TaxTMI 
TaxTMI 
2017 (7) TMI 1004
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....me. 2. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in making adjustment of INR 51,89,69,687 to the arm's length price of alleged international transaction of Advertisement, Marketing and Promotion ("AMP") expenditure. 3. That on the facts and circumstances of the case and in law, the orders passed by the AO / TPO were bad in law as the pre-requisite for applying Chapter-X, i.e., existence of an international transaction between two Associated Enterprises CAE'') under section 928 of the Act, was not satisfied or existed as there was no agreement, understanding or arrangement between the Appellant and the AE for incurrence of such expenditure by the Appellant. Further, the DRP erred in upholding the same. 4. Without prejudice, the orders passed by the AO / TPO were bad in law as the unilateral AMP expenditure incurred by the Appellant was categorized as 'international transaction' under chapter X of the Act, by the AO / DRP / TPO, contrary to law in as much the AO neither granted the Appellant proper opportunity of being heard, nor recorded his satisfaction in respect thereof. 4. Tha....
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....stances of the case and in law, the AO / DRP / TPO have erred in not appreciating that distribution and marketing are inter-connected and intertwined functions and should be benchmarked on an aggregate basis. The AO / DRP / TPO further erred in not appreciating that if the two functions are segregated and benchmarked, then the same would result in over taxation and is contrary to the provisions of the Act. 10.1. That on facts and circumstances of the case and in law, the AO / TPO have erred in holding that the Appellant did not propose I furnish comparables which performed distribution as well as AMP function, without appreciating that the comparables companies furnished by the Appellant were undertaking AMP expenditure I function as well. Further, the DRP erred in summarily rejecting such comparables without providing any opportunity to the Appellant. 11. That on facts and circumstances of the case and in law, the AO / DRP have erred in holding that the Appellant has benchmarked the international transaction of purchase of finished goods using Transaction Net Margin Method ("TNMM") method, without appreciating that the same was primarily benchmarked using Resale ....
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.... assessee, while directing AO / TPO to include sales relating expenditure as part of AMP expenditure while benchmarking the said international transaction. 16. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in not granting quantitative I economic adjustments (such as non-payment of royalty / expenses incurred on new product launches) while quantifying adjustments relating to alleged excessive AMP expenditure. Re: Additions made on Protective basis 17. Notwithstanding and without prejudice to the other grounds, the AO / DRP / TPO have erred in determining adjustments on protective basis by applying Bright Line Test ('BLT') method which has been jettisoned by the Hon'ble jurisdictional High Court. 18. Notwithstanding and without prejudice to the other grounds, the DRP has erred in not affording opportunity of being heard to the Appellant, which is a sine qua non under section 144C(11) of the Act before issuing any direction which is prejudicial to the interest of the assessee, while directing AO / TPO to carry out alternative comparability adjustment. 18.1. Notwithstanding and without prejudice....
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....2,061,329 Purchase of Fixed Assets Comparable Uncontrolled Price Method ("CUP") 8,527,876 Cost Reimbursements Received 2,151,406 Warranty Reimbursements 82,281,676 Cost reimbursement paid 5,905,314 Total 5,681,776,313 4. TPO noticed that assessee has incurred Rs. 1,04,38,52,817/- on account of Advertisement, Marketing And Promotional (AMP) expenditure which amounts to 14.17% of the sales whereas AMP / sales ratio of the comparables was only 0.46%. TPO proposed to separately benchmarked the AMP expenditure on the ground that the assessee has rendered intra group services which amounts to international transactions. 5. Assessee company in its TP study has characterized itself as a routine distribution which assumes normal business risks. TPO noticed that the assessee incurred AMP expenditure to promote the brand / trade name which is owned by the AE and as such, expenditure has resulted in brand building and increased awareness of the products bearing the brand / trade name and consequently, issued the show-cause notice to the assessee. TPO, after rejecting the arguments addressed by the assessee company, observed inter alia that the AMP adjustm....
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....ermining its ALP and consequently making transfer pricing adjustment is to be set aside. 12. However, on the other hand, ld. DR relied upon the judgment cited as Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT - (2015) 374 ITR 118 (Del.) in which AMP expenses have been held to be international transaction and the matter of determination of ALP has been restored to the TPO. 13. Furthermore, in the judgment cited as Yum Restaurants (India) Pvt. Ltd. vs. ITO - (2016) 380 ITR 637 (Del) and Sony Ericson Mobile Communications (India) Pvt. Ltd. or AY 2010-11 delivered on 28.01.2016, Hon'ble High Court restored the issue, "as to whether AMP expenses is international transaction for fresh determination." 14. Furthermore, the issue in question as to whether AMP expenses are international transaction again cropped up before the Hon'ble jurisdictional High Court in judgment cited as Rayban Sun Optics India Ltd. vs. CIT (dated 14.09.2016), Pr. CIT vs. Toshiba India Pvt. Ltd. (dated 16.08.2016) and Pr. CIT vs. Bose Corporation (India) Pvt. Ltd. (dated 23.08.2016) wherein the identical issue has again been restored for fresh determination in the light of the decisions render....
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....required to be borne by the comparables, in order to have the same intensity of functions as that of the assessee. (iv) Since extra cost is allocated to the comparables, corresponding to the additional functions of marketing, the return corresponding to such extra function being carried out in the market is determined, having regard to the average return earned by the entities engaged in providing marketing support services. (v) Since the cost for the comparables is increased, on the basis of matching principle, sales of the comparable is also increased by the amount of cost and the profit earned on such cost, considering the average return determined on market support services worked out in step v. (vi) The adjusted sales and cost is considered for determining the PLI of the comparables. 3. The calculation of the adjustment on the basis of above discussion is illustrated as under: Comparable Taxpayer Total Operating Revenue A AC=108 AA=110 Cost of goods B 100 100 Add: Change in....