TaxTMI 
TaxTMI 
2015 (9) TMI 483
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....as the "ALP") for the international transaction undertaken by the assessee with its Associated Enterprises (hereinafter referred to as the "AEs"). 2.1. The TPO completed the transfer pricing assessment u/s 92CA(3) of the Act thereby making a transfer pricing adjustment of INR 69,94,95,650/- vide his order dated 20.10.2011. As a result of this, the assessment was proposed at an income of 1,35,48,98,720/- vide draft assessment order dated 07.12.2011 u/s 144C of the Act. 3. Aggrieved by this draft assessment order, the assessee filed its objection before the Dispute Resolution Panel ((hereinafter referred to as the "DRP"). The DRP vide its order dtd. 27.09.2012 did not concur with the main arguments of the assessee however granted a partial relief. Pursuant to the DRP's order dtd. 26.11.2012 was passed u/s 143(3) read with section 144C of the I.T.Act. Aggrieved by this, the assessee has filed the present appeal before the Tribunal on the following grounds :- "1. On the facts and circumstances of the case and in law, the assessment order/directions passed by the Assessing Office (AO)/ Transfer Pricing Officer (TPO)/ Dispute Resolution Panel (DRP) are bad in law. 2. On the facts a....
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....enditure incurred by the assessee as the same is not a prescribed method under the provisions of section 92C of the Act nor is the same notified by the Central Board of Direct Taxes under section 92C(1)(f) of the Act. 11. The learned DRP has failed to appreciate that once the TPO has accepted that the Transactional Net Margin Method (TNMM) was the most appropriate method, he would not and cannot undertake an analysis of the individual elements of cost as the approach is inconsistent with the tenets of application of the TNMM. 12. That the learned TPO has incorrectly held both on facts and in law that, the AMP expenses incurred by the appellant to "excessive" on the basis of a "bright Line Limit" arrived at by considering inappropriate comparables not having similar product, brand profile and market circumstances as the Appellant. 13. That the learned TPO/DRP has committed gross error in considering selling and distribution expenses as a part of the advertisement and marketing expenses for computation of transfer pricing adjustment. 14. That the learned AO/TPO/Hon'ble DRP have failed to comprehend that to the extent of expenditure of INR 115,721,515/- incurred on advertising....
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.... as capital in nature which is not supplemented by proper examination of facts. PENALTY FOR CONCEALMENT OF INCOME 23. That on facts and in law, the AO/DRP erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance/additions and in initiating penalty proceedings under section 274 read with section 271 of the Act which are not established on facts." 4. The stand of the Ld. AR relying on the written submission was that the issue has to be go back to the TPO for re-computing, the AMP on the basis of the guidelines given in L.G. Electronics Ltd. case rendered by the Special Bench. The Ld. CIT DR in response stated that he would oppose the said prayer as before the Hon'ble High Court the Revenue's Counsel has categorically taken a stand that a remand may not be warranted as such he would be opposing the stand of the assessee and it would be his endeavour to argue that the impugned order has to be confirmed. Attention was invited by the Ld. CIT DR to the following portion of the order dated 28.02.213 of the Hon'ble Jurisdictional High Court in WP(C) 1215/2013 in the case of the assessee :- "In the present case the appea....
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....ssee and Sony Ericson group as appearing in the TPO's order u/s 92CA(3) are as under :- "2. Profile of the assessee and Sony Ericson Group:- 2.1 The Sony Ericson offers mobile multimedia devices, including feature-rich phones and accessories, PC cards and M2M solutions for end users. The assessee company was incorporated in India on April 23, 2007 and is a subsidiary of Sony Ericson Mobile Communication AB, a company incorporated under the laws of Sweden. The Sweden entity is a 50:50 joint venture between Telefonaktiebolaget LM Ericson (Sweden) and Sony Corporation (Japan). As stated in the transfer pricing report the group companies own significant valuable intellectual property rights (know-how, patents, copyrights etc.) and other commercial or marketing intangibles (brand names, trademarks, logos etc.) and are involved in complex product development, manufacturing and brand development of the products. Group Companies also bear significant business and entrepreneurial risks of product acceptability and performance in the market. The assessee company is primarily engaged in the business of importing, buying and selling and distributing wide range of mobile phones in In....
