TaxTMI 
TaxTMI 
2017 (2) TMI 594
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....lers. In addition to this, it also sells directly to the customer through its diagnostic and dispensing centres and also provides after sales service to existing users of Widex products in the country. The assessee also has its own diagnostic and dispensing centres called Senso Hearing Centres, which provide clinical solution to hearing impaired. The immediate parent company of the assessee i.e. Widex ASP Denmark holds 78.43% equity in the assessee Company while balance 21.57% is held by Mr.T.S. Anand. The parent company was founded in 1956 and employs around 3000 staff around the world. For the impugned year, the assessee filed return of income declaring loss of Rs. 1,45,88,812/-. The return was picked up for scrutiny and notice under section 143(2) was issued dated 7.8.2012. The Assessing Officer thereafter referred the determination of the arm's length price of international transaction entered by the assessee with its associate concerns to the Transfer Pricing Officer (hereinafter referred to 'TPO') under section 92CE of the Act . The assessee submitted its TP Study for the year to the TPO, which was examined by him. The international transactions undertaken by the ....
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....ile 55 Taxmann.com 240,since brand was owned by the AE, promotion activity benefited the AE and the assessee was not subjected to brand ownership risk. At the same time the applicability of the BLT was rejected following the decision of the Delhi High Court in Sony Ericsson (supra). The DRP further directed the exclusion of routine selling and distribution expenses for determining the cost incurred on the AMP transaction. Further the DRP held that the cost to be allocated to the transaction was to be determined by taking expenses over and above similar expenses incurred by accepted comparables towards Brand building. The DRP also rejected the markup applied by the TPO of SBI PLR and directed the GP/AMP ratio of comparables to be taken as Mark up. The DRP held that the benchmarking of the transaction has to be done with comparable uncontrolled transactions or those providing similar product/services. The DRP concluded as follows: i. The AMP expenses constitute International Transaction. ii. The routine selling and distribution: expenses are to be excluded while computing the AMP expenses for this purpose. iii. The comparables chosen by TPO are good and sha....
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....arking other international transactions wherein marketing activities are considered to be one of the functions. Thus this amounted to duplication. Indirect approach to somehow justify adjustment is not permissible in law and deserves to be held as invalid in law just as Bright line method. 7. Ld. DRP and consequently final impugned order erred in assuming the without prejudice working provided at their direction as accepted submission of assesseand proceeded to uphold adjustment on alternate grounds and completely failed to appreciate that entire approach and adjustment is unlawful and contrary to provisions of law. 8. Without prejudice to the above, Ld. TPO/AO erred in failing to follow the directions of Ld. DRP and incorrectly computed the AMP expenditure incurred by Appellant, consequently resulting in an inflated adjustment to the taxable income of Appellant. 9. Ld. AO erred in failing to give due credit for unabsorbed depreciation brought forward from previous-years. 10. Ld. AO erred in charging interest u/s 234B and 234D of the Act, while computing total tax demand for the subject Assessment Year. The above grounds are independent ....
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....nternational transaction was on the Department and having failed to do so the entire adjustment deserves to be deleted. Reliance was placed on the following decisions in support of his above contention : 1) Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. CIT, 381 ITR 227 (Del) 2) Amadeus India Pvt. Limited (I.T.A.T. Delhi) L'Oreal India (P) Ltd. (I.T.A.T., Mumbai 'K' Bench 3) Sony Ericsson Mobile Communications India P. Ltd. v. Commissioner of Income Tax (2015) 374 ITR 118 (Del) 9. The next contention of the Ld. counsel for the assessee was that without prejudice to the above contention, the selling expenditure were to be excluded from AMP, which despite the clear directions of the DRP had not been done. Ld Counsel for the assessee further argued that all the dealings with the associated enterprises were at arm's length and the AO had ignored the fact that no royalty payment was made by the assessee for use of the established trade mark/brand usage. Ld.Counsel for the assessee contended that the Ld.DRP had substituted gross margin as the mark up rate by incorrect interpretation of Sony Ericson decision - even while rightly rejecting ....
