ITA 346/2015

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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 12^th

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 SielPower Products Ltd

ITA 346/2015

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(‘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:

Sl. 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

ITA 346/2015

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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 30^th

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:

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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 Appe