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....g and operating cost changes in the sales subsidiary. Accordingly, the pricing of products between the assessee and the AE is regulated in a manner that ensures that the assessee earns an arms length return with respect to distribution activity. Therefore, based on the price level development in the market, it was stated that if at the year end, the assessee is not able to achieve the arm's length return with respect to its distribution activity then as per its distribution policy it receives credit notes from its AE to achieve an arms length return on sales. 5.5. Accordingly in the year under consideration, the assessee it was stated received credit note of Rs. 73,83,70,409/- from the AE in order to achieve an arms length result. It was further stated that there is no agreement for the use of brand name between the overseas AE and the assessee and the assessee has not made any payment to its AE for using the brand name. As such it was stated that the advertising and marketing expenses incurred by the assessee are for furthering its sales in the Indian market and is not related to brand promotion expenses. As such it was stated that the transaction does not warrant a reimbursement....
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....rred the following expenses relating to AMP, the same are reproduced here under :- "Advertisement expenses Rs. 660,556,778/- Business Promotion & Selling Expenses Rs. 496,658,381/- Total Expenditure on AMP Rs.1,157,215,159/- 5.11. In the above background, the TPO was of the view that huge expenditure on AMP has been done to promote the brand, trade name, Sony Ericson which is beneficially owned by the AE resulting in benefiting the AE for which the assessee should have been compensated. Holding the same to be an international transaction within the meaning of section 92B(1) of the Act read with 92F(v) of the Act, the TPO proposed to determine the arm's length price of the same. Accordingly after issuing a show cause notice and considering the explanation, the TPO proposed to benchmark appling the bright line test. The TPO accordingly proposed to compare the AMP expenditure of the tested party with the AMP expenditure with other comparables engaged in similar business using advertisement, marketing and promotional expenditure to sales ratio. As such he proposed to use the current year data of the comparables selected by the assessee for the comparable segment. The rat....
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....n by it towards third parties which are not covered under the purview of Section 92 of the Income Tax Act, 1961 ('Act'). III. Analysis of such domestic transactions undertaken with third parties, in respect of which no reference has been made by the Assessing Officer ('AO') to the TPO, is beyond the powers vested with the TPO under Section 92CA of the Act. IV. Having accepted TNMM as the most appropriate method to benchmark the Assessee's international related party transactions, challenging/analyzing individual elements of costs (like AMP expenses) by the TPO is in violation of fundamental TP principles and inconsistent with the tenets of application of TNMM. V. AMP expenses incurred by the Assessee are on its own accord and for its own business purposes and benefit; any benefit of such AMP expenses to AEs is nothing more than indirect and incidental; VI. Indirect and incidental benefit to AEs, cannot in law, form the basis of disallowing genuine business expenditure (AMP expenses) of the Assessee; VII. Assessee has a long term royalty free distribution right; VIII. Concluding that the AMP expenses incurred by the Assessee are excessive on the basis of a Bright line limit th....
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....est cost that the assessee would have borne on the money invested by it in developing, marketing intangible. 5.16. Consequently, TP adjustment of Rs. 699,495,650/- was computed as under :- Computation of TP adjustment (In Rs.) Value of Gross Sales 16,386,808,123 AMP/Sales of the Comparables 3.35% Amount that represents bright line 548,958,072 Expenditure on AMP by assessee 1,157,215,159 Expenditure in excess of bright line 608,257,087 Mark-up at 15% 91,238,563 Reimbursement that assessee should have received 699,495,650 Reimbursement actually received NIL Adjustment to assessee's income 699,495,650 5.17. The AO accordingly passed a Draft assessment order pursuant to the TPO's order. Aggrieved by this, the assessee went in appeal before the DRP-II, New Delhi who vide its order dated 27.09.2012 after considering the submissions on behalf of the assessee accepted the contention that Redington India Ltd. and Compuage Infocom should be excluded as their AMP was NIL. However the contention that only 2 comparables are appropriate namely General Sales Ltd. and Intex Technology was not accepted. However since no grievance qua the comparables has been posed by the....
