TP orders remitted for fresh ALP review; AMP, IT support, procurement and training to be benchmarked; DVRs treated as plant

ITAT DELHI - AT set aside the impugned transfer-pricing orders and remitted matters to the AO/TPO for fresh ALP determinations: AMP expenditure must be re-assessed in line with the HC's Sony Ericsson ratio; receipt of IT support services must be benchmarked separately; procurement support and training services must be treated as functionally distinct and benchmarked independently after hearing the taxpayer. The Tribunal upheld the AO's treatment of DVRs as part of plant and machinery (allowing higher depreciation), not computer peripherals.

---

---

Issues Involved:
1. Transfer Pricing Addition on Account of Advertisement, Marketing, and Promotion (AMP) Expenses.
2. Transfer Pricing Addition from the International Transaction of Receipt of I.T. Support Services.
3. Transfer Pricing Addition on Account of Procurement Support and Training Services.
4. Depreciation Rate on Digital Video Recorder (DVR).

Issue-wise Detailed Analysis:

1. Transfer Pricing Addition on Account of Advertisement, Marketing, and Promotion (AMP) Expenses:
The first issue concerns the transfer pricing addition of Rs. 85,83,61,733/- made by the Assessing Officer (AO) on account of AMP expenses. The assessee, a BMW Group company, was responsible for marketing and promoting BMW products in India. The Transfer Pricing Officer (TPO) considered the AMP expenses as an international transaction under Section 92B(1) read with Clause (v) of section 92F. The TPO referred to an agreement dated 1.1.2006 between the assessee and BMW Germany, which outlined the assessee's duties in India, including advertisement and sales promotion. The TPO determined the ALP of AMP expenses with a mark-up of 11.105%, resulting in the addition. The Tribunal rejected the assessee’s contention that there was no international transaction of AMP expenses, citing the agreement and the assessee’s own Transfer Pricing study report. The Tribunal directed the AO/TPO to determine the ALP of the international transaction of AMP spend afresh in accordance with the guidelines laid down by the Hon’ble Delhi High Court in Sony Ericsson Mobile Communications (India)Pvt. Ltd. vs. CIT.

2. Transfer Pricing Addition from the International Transaction of Receipt of I.T. Support Services:
The second issue pertains to the transfer pricing addition of Rs. 2,20,31,561/- from the international transaction of ‘Receipt of I.T. Support Services’. The TPO rejected the assessee’s combined TNMM approach and applied the CUP method, concluding that no services were received or that the services were duplicate in nature. The Tribunal found that the assessee did receive I.T. Support Services and that some services were charged on a cost-plus basis. The Tribunal remitted the matter to the AO/TPO for determining the ALP of this international transaction afresh, in light of the Hon’ble jurisdictional High Court's guidelines in Knorr Bremse India Pvt Ltd vs. ACIT and CIT VS. Cushman Wakefield India (P) Ltd.

3. Transfer Pricing Addition on Account of Procurement Support and Training Services:
The third issue involves the transfer pricing addition of Rs. 1,16,99,748/- made by the AO on account of international transactions of ‘Procurement support’ and ‘Training services’. The TPO combined these transactions and applied the TNMM, which the Tribunal found inappropriate due to the distinct nature of the services. The Tribunal directed the AO/TPO to determine the ALP for these services independently.

4. Depreciation Rate on Digital Video Recorder (DVR):
The final issue concerns the depreciation rate on a Digital Video Recorder (DVR). The AO treated the DVR as an item of Plant and Machinery, allowing depreciation at 15% instead of 60% claimed by the assessee. The Tribunal upheld the AO's view, following its earlier decision for the A.Y. 2009-10, and confirmed that DVR should be classified as Plant and Machinery, not computer peripherals.

Conclusion:
The Tribunal provided a detailed analysis and remanded certain issues back to the AO/TPO for fresh determination, ensuring compliance with legal precedents and guidelines. The decision highlights the importance of correctly identifying and benchmarking international transactions and adhering to prescribed methods for transfer pricing adjustments.

---