TaxTMI 
TaxTMI 
2016 (4) TMI 1146
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....work of distributors situated across the country. In addition to of activities, the assessee provides sales agency services, administration support services to its AE for sales to three entities, namely-Indian Tourism Development Corporation, Indian Airlines & Air India and Duty-free-shop. In that respect it earns a fixed commission for the sales agency services. During the year under consideration the assessee imported concentrates and flavours from group companies to manufacture Scotch whisky and other alcoholic beverages. It had rendered sales agency service to its AE. s. The assessee aggregated all the international transaction in that segment and applied Transactional Net Margin Method(TNMM). It had chosen Berry-ratio or PBIT to operation costs as an appropriate profit level indicator (PLI). Seven companies were considered as comparable by the assessee and the arithmetical mean of Berry-ratio at 1. 01, based on the data for the three financial years, was arrived at. 2. As the assessee has entered into international transactions with its AE. s, so, the Assessing Officer(AO)made a reference to the transfer pricing officer(TPO), as per the provisions of section 92 of the Act. Wh....
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....of the assessee was compared with the percentages of AMP expenses of comparables and access had been held towards strengthening the brands owned by the AEs, that BLT was not method specified under the act or under rule 10 B of the rules, that the TPO had wrongly applied CUP method, that under CUP there should be high-level of comparability with the comparables in respect of quality, quantity, time, contractual terms, geography, customers market etc. , that if CUP was considered the most appropriate method then AMP expenses should have been benchmarked using the internal CUP as the assessee owns the brand Sharktooth and Nilay and had incurred AMP expenses for the same, that recovery of AMP expenses of Rs. 62. 15 lakhs from the parent company had no connection with AMP expenses incurred by the assessee for its own business, that the parent company was incurring huge AMP expenses directly in India for which invoices were also directly raised on the parent company by third parties, that only for convenience purposes a very small portion of the same was paid by the assessee and was subsequently recovered from the parent company, that AMP expenses mainly benefited the assessee in form of....
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....nd promotion and brand value augmentation had been provided by the assessee without receiving any compensation for the same, that promotional effort in a country of the size of India would contribute significantly in the increase of such brand value, that the AMP expenditure of the assessee was much higher than even that of the comparable companies submitted by the assessee itself, that brand building carried out by the assessee for its AE. s was an international transaction and the assessee was entitled to a reasonable compensation for such AMP expenses. With regard to the assessee's contention that the major part of sales made by it were of products manufactured in India and that such products were developed specially for the Indian market, the DRP observed that it did not take away from the basic fact that brand promotion and brand value augmentation constituted a significant fallout of the AMP expenditure of the assessee, that it was not the contention of the TPO that and that AMP expenditure was for the benefit of brands owned by the parent company, that the order of the TPO was based on the fact that the expenditure incurred also contributed to enhance the brand value of the....
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.... the assessee was not a mere distributor, that it was a manufacturer also. 5. We have heard the rival submissions and perused the material before us. Undisputed facts of the case are that the assessee had entered in to international transactions with its AE. s, that it had determined the ALP of such transaction adopting TNMM, that the TPO accepted the valuation of the those transaction, that he further held that the AMP expenses incurred by the assessee (Rs. 96. 38 crores)were to be examined as per the provisions of section 92 of the Act, that he held the assessee contributed to enhance the brand value of the brand owned by the AE. s. He also held that the assessee was entitled to compensation for the expenses incurred under the head AMP. In short, he held that benefit conferred by the assessee on its AE. s, by way of promoting the brands and increasing value of their brands, was an international transaction and ALP of said transaction had to be determined, that an addition of Rs. 94 Crores was made by the on account of AMP Expenses. It is also not denied that the assessee is having a fully operational manufacturing, marketing and distribution system in India. The manufacturing un....
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.... 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 anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. " 56. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease o....
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....angement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. " 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. . Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i. e. , 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: "The other limb of the concept requires two or more persons joining together with the shared common objec....
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....n the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same. " 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99. 9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wildgoose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an* exercise. The Court is unable to find one. To the que....
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.... wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e. g. , the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy; and for-no other purpose; in the- context of a domestic transaction involving two or more related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable havin....
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....fies otherwise the tests laid down by the law". Considering the facts-like absence of an agreement between the assessee and the AE. s. for sharing AMP expenses, payment made by the assessee under the head AMP to the domestic parties, failure of the TPO prove that expenses were not for the business carried out by the assessee in India-and following the judgments of the Hon'ble Delhi High Court delivered in the case of Bausch and Lomb (India) Pvt. Ltd(supra), we are of the opinion that the transaction in question was not an international transaction and that the TPO had wrongly invoked the provisions of Chapter X of the Act for the said transaction. First effective ground of appeal (GOA1-16) is decided in favour of the assessee and the additions made by the AO are directed to be deleted. 6. Now, we will take up the second adjustment i. e. While completing his order, the TPO linked AMP expenses and recovery of AMP expenses on sales support service and held that the assessee was rendering brand promotion services, that it should have recovered 94 crores plus markup from AEs in addition to sales support services, that the assessee did not receive proper compensation from its AEs for ....