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....marketing, distribution channel, sales and warranty etc. As such it was argued these are part and parcel of its activities as a distributor. It was submitted that the FAR analysis of the assessee at pages 19 to 25 of the first paper book has not been disturbed by the TPO. As such after accepting that advertising and marketing are functions of the distribution activity, the TPO/DRP are contradicting themselves. It was submitted that by extending the reasoning, the argument that warehousing services, packaging service, carrying and forwarding services, logistics services, sales support service are all separate transactions. If it was so it was submitted then the TPO should have held that the assessee is not a distributor but a service provider and compared the assessee to companies engaged in providing the same bouquet of services. It was argued that having accepted the assessee's profile as a distributor, it is not open to the Revenue to isolate one of the functions performed as a distributor and hold that a service is being provided. 5.19.1. Inviting attention to written submissions dated 17.06.2011 (pages 96 to 105 of the paper book) before the TPO, it was submitted that the asse....
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....ross margin 25 Adjusted net margin 10 Adjusted net margin 10 * The above table clearly demonstrates our argument that as compared to a distributor who has limited role and responsibilities, a distributor who undertakes greater functions and responsibility will be left with a higher gross margin to account for the additional functions and expenses. * This higher gross margin may come by way of a lower price of goods at the time of purchase or even by way of a subsidy at a later stage. * The Special Bench in the case of LG India has held that comparable gross margin does not necessarily mean that the price of goods has been reduced to compensate for higher AMP expenditure since a higher profit can be a function of many factors. While this may be true for an entrepreneurial manufacturer like LG, the same is not applicable to a distributor. A distributor has primarily two types of costs : one is the cost of goods sold the other is the overhead costs which have been incurred for undertaking various functions like advertising and marketing. In the context of the example outlined above, when the first a distributor who is responsible for undertaking advertising and mark....
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....he practical Manual on Transfer Pricing Manual on Transfer Pricing of Developing Countries (from page 24 vol.-3 of the paper book) :- "10.3.8.15. The important issue in the determination of ALP in these cases is to examine who benefits from the extraordinary AMP expenditure. Taxpayers generally claim that such extraordinary expenditure helps the business of the Indian entity also in addition to parent MNE. However, the tax authorities in India have found that Indian distributors are claimed to be no risk or low risk bearing entities and are getting fixed and routine return on cost plus basis. They do not get a share in the excess profit relatable to local marketing intangibles. Accordingly, extra-ordinary AMP expenditure does not enhance the profitability of Indian subsidiary or related party. This conclusion of the tax authorities is further supported by the fact that these so called risk-free or limited risk distributors have disclosed huge losses even when they are entitled for fixed return on cost plus basis and should not have incurred losses." 5.19.7. Accordingly it is argued that even in the Indian Tax Administration's view the marketing intangibles arise only in cases whe....
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....ture it incurs or any other indirect or implied compensation from A and expects to earn its reward solely from the sales of branded watches to third party customers in the Australian market. ATO's guidance : If A was compensating B for its marketing activities, it would've charged higher for products sold to B and consequently, the profit earned by B would have been lower than comparables who undertake their own marketing. Since the profits earned by B were similar as that of comparable companies, the benefits obtained by B result in profits similar to those made by independent distributors and therefore the arrangement are at arm's length. Since in the example, the profits earned by B were same as that of comparable companies, it was concluded that benefits obtained by B result in profits similar to those made by independent marketers and distributors from similar marketing and distribution agreements. Hence, the arrangement was held to be at arm's length." 5.19.10. Reference may also be made to the 3 paged written submissions filed on the date of hearing addressing Transfer Pricing issue. Para 2 of the same is extracted hereunder :- "2. During the year the assessee aggregate....
