TaxTMI 
TaxTMI 
2013 (10) TMI 543
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....ransfer Pricing Officer and the directions of the learned Dispute Resolution Panel u/s. 144C(5) of the Income-tax, is erroneous, untenable in law and on facts for the various reasons and not limited to the following:- (a) The TPO as well as the DRP and consequently the A.O. has erred in law and on facts and in the circumstances of the case is erroneously holding that the appellant is engaged in brand building activity on behalf of its AE. (b) The TPO as well as the DRP and consequently the A.O. has erred in law and on facts and in the circumstances in erroneously holding that the local transactions of the appellant involving marketing expenses with unrelated parties are international transactions u/s 92B of the I.T. Act, 1961 and transfer pricing provisions apply on them. (c) The TPO as well as the DRP and consequently the A.O. has erred in law and on facts and in the circumstances of the case in erroneously determining the ALP of the transaction of the appellant using the methodology that is not prescribed by the Income-tax Act, 1961. (d) The TPO as well as the DRP and consequently the A.O. has erred in law and on facts and in the circumstances of the case in ignoring ....
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....tion expenses of Rs. 7,16,68,064/-. The details of the advertisement expenses were as under:- S.No. Account Code Expenses Amount (in Rs.) Advertisement 1 540001 Media Advertisement 33,899,095 2 540002 Exhibition /Trade fair 10,165,524 3 540007 Billboard/Hoarding/Signage/Bann 7,497,892 4 540009 Catalogues/Newsletter/Calendar/M 471,143 5 540010 Dealer Meet Expenses 215,339 6 540011 POP/Leaflet/etc. 15,877,617 7 524004 Training/Seminar/Classes 12,882 8 524002 Product Demonstrators 4,997,931 9 524003 Product Launch/Event Exp. 1,843,908 10 524007 Product Finance Scheme 5,890,885 11 524008 Inshop-POP/Leaflet/Posters 88,800 12 524009 Consumer Gift 8,988,457 Total 89,949,473 Similarly, the business promotion expenses details read as under:- Business Promotion 1 522004 Key Dealer Incentive 35,368,667 2 522009 Exhibition /Trade fair 33,109,309 3 522013 Billboard/Hoarding/Signage/Bann 2,287,292 4 522011 Catlogues/Newsletter/Calendar/M 902,796....
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...."Panasonic" brand, which was liable to be adjusted. Accordingly, he proceeded to compute the arm's length price adjustment as follows:- "Arithmetic Mean of percentage of selling expenses to sales 3.31% Percentage of selling expenses to sales 17% Sales turnover of the assessee company 941788566 Selling expenses @ 3.31% on 941788566 ....
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.... has sustained the adjustment. The relevant observations are reproduced hereunder:- "10. Adjustment towards expenses incurred for Brand promotion for AE 10.1 The TPO observed that the percentage of selling expenses to Sales in the case of assessee was 17%, whereas the mean of this ratio for the comparable companies was only 3.31%. In effect, the assessee has incurred selling expenses, far in excess, in comparison to the comparables. The TPO had analyzed the possible reasons for this phenomenon and gave a finding that this excess expenses has been incurred by the assessee towards brand building activity, whose benefit accrue to the AE as it is the owner of the brand. As such, the TPO determined that this excess amount is payable by the AE to the assessee and made an adjustment on this score, which was Rs. 3,80,86,435. 10.2 The objections of the assessee to this adjustment are as under:- (i) Marketing transactions with local parties have been treated as international transactions (ii) The assessee is charging 15% mark-up on the marketing support services rendered to AEs (iii) The tax authorities cannot ignore the legal character of the transaction and dispute the le....
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....tional transactions" and hence no TP adjustment is tenable. 10.7 The contentions are not acceptable. What is proposed to be adjusted is not advertisements expenses per se. What is proposed to be adjusted is the benefit that accrue to the AE due to the marketing activity of the assessee. 10.8 The term 'international transaction' is provided in section 92B of the Act as under: (1) For the purposes of this section and sections 92, 92C, 92D and 92E, international transaction means a transaction between two or more associate enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise....
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....ransfer Pricing regulations and would have to satisfy the arm's length test as provided in section 92(1) of the Act. In other words, it may be possible to impute the arm's length price to such transactions which has the effect of Brand promotion of the AE. Assessee is already charging mark up on marketing services 10.13 The assessee appears to have mixed up two different issues, perhaps due to the same nomenclature used. The "marketing services" rendered by the assessee to its AEs are towards specific services like pre-launch survey, pre-launch advertisement, after sales service etc., for which mark up of 15% is charge. 10.14 What the TPO has sought to make adjustment is for the benefit that accrue to the AE due to the selling efforts done by the assessee, by way of brand promotion and which has been quantified in terms of excess advertisement expenses incurred, in comparison to the comparable companies. This is very different from the "marketing services" rendered by assessee to the AE. The objection is not tenable. Legal character of the transaction cannot be ignored 10.15 As already discussed in earlier paras, what is being adjusted is not advertisement per se, bu....
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....ales promotion expenses incurred by the assessee? 2. Whether the Assessing Officer was justified in holding that the assessee should have earned a mark up from the associated enterprise in respect of advertising, marketing and promotion expenses alleged to have been incurred for and on behalf of the associated enterprise?" We find that after detailed discussion, it has been held that the advertising, marketing and promotion expenses incurred (AMP expenditure) more than those in case of comparables, are transactions exigible to proceedings under Chapter X of the Act, being a case of brand building. A perusal of the same also shows that after a minute analysis of relevant provisions in the aforesaid Chapter X Sections 92, 92B, 92C, 92CA, 92F(v), the Special Bench concludes that such expenses, even if paid to Indian entities, are covered by the definition of "transaction" within the meaning of Section 92F(v) of the Act. Therefore, so far assessee's arguments on legality are concerned, we do not find any merit. 15. At the same time, we find force in the assessee's plea that per Special Bench decision, the expenses which are directly related to the sales do not come within the ....