Tribunal Overturns ALP Adjustments for AMP Expenses and Pringles Import

The Tribunal allowed the appeal of the assessee, directing the deletion of the Arm's Length Price (ALP) adjustments for both Advertisement, Marketing, and Promotional (AMP) expenses and the import of finished goods (Pringles). The Tribunal emphasized the significance of following legal precedents and appropriate benchmarking methods in transfer pricing cases, ultimately concluding that no adjustment was necessary in either instance.

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Issues Involved:
1. Arm's Length Price (ALP) adjustment in respect of Advertisement, Marketing, and Promotional (AMP) expenses.
2. ALP adjustment related to the import of finished goods (Pringles).

Detailed Analysis:

1. Arm's Length Price (ALP) Adjustment in Respect of Advertisement, Marketing, and Promotional (AMP) Expenses:

The assessee raised issues regarding the ALP adjustment for AMP expenses, arguing that these expenses benefited the Associated Enterprise (AE). The Tribunal noted that this issue had been previously decided in favor of the assessee in earlier years up to the Assessment Year (AY) 2013-14. The Tribunal reiterated the findings from AY 2013-14, emphasizing that the facts for the current year were identical.

The Tribunal reviewed the case where the Transfer Pricing Officer (TPO) had determined the ALP of AMP expenses by using the Bright Line Test (BLT) method, which was not prescribed by statute and had been invalidated by various judicial precedents, including the Delhi High Court in Maruti Suzuki India Ltd. The Tribunal found no factual basis for the TPO's inference that there was an arrangement between the assessee and the AE for incurring AMP expenses to promote the AE's brand. Consequently, the Tribunal directed the TPO to delete the ALP adjustment for AMP expenses, aligning with the decisions in earlier years.

2. ALP Adjustment Related to the Import of Finished Goods (Pringles):

The assessee raised an additional ground challenging the ALP adjustment for the import of Pringles amounting to Rs. 1,31,60,199/-. The Tribunal admitted this additional ground as the relevant facts were already on record.

The assessee argued that it acted as an entrepreneur in the Indian market, undertaking all key decisions and significant functions, bearing significant entrepreneurial risks, while the Singapore AE was a low-risk entity remunerated with a steady return on cost. The TPO had selected the Indian entity as the tested party and used the Transactional Net Margin Method (TNMM) to determine the ALP, resulting in an adjustment of Rs. 1,31,60,199/-.

The Tribunal found that the Singapore AE should be considered the least complex entity and thus the appropriate tested party. The Tribunal noted that the financial details of the AE and foreign comparables were provided to the TPO, contrary to the TPO’s claim. The Tribunal also referenced the Delhi Tribunal's decision in Ranbaxy Laboratories Ltd., where regional benchmarking was accepted.

Additionally, the Tribunal considered the assessee's alternative argument that if the Indian entity were the tested party, the Resale Price Method (RPM) should be the Most Appropriate Method (MAM) due to the nature of the transaction involving the purchase and resale of goods without significant value addition. The Tribunal found that the gross margins of the assessee were much higher than those of the comparables chosen by the TPO, indicating no need for ALP adjustment.

The Tribunal directed the deletion of the ALP adjustment for the import of finished goods, concluding that no adjustment was required in either case.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of the ALP adjustments for both AMP expenses and the import of finished goods. The judgment emphasized the importance of adhering to established legal precedents and proper benchmarking methods in transfer pricing cases. The order was pronounced on 16/02/2022.

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