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.... purpose. It was his argument that the record would show that the assessee has been contesting till date that it is not an international transaction and the assessee has not even documented it as an international transaction accordingly how can the assessee now be allowed to argue that the subsidy received is for the high AMP expenditure. Addressing the order of the Mumbai Bench in Fine Jewellery case relied upon by the Ld. AR, it was stated that the same is not in the context of transfer pricing as such does not have any relevance in the present proceedings. 5.20.1. Subsequently, the parties were required to clarify the position in view of the fact that the Ld. CIT(A) DR had placed on record his written submissions to which it was considered necessary to have the response on behalf of the assessee. The stand of the department was that the DRP's order is a very reasoned and speaking order. As such, there is no reason to restore the issue. The following note was placed on record by the CIT(A) DR reproduced hereunder :- MAY IT PLEASE YOUR HONOURS :- "The plea of revenue is that the issue regarding AMP expense etc. are covered by the LG decision of ITAT (in ITA No. 5140/D/2011). T....
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....d a proposition and an afterthought. Subsidy could not have been given for a transaction which the assessee claims is not an international transaction. Even the Hon'ble ITAT, in the case of M/s. LG Electronics (as referred above), has held, on pages 101 & 102, point nos. 9 & 10, as follows- "In our considered opinion, following are some of the relevant questions, whose answers have considerable bearing on the question of determination of the cost/value of the international transaction of brand/logo promotion through AMP expenses incurred by the Indian AE for its foreign entity:- ......................... 9. Whether the foreign AE is compensating the Indian entity for the promotion of its brand in any form~ such as subsidy on the goods sold to the Indian AE? 10 Where such subsidy is allowed by the foreign AE~ whether the amount of subsidy is commensurate with the expenses incurred by the Indian entity on the promotion of brand for the foreign AE?" An analysis of item no. 9 above shows that the compensation by the AE has to be specifically for promotion of brand. This compensation, though, may be in the form of cash subsidy, or in the form of free advertising material, or ....
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.... extent of such subsidy or vice versa" In the present case, it was respectfully submitted that during the course of the transfer pricing assessment it was specifically stated by the assessee that it has received subsidy from its parent amounting to Rs. 73.83 crores so as to maintain its profitability above 2% in any case. It would be seen that the TPO has made an adjustment of Rs. 69.94 crores to the arm's length price and if the amount of subsidy is considered no adjustment is required to be made on the facts of the present case. 2. Selling expenses and sales promotion expenses cannot be considered to be cost incurred for brand promotion expenditure To determine the value of the costs incurred by SOMC India for the purpose of brand promotion, the TPO in addition to advertising cost has considered the following two items of expenditure: * Selling expenses * Sales promotion expenses The appellant has clearly quantified the above stated amounts and explicitly determined the expenditure incurred only on advertising and place this information on record with the TPO/DRP. The quantification of these figures along with the relevant paperbook references are as follows: Nature....
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....Cir 3(1) (ITA No. 4602/Del/2010, 5593/Del/2011 and 6086/Del/2012) in para 7.7 (Copy of order is attached herewith) Therefore, it is humbly submitted that following Special Bench and coordinate bench order the expenses in connection with sales are incurred post occurrence of ales and such expenses reduces the cot of goods sold and are directly linked to sales and cannot be attributed to advertisement. Therefore, expenses amounting to INR 49.66 crores cannot be held as such expenditure which helps in building/promoting "Sony" brand and should be excluded from advertisements, marketing and promotion expenses for determining the cost/value of the international transaction. 3. To the extent of expenditure incurred on advertising and sales promotion, there has been double disallowance/addition as this expenditure has been treated as 'capital' by the AO, and hence entirely disallowed u/s 37(1) in computing the taxable income whereas the said amount has been included by the TPO while computing the alleged excessive AMP expenditure. During each of the subject assessment years, the TPO has made the transfer pricing adjustment and at the same time the AO has disallowed 10 percent of the tot....
