2018 (9) TMI 1810 - AT - Income Tax

Tribunal rules in favor of assessee in transfer pricing dispute, remits certain issues to DRP for review.

M/s. Loreal India Private Ltd. Versus Dy. CIT – 7 (1) (2), Mumbai And Vice-Versa

The tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, remitting issues related to alternative adjustments suggested by the ... TP adjustment - International transaction with the AE - addition consisting of AMP transaction by the Transfer Pricing Officer - 'Bright Line Test' (BLT) mandation - HELD THAT:- Revenue’s appeal, the issue raised pertains to the deletion of international transaction addition consisting of AMP transaction by the Transfer Pricing Officer following the decision by ITAT in assessee's own case and also decision in the case of Sony Ericson Mobile Communications (India) Pvt. Ltd. (now known as Sony India Ltd.) v. CIT [2015 (3) TMI 580 - DELHI HIGH COURT], Maruti Suzuki India Ltd. vs. ACIT [2015 (12) TMI 634 - DELHI HIGH COURT] and Whirlpool of India Ltd [2015 (12) TMI 1188 - DELHI HIGH COURT]. Since the DRP's direction is supported by the Hon’ble High Court’s decision, we do not find any infirmity in the same. Hence, the Revenue’s appeal is dismissed. No proper opportunity granted to contest the alternative addition suggested by the transfer pricing officer and sustained by the DRP - HELD THAT:- We admit the submission of the ld. Counsel of the assessee that proper opportunity was not given to the assessee to make the submissions on the alternatives. However, we also do not agree with the ld. Counsel of the assessee that since on one of the alternative, the DRP's direction is silent, it can be understood that this issue has been considered by the DRP. Hence, we remit these issues on the alternative suggested by the TPO to the DRP. The DRP shall consider the same after giving the assessee an opportunity of being heard. The ld. Counsel of the assessee has fairly agreed to the above proposition. Issues Involved:1. Jurisdiction of the Transfer Pricing Officer (TPO)2. Application of the Bright Line Test (BLT)3. Adjustment of Advertising, Marketing, and Promotion (AMP) expenses4. Determination of Arm's Length Price (ALP) for royalty payments and intra-group services5. Non-grant of MAT credit and levy of interest under sections 234B and 234CIssue-wise Analysis:1. Jurisdiction of the Transfer Pricing Officer (TPO):The assessee challenged the jurisdiction of the TPO, arguing that the reference to the TPO was made without the necessary findings required under section 92CA(1) of the Income Tax Act. The tribunal found that the TPO had the jurisdiction to suggest alternative adjustments beyond those specified by the Dispute Resolution Panel (DRP) in the remand, referencing the Hon'ble Delhi High Court's observations in the Sony Ericson Mobile Communications (India) Pvt. Ltd. case.2. Application of the Bright Line Test (BLT):The Revenue's appeal questioned the DRP's decision that BLT was not mandated by law and thus impermissible. The tribunal upheld the DRP's decision, referencing the Delhi High Court's ruling in Sony Ericson Mobile Communications (India) Pvt. Ltd., which held that BLT is not an appropriate method to benchmark AMP transactions. Consequently, the tribunal dismissed the Revenue's appeal on this ground.3. Adjustment of Advertising, Marketing, and Promotion (AMP) expenses:The TPO had made significant adjustments to the AMP expenses, arguing that the expenses incurred by the assessee promoted the brand owned by the associated enterprise (AE) and thus should be compensated by the AE. The DRP, referencing multiple Delhi High Court rulings, concluded that AMP expenses do not constitute an international transaction unless there is an agreement or understanding between the assessee and AE. The tribunal upheld the DRP's direction to delete the AMP adjustment, agreeing that BLT has no statutory sanction.4. Determination of Arm's Length Price (ALP) for royalty payments and intra-group services:The DRP had directed adjustments for trademark royalty and technical know-how royalty, as well as intra-group services, determining the ALP at Nil due to the lack of evidence of services rendered or benefits received. The tribunal remitted these issues back to the DRP for reconsideration, allowing the assessee an opportunity to present additional evidence. The tribunal emphasized that the TPO's jurisdiction to suggest alternative adjustments was valid, but proper opportunity must be given to the assessee to contest these adjustments.5. Non-grant of MAT credit and levy of interest under sections 234B and 234C:The assessee's appeal also included issues related to the non-grant of MAT credit and the levy of interest under sections 234B and 234C of the Act. The tribunal did not provide a detailed analysis of these issues in the judgment, focusing primarily on the transfer pricing adjustments and jurisdictional matters.Conclusion:The tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remitting the issues related to alternative adjustments suggested by the TPO to the DRP for reconsideration. The cross objection by the assessee was dismissed as infructuous. The order was pronounced in the open court on 11.09.2018.