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....he DRP rejected three comparables selected by the TPO and accepted the objection of the assessee about incorrectly using berry ratio with the profit margin of other comparables. He directed the AO to work out the PLI of OP/TC for the comparables submitted by the assessee and to apply the correct profit margin. 8. Before us, the AR and the DR advanced the same arguments that were made for the ground related to the AMP expenses. While deciding the issue of adjustment on account of AMP expenses, we have held that expenditure incurred by the assessee under the head AMP was beyond the purview of section 92 of the Act, as it was not an international transaction. As no adjustment could be made with regard to AMP expenses, so, there is no justification for mark up of AMP and resultant adjustment on sales support services. Second effective ground of appeal(GOA-17-21)is decided in favour of the assessee. 9. The third ground of appeal is about adjustments on account of purchase of raw materials from the AE. It was found that the assessee and the contract bottling unit(CBU)had purchased goods worth Rs. 12. 64 crores and Rs. 0. 92 crores respectively from the AE. The TPO held that the intern....
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....TPO had rejected the segmented result without assigning any valid reasons. The DR stated that DRP had issued suitable directions to the AO. 12. We have heard the rival submissions and perused the material. We find that the assessee had shown profit@4. 37% for AE-transaction and had suffered loss @15. 73% on non-AE transaction, that the assessee was purchasing raw material for manufacturing whisky from the AE. s. , that for manufacturing other alcoholic beverages the raw material was procured locally from unrelated parties, that the TPO did not approve the segmented results, that he selected 15 comparables, that after considering the objections of the assessee, he selected ten comparables, that he adopted margin of 2. 13% and proposed an addition of Rs. 13. 56 Crores, that the DRP passed certain directions while dealing with the objections raised by the assessee, that it had directed the AO to recalculate the margin taking into account the adjustment on account of AMP expenses, that while passing the final order the AO had made no adjustment. As we have held that no adjustment can be made under the head AMP, so, the issue will revive. Considering the peculiar facts and circumstance....
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....t specify the errors committed with regard to specific materials, that the impact and the result of the so-called errors had also not been specified, that certificate was general in nature to be adopted as an evidence, that the addition made by the AO was justified, that assessee's inability to inspect the records and to obtain photo copies of the statement on account of the AO not allowing the same was not very material, that the assessee had been confronted with the details of the discrepancies, that it was in possession of the details, that the AO had not relied on the statement or any of the records asked for by the assessee in making the addition, that there was no infringement of the principles of natural justice in the case under consideration, that the AO was justified in making the addition of Rs. 1. 47 crores. It was further held that the levy of excise duty and VAT were not called for as the former was charged only on finished goods and later on sales. The DRP deleted the addition of Rs. 17. 71 lakhs made by the AO. 15. Before us, the AR stated that the letter of the Excise officer was a vital document, that by not giving the statements of the assessee and other papers ....
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....e Tribunal. We also find that the issue before us is also covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in CIT v/s Raychem RPG Ltd. , [2012] 346 ITR 138 (Bom. ). Thus, in view of the judgment of Hon'ble Jurisdictional High Court cited supra and the decision of the Tribunal in assessee's own case for assessment year 2006-07, the ground no. 23, raised by the assessee is treated as allowed. " Respectfully, following the above judgment we decide ground no. .... (take from file of 08-09) in favour of the assessee. 18. The last Ground, dealing with levy of interest of levy u/s. 234 of the Act, is consequential in nature. ITA. /1120/Mum/2014-AY. 2009-10: 19. First two effective grounds of appeal (GOA 1-23) are about AMP expenses and mark up on AMP expenses. Following our order for the earlier year, we hold that the AMP expenditure was not an international transaction and that the adjustment made were to be deleted on both the accounts. Ground nos. 1-23 are decided in favour of the assessee. 20. Next ground deals with disallowance of royalty, amounting to Rs. 5. 53 crores paid to Diageo, North America. During the assessment proceedings....
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.... that there are claim of royalty by the AE at 1% was waived for the period 1. 4. 06 to 30. 6. 2008, the assessee had not explained that as to why the agreement for royalty, entered into on 21. 1. 2008, was made effective from an earlier date, that it had not demonstrated any significant change in its economic circumstances that affected the result for the year under consideration, that it had not demonstrated as to what were the incremental services provided by the AE and /what were the incremental benefits received in respect of the technology and know how which caused the royalty rate to increase from 1 to 5%, that the AO was justified in holding that the payment/ liability of payment of royalty to the AE was not for the business purposes. 22. Before us, the AR argued that the TPO did not suggest any adjustment under the head corporate guarantee, that the AO/DRP held that the expenditure was not incurred wholly and exclusively for the business purposes, that waiving off of the royalty in the earlier years would not mean that it was not for business, that it was an allowable revenue expenditure. He referred to page 256 of the paper book. The DR stated that royalty was waived retr....