Appeal partially granted for brand building expenses, reassessment ordered for revised decision.

The Tribunal partly allowed the appeal, determining that only a portion of the advertisement expenses should be considered for brand building activities. The Transfer Pricing Officer was directed to issue a revised order after reevaluation, granting the assessee a chance to present their case. The decision was made on June 3, 2013, in Chennai.

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Issues Involved:
1. Addition on account of arm's length price under Section 92CA(3) of the Income-tax Act.
2. Determination of whether local transactions involving marketing expenses with unrelated parties are international transactions under Section 92B.
3. Methodology used by the TPO for determining the ALP of the transaction.
4. Application of transfer pricing provisions over domestic transactions.
5. Charging of interest under Section 234B.

Detailed Analysis:

1. Addition on Account of Arm's Length Price under Section 92CA(3):
The primary issue revolves around the addition of Rs. 3,80,86,435/- made by the A.O. under Section 92CA(3) of the Income-tax Act. The assessee contended that the A.O.'s order, based on the findings of the TPO and the directions of the DRP, was erroneous. The TPO had determined that the assessee was engaged in brand building activities on behalf of its AE and had incorrectly applied transfer pricing provisions to local transactions involving marketing expenses with unrelated parties.

2. Determination of Whether Local Transactions Involving Marketing Expenses with Unrelated Parties are International Transactions:
The TPO and DRP held that the local transactions involving marketing expenses were international transactions under Section 92B. The TPO noted that the assessee's advertising and business promotion expenses were significantly higher than those of comparables, indicating brand building for the AE. The TPO's reliance on the Maruti Suzuki India Ltd. case was pivotal in this determination.

3. Methodology Used by the TPO for Determining the ALP of the Transaction:
The TPO used a methodology not prescribed by the Income-tax Act, which the assessee argued was erroneous. The TPO compared the advertising expenses of the assessee (17% of total sales) with those of comparables (3.31% of total sales) and concluded that the excess expenses were for brand building. The DRP upheld this methodology, rejecting the assessee's contention that the expenses were necessary for selling its products.

4. Application of Transfer Pricing Provisions Over Domestic Transactions:
The TPO and DRP applied transfer pricing provisions to domestic transactions, which the assessee argued was incorrect. The DRP noted that the benefit accruing to the AE from the assessee's marketing activities justified the application of transfer pricing provisions. The Special Bench decision in L.G. Electronics India (P.) Ltd. was cited, supporting the view that AMP expenses exceeding those of comparables are subject to transfer pricing adjustments.

5. Charging of Interest Under Section 234B:
The assessee also contested the charging of interest under Section 234B amounting to Rs. 34,93,757/-, arguing that it was based on erroneous grounds. However, the judgment does not provide a detailed analysis of this issue, focusing primarily on the transfer pricing adjustments.

Conclusion:
The Tribunal partly allowed the appeal, concluding that only the advertisement expenses of Rs. 89,949,473/- out of the total Rs. 16,16,17,537/- should be considered for AMP leading to brand building. The TPO was directed to pass a consequential order after verifying the facts and providing the assessee an opportunity to be heard. The appeal was allowed for statistical purposes, and the order was pronounced on June 3, 2013, in Chennai.

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