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....diture to benefit AE Bausch and Lomb [(Delhi High court 381ITR 227) from paragraphs 51 to 67 more particularly paras 61,65and 67] Amadeus India Pvt limited [(ITAT - Delhi "1-2" bench paragraphs 4 to 8.4 more particularly para 7, 8.1, 8.2, 8.3 & 8.4)], L'Oreal India (P) Ltd., [(ITAT ,Mumbai "K" Bench) paragraphs 2.1 ,2.2 & 2.4}, Sony Ericson (374 ITR 118 decision of 16.3.2015 - paras 82,100,101,159,160,161, 164 and 176) and Sony Ericsson [decision of Hon'ble Del High court on 28.1.2016 - para 11 (ii)] were cited at the hearing. With reference to particular paragraphs of above decisions it was submitted that onus to prove existence of international transaction is on department. In Appellant's case department has failed to discharge this onus. On this ground itself, without anything further, entire adjustment deserves to be deleted. 111. Without prejudice to above selling expenses are to be excluded for AMP: Purpose of such expenditure was to increase Appellant's sales - Details of expenditure can be found at pages 123 to 125 and 130 of Paper book; no basis cited by DRP /TPO to support allegation that any part of such expenditure was incurred by Appellant a....
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....ure ( kindly refer page 146 of paper book). Department Representatives counter about pendency of further appeals by department on the issue of onus to prove existence of AMP as international transaction cannot be basis for not following decision of Hon'ble High court of Delhi in Bausch & Lomb as also series of coordinate bench decisions of Hon'ble Tribunal cited and copies handed over during hearing. Appellant accordingly prays that adjustment relating to AMP deserves to be deleted." 10. Ld. DR on the other hand relied on the order of the AO/DRP. 11. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main object of the assessee i.e. purchase of digital aids and its spare parts and import of lab equipment, advertisement material, consumables had been held to be at Arms Length Price by applying TNMM method. No adjustment has been made on this account. The learned TPO, however has segregated AMP and held that it was an international transaction and was required to be benchmarked independently. The first objection of the Ld Counsel for the assessee is vis a vis this finding of ....
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....sts qua AMP to determine fair compensation if an international transaction of brand promotion found to exist. We would like to reproduce relevant portion of the judgment in the case of Bausch and Lomb Eyecare (India) Pvt. Ltd. (supra) as follows : "The central issue concerning the existence of an international transaction regarding AMP expenses requires the interpretation of provisions of Chapter X of the Act, and to determine whether the Revenue has been able to show prima facie the existence of international transaction involving AMP between the Assessee and its AE. 52. At the outset, it must be pointed out that these cases were heard together with another batch of cases, two of which have already been decided by this Court. The two decisions are the judgement dated 11th December 2015 in ITA No. 110/2014 (Maruti Suzuki India Ltd. v. Commissioner of Income Tax) and the judgment dated 22nd December 2015 in ITA No. 610 of 2014 (The Commissioner of Income Tax-LTU v. Whirlpool of India Ltd.) and many of the points urged by the counsel in these appeals have been considered in these two judgments. 53. A reading of the heading of Chapter X ["Computation of inco....
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.... 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 of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the....
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....ellant, 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 objective and purpose of substantial acquisition of shares etc. of a certain target company. There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company. For, de hors the element of the shared common objective or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the ....
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....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 wild-goose 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 question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the exis....
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....vision 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 having regard to the fair market value of the goods." In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numer....
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.... a result, question (iii) does not arise." 13. The issue in the present case, we find ,is identical to that in Bausch & Laumb (supra). In the present case, the AMP spend has been treated as an international transaction since it was found to be benefitting the AE only as the brand was owned by the AE. There is no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE, has not been demonstrated .On the contrary the obligation to incur the expenditure has been presumed to exist only on the basis of the quantum of expenditure ,and the fact that since the brand was owned by the AE the expenditure was for its benefit only. This basis has already been rejected by the Delhi High Court as we have pointed out above in the case of Bausch and Laumb(supra). Further the TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee. Therefore, in view of the aforestated decision of the Delhi High Court ,internat....