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....n India on April 23, 2007 and is a subsidiary of Sony Ericsson Mobile Communications AB , a company incorporated under the laws of Sweden. The Sweden entities a 50:50 joint venture between Telefonaktiebolaget LM Ericsson (Sweden) and Sony Corporation (Japan)." 6.1.1. As per the Transfer Pricing study the Sony Ericson Group offers mobile multimedia devices, including feature-rich phones and accessories, PC cards and M2M solutions for end users. Addressing the ownership of intellectual proper and marketing intangibles and the FAR analysis of the assessee, certain portions from the TP study relevant for addressing the issues in the present appeal are being extracted hereunder:- "1.2.3. Group Companies own significant valuable intellectual property rights (know-how, patents, copyrights etc.) and other commercial or marketing intangibles (brand names, trademarks, logos, etc.) and are involved in complex product development, manufacturing and brand development of the products. Group Companies also bear significant business and entrepreneurial risks of product acceptability and performance in the market. 1.2.6 AEs are relatively complex entities that engage in fullfledged manufacturing....
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....cson Mobile Communications AB, a company incorporated in Sweden, is a 50:50 Joint Venture (JV) between the world renowned Sony Corporation and Ericson group. The JV entity was launched as an operational business on October 1, 2001. Its activities are focused on product development, industrial design, distribution, sales, marketing and customer services for mobile consumer products. The JV has come a long way since its inception in 2001 to become one of the world's most appealing mobile communication brands, achieving many successes in technology, product innovation and brand development. The company in the year 2007-08 remained the fourth largest mobile phone manufacturer in the world. 2.2.2 The JV is build on the unique strengths of its parents. It can readily tap into expertise in telecom infrastructure from Ericsson and knowledge of consumer electronics and branding from Sony. In fact Ericson lead the R & D of mobile communications technology, owns the most valuable operator customer base for mobile systems and is at the forefront of telecommunications industry's evolution to 3G. Sony has unrivalled multimedia and consumer design, marketing and retail distribution skills. Sony ....
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....creasing competition among the service providers. The study points out the performance of earlier entrants using GSM and Code Division Multiple Access (CDMA), the competition amongst the entrenched and new entrants specially the Chinese companies resulting in the price wars amongst the players and need and necessity to fulfill the customer's demand of variety in colour, ringtones and demand for added features like camera, music, imaging, business needs, mobile navigation etc. so as to catch the consumer's eye, the impact of the changes in technology demand for accessories, short product life cycle and cause of concerns due to competition from the flourishing grey market, replacement market and frequent and competitive launches of new models presumably to justify the high AMP spend keeping the market realities. 6.1.6. Specific reference may also be made to the distribution segment as under :- "3.3.3 Distribution segment has also witnessed lots of development, right from opening up of experience stores to availability of phones in branded retail shops. In order to increase coverage in the rural areas, existing channels have been roped in to provide necessary coverage in terms of di....
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....tential market waiting to be tapped by the telecom companies. According to Voice and Data estimates, of the next 250 million users as many as 100 million will be from the rural parts of the country". Turning these estimates into reality will indeed be a herculean task and will require the service providers, vendors, and channel partners to work together so that India can achieve the high telephone penetration levels. 3.4.2 The first challenge is to enhance the distribution coverage area from present 4,000 to 5,000- 6,000 cities, and to provide for after sales services in all these cities." The second challenge is the high level of localisation as the power situation in these areas is erratic and the interface of the phones will have to be converted to local languages. The third challenge is to ensure that these phones are available at a cost that will be within the reach of a large population in the semi-urban and rural areas. Already few companies are coming out with innovative solutions to problems of rural areas. 3.4.3 The industry has immense growth potential but for small players like BenQ, Haier, UTStarcom, ZTE, Huawei and others, it is a tough road ahead. Acquiring market ....
