wrongly placed reliance on the judgment of this Court in Chrys

Capital Investment Advisors (India) Pvt. Ltd. v. Deputy Commissioner of

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/003715

Income Tax, ITA No. 417/2014, passed on 27.04.2015.

6.

He further states that the ITAT erred in confirming the order of

CIT(A) whereby it was held that the rejection of two comparables, namely,

Columbia Laboratories Inc. and Premier Consumer Products Inc., by the

TPO while retaining the balance four comparables was based on a summary

fashion and that no cogent reason was provided for arriving at this opinion.

7.

In this regard, the CIT(A) held as follows,

8.

The ITAT concurred with the aforesaid finding of the CIT(A) and in

This is a digitally signed Judgement.

NEUTRAL CITATION NO: 2022/DHC/003715

this regard held as follows:-

“It is specifically observed by the CIT(A) that the

9.

A perusal of the above order reveals that the ITAT and CIT (A), both

fact finding authorities have concurrently held that the rejection of the two

comparables by the TPO