Tribunal overturns BLT method, favors RPM for transfer pricing adjustment. Consistency with precedent emphasized.

The Tribunal allowed the appeal of the assessee, directing that the adjustment be determined considering Resale Price Method (RPM) as the Most Appropriate Method (MAM) for transfer pricing. The Tribunal emphasized consistency with its earlier decision and the binding nature of judicial precedents, particularly citing the rejection of the Bright Line Test (BLT) method by the Hon'ble Delhi High Court. The protective addition made following the BLT method was deleted. The order was pronounced on 26/04/2021.

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Issues Involved:
1. Determination of the Most Appropriate Method (MAM) for Transfer Pricing Adjustment.
2. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses.
3. Whether AMP Expenses Constitute an International Transaction.
4. Application of Bright Line Test (BLT) for Transfer Pricing Adjustment on a Protective Basis.
5. Levying Interest under Sections 234B and 234C.
6. Initiation of Penalty Proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Determination of the Most Appropriate Method (MAM) for Transfer Pricing Adjustment:
The primary issue relates to determining the Most Appropriate Method (MAM) for transfer pricing adjustment of transactions. The assessee opted for the Resale Price Method (RPM) for benchmarking international transactions regarding AMP expenses, while the revenue resorted to the Transactional Net Margin Method (TNMM). The Tribunal referenced its earlier decision for the assessment year 2013-14, where it was held that RPM was the MAM for benchmarking. The Tribunal directed that the adjustment be determined considering RPM as the MAM, following the principle of consistency as there was no material change in the facts of the case.

2. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses:
The Ld. AO/TPO enhanced the income of the appellant by Rs. 13,39,13,000 by making a TP adjustment on account of AMP expenses, asserting that the expenses were excessive and should be compensated by the Associated Enterprises (AEs). The Tribunal found that the issue had been covered by the ITAT’s order in the assessee’s own case for the earlier assessment year, which upheld RPM as the MAM for benchmarking. The Tribunal directed that the adjustment be determined considering RPM as the MAM.

3. Whether AMP Expenses Constitute an International Transaction:
The Hon’ble DRP/Ld. AO/Ld. TPO erred in assuming that the AMP expenditure incurred by the appellant is an "international transaction" within the meaning of section 92B of the Act. The Tribunal noted that the AMP expenses were incurred by the appellant as part of its role and responsibility as a distributor and not for providing any benefit to its AE. The Tribunal emphasized that the AE did not derive any benefit from the AMP expenditure incurred by the appellant.

4. Application of Bright Line Test (BLT) for Transfer Pricing Adjustment on a Protective Basis:
The Tribunal referenced the Hon’ble Delhi High Court’s decision in the case of Sony Ericsson, which rejected the BLT method for computing the arm’s length price of the AMP transaction. The Tribunal noted that the substantive addition on AMP adjustment had already been deleted by the Ld. DRP, and only the addition made on a protective basis following the BLT method was sustained. The Tribunal directed the Ld. AO/TPO to delete the protective addition, as the BLT for computing the Arm’s Length Price of AMP transactions had already been rejected by the Hon’ble Delhi High Court.

5. Levying Interest under Sections 234B and 234C:
The Tribunal did not specifically address the issue of levying interest under sections 234B and 234C, as the primary focus was on the transfer pricing adjustments and the application of the appropriate method.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
Similarly, the Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c), as the primary focus was on the transfer pricing adjustments and the application of the appropriate method.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing that the adjustment be determined considering RPM as the MAM and deleting the protective addition made following the BLT method. The Tribunal emphasized the principle of consistency and the binding nature of judicial precedents, particularly the decisions of the Hon’ble Delhi High Court. The order was pronounced in the open court on 26/04/2021.

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