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....onsible for all Research, Core, strategic and complex decisions, it may be relevant to extract para 4.4.5, 4.4.6, 4.4.8 & 4.4.9 of the TP study as under :- "4.4.5. The overall marketing strategy is developed by the AEs as they have the requisite experience for undertaking this activity. Based on the broad guidelines provided by the AE, SEIN develops the local advertising and marketing initiatives. 4.4.6. Since the mobile handsets and accessories purchased by SEIN are sold through distributors in India, SEIN is responsible for developing and maintaining dealer network. The Indian Entity is responsible for identifying and selecting dealers, negotiating terms with them, providing product information to dealers etc. It also undertakes routine functions like credit appraisals, order processing, warehousing of products, inventory management, logistics management, receivables management etc. 4.4.7. The sales team is responsible for promotion and sale of products in India. It also looks into maximizing its customer base by acquiring more customers and retaining its old customers. The Indian Entry purchases high-end mobile phones from its AEs. For low-end mobile phones, the AEs hav....
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....pecial Bench in the case of L.G. Electronic's case is applicable to the facts of the present case, it is necessary to emphasize a relevant fact that the principal appellant in the case of L.G.Electronic's case was a licensed manufacturer. On the other hand in the present case, the assessee is a distributor. Hence while considering the precedent value of Special Bench in L.G.Electronic's case to the facts of the present case, the distinguishing facts and more so the material facts will have to be kept in mind. Questions and issues arising out of facts which neither arose nor were referred to for its considerations nor argued before the Special Bench cannot be deemed to have been "covered" as a binding precedent of Special Bench so as apply to the facts of the present case. 6.5. While considering the language used in a judgement/decision, it is necessary to be borne in mind that it is to be interpreted plainly and unambiguously and artificial construction is to be avoided. The importance of reading the entire judgement/decision can never be over-emphasized especially if there is a doubt cast by any of the parties about the precedent laid down in the judgement. The approach to refer ....
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....297 (SC) specifically observed that it is neither desirable nor permissible to pick out a word or a sentence from the judgement of the Hon'ble Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared. 6.6. We may also quote the observations as quoted in CIT vs K. Ramakrishnan (1993) 202 ITR 997 (Ker.) and State of Orrisa vs Sudhansu Shekhar Misra and others AIR 1968 SC 647 from of Lord Halsbury LC from Quinn v. Leathem [1901] AC 495 (HL), at page 506: "....there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgement must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expression which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that th....
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....d. 6.8. The need in the facts of the present case is more so, as transfer pricing legislation and the Rules thereunder specifically Rule 10B(2) framed u/s 92C of the Income Tax Act mandate that the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to specific characteristics of the property transferred or services provided in transactions/ functions performed taking into account the assets employed or to be employed and the risks assumed by the respective parties to the transactions; the contractual terms whether or not such terms are formally put in writing or are orally agreed which lay down explicitly or implicitly how the responsibilities and evidences the risks and benefits to be divided between the respective parties to the transactions how the parties have actually acted; and conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical locations and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition in the sector and whether the markets are whol....
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....e error of judgement to blindly rely upon a decision as a precedent for all future cases simply because the decision is by a larger Bench or an earlier Co-ordinate Bench since the facts of each and every case will determine the extent to which the said decision is binding. To hold otherwise would set a bad precedent of deciding on issues de-horse the facts on records. This mandatory exercise is always required to be done by an adjudicating body/authority so that its decision can withstand legal scrutiny. A finding of fact becomes "the legal finding" only when the procedures prescribed by law is followed i.e the characterization and a detailed FAR examination of the taxpayer along with similar characterization and FAR analysis of the decision sought to be applied. 6.11. In view of the proposition of law applicable to transfer pricing cases as laid down above on a detailed consideration of the TP study of the assessee (para 4.4.5 extracted in the earlier part of this order), we hold that the assessee has performed significant intensity functions in advertising marketing and selling the product carrying the brand name of the AE. While doing so the assessee has done following the guid....
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....cedent in the decision of the Special Bench in L.G. Electronics case. Consequently, the grounds assailing the action of the DRP in upholding the TPO's order, holding the transaction as an international transaction; and holding that compensation for nonroutine incurring of expenditure for advertising the brand of the AE by which the benefit has accrued to the AE applying the bright line test is decided against the assessee. While so holding, we restore the issue for correctly calculating AMP expenses following the decision of the Special Bench in L.G. Electronic's case as a result of which salesman/dealer bonus/selling expenses are to be excluded. 6.13. The Ld. AR in the course of the arguments has requested for a direction that considering the Question nos.-9 & 10 considered by the Special Bench, no compensation would be warranted and the TPO be directed to look into it as in the facts of the present case, Credit notes amounting to Rs. 73 crore odd have been received by the assessee. The Ld. CIT DR as observed earlier also has vehemently argued that with hindsight due to the decision of the Special Bench, the assessee cannot now be allowed to argue that this was for AMP expenditur....
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....ibutors who are stated to be no risk//low risk distributor. The participation of the Representative of India evidenced from the Forward to the Manual is reproduced for ready-reference :- "While consensus has been sought as far as possible, it was considered most in accord with a practical manual to include some elements where consensus could not be reached, and it follows that specific views expressed in this Manual should not be ascribed to any particular persons involved in its drafting. Chapter 10 is different from other chapters in its conception, however. It represent an outline of particular country administrative practices as described in some detail by representatives of those countries, and it was not considered feasible or appropriate to seek a consensus on how such country practices were described. Chapter 10 should be read with that difference in mind." 6.13.2. The concern addressing loss making distributors are culled out from page 24 of Vol.-3 of the paper book which contains the copy of the UN Practical Manual in Transfer Pricing for Developing countries :- "10.3.8.15. The important issue in the determination of ALP in these cases is to examine who benefits from....
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....ecial Bench in the case of L.G. Electronics was considering the facts of a licensed manufacturer who was the principal appellant and though the Special bench did attempt to consider the situation of all possible diverse business models and various possible permutations and combinations which may be incorporated in the terms of the agreements by the parties finally accepted its humane limitations when it gives voice to the impossibility of the herculian task undertaken while observing "that there cannot be a straight jacket formula". Operating within the limitations of opining without having the benefit of specific facts and argument 14 parameters have been suggested in para 17.4 by the Special Bench. Question no.-1 in para 17.4 sets out that it is necessary to see whether the assessee is a Distributor or a licensed manufactures thereby accepting that there are material and distinguishing features in the two. Similarly Question No-9 & 10 considers the necessity of the fact whether any compensation in the form of a subsidy is received for the AE and whether it is adequate for the services rendered. As such the factum of credit notes in the facts of the present case is necessarily req....
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....mark-up by our own arbitrary estimate in the absence of any facts or material on record. Even estimates have to have some rationale and reasoning which is completely absence in the orders and arguments advanced before us. Accordingly, we deem it appropriate to set aside the orders and restore the issue back to the TPO/AO with the direction to give a rationale basis for applying a mark-up after hearing the assessee, if so warranted on facts. In principle the departmental stand that over and above compensation of costs incurred mark-up factoring in the profits for application of its funds, resources and efforts in terms of time and energy needs be considered also. Whether on facts, the adjustment in arm's length price is still warranted or not shall be decided on the facts of the case, considering the guidelines of the Special Bench which need to be considered for calculating the correct AMP and the Question Nos.-1, 9, 10 & 12 in para 17.4 of the Special Bench. Accordingly, the legal issue is decided in favour of the Revenue. 6.16. Vide Ground No-17, the assessee has agitated that for computer peripherals the rate of depreciation on UPS should be 60% as opposed to 15% allowed. Befor....