TaxTMI 
TaxTMI 
2018 (9) TMI 1232
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....Commissioner of Income-tax - Circle 5(1) ('AO')/the Transfer Pricing Officer ('TPO')/ Dispute Resolution Panel ('DRP') erred in confirming the adjustment of Rs. 6,64,70,841/- by holding that the Appellant ought to have received reimbursement for "alleged excessive" Advertising, Marketing and Promotion ('AMP') expenses from its Associated Enterprises ('AEs'). 2. On the facts and circumstances of the case and in law, the AO/TPO/DRP erred in: a) not following the binding decision of jurisdictional Tribunal in the case of BMW India Pvt. Ltd. vs. Addl. CIT [TS-230-ITAT-2013(DEL)-TP] ('BMW India'); b) disregarding the fact that the premium profits earned by the Appellant compensated for the allegedly excessive AMP expenses, if any, incurred by it; c) disregarding the transfer pricing policy of the Moet Group wherein Moet India is provided with an agreed contribution margin which clearly indicates that Moet Group funds the AMP expenses of Moet India through the import price; d) misinterpreting or placing incorrect reliance on the international guidance in relation to the 'marketing intangibles'....
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....to be given as complimentary products to its esteemed customers". On these facts, the TPO, inter alia, observed as follows: It is seen that the assessee has incurred an extremely high level of advertising and market promotion expenditure. In such cases, there is a possibility thatv objective of the heightened level of AMP expenditure is to expand the reach of the AE's brand in India. The AE is the legal owner of the brand. Therefore the beneficiary of the efforts of the assessee is the AE as the brand value increases significantly given the efforts of the assessee. The assessee is thereby creating marketing intangibles in favour of the assessee.... 4. The TPO then, after a long discussion on the transfer pricing implications of transfer pricing intangibles, noted that the total Advertising and Market Promotion expenses of the assessee are as high as Rs. 7,93,95,060 which constitute 26.94% of the value of gross sales, as against the average norm, in respect of Indian comparables, at 1.31% of the value of gross sales. Applying the bright line test, and taking 15% mark on expenses taken as incurred on behalf of the AE, the TPO proposed an ALP adjustment of Rs. 6,64,70,841.....
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....ention of law and hence inadmissible deduction under section 37(1) - so far as assessment year 2011-12 is concerned; (ii) the AMP expenses is capital expenditure as it results in enduring benefit. Learned counsel has filed copies of the assessment orders in support of this factual contention. He submits that once the Assessing Officer himself accepts that there is no ALP adjustment required in respect of these expenses in the assessment years starting with assessment year 2011-12 onwards, and there is no international transaction as such, it cannot be open to the revenue authorities to contend that, on the same set of facts, there was an international transaction in the assessment years 2009-10 and 2010-11. On the strength of these submissions, learned counsel urges us to delete the impugned ALP adjustment and hold that there is no legally sustainable foundation for holding that there was an international transactions, in terms of the provisions of Section 92B, on the facts of this case. Learned Departmental Representative, on the other hand, submits that the Hon'ble Delhi High Court's judgment in the case of Sony Ericson (supra) has not attained finality and the matter is pending ....
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....case of M/s Sony Ericsson Mobile Communications Pvt. Ltd. (supra) 6. Learned counsel for the assessee, in his brief rejoinder, submits that the question of remitting back the matter to the file of the TPO would arise only when there is a categorical finding about the existence of international transaction. In the present case, the international transaction has been inferred on the basis of excessive expenditure on AMP and application of bright line test. That approach, in the light of the legal position prevailing on the basis of binding judicial precedents, is no longer permissible. He once again points out that in the subsequent year, the revenue authorities have abandoned the case for existence of AMP. We are thus urged to uphold the plea of the assessee. 7. We find that out of total advertisement, marketing and promotion expenses of Rs. 7,93,95,060 identified by the Transfer Pricing Officer, the expenditure of Rs. 1,75,57,511 was incurred on account of warehousing charges, custom duty, clearing and forwarding expenses and transportation charges etc which is, as rightly pointed out by the learned counsel, is in the nature of distribution expenses rather than AMP expenses. ....
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....ion 92F(v) of the Income-tax Act states: "transaction includes an arrangement, understanding or action in concert, whether or not such arrangement, understanding or action is formal or in writing;" Similarly, Rule 10B(2)(c) states: "the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;" 2.3 Above provisions read with the well established doctrine of 'substance over form' (applied by the Courts in numerous judicial decisions) indicate that transfer pricing regulations are to be applied keeping in mind the overall scheme of the taxpayer's business arrangement. 2.4 in view of the discussions in the foregoing paragraphs I am of the considered view that the expenditure incurred on AMP by the assessee and thereby promoting the brand/trade name owned by CMC, France, the AE is an international transaction and the same has neither been reported in Form 3CEB nor has been benchmarked in transfer pricing study, I am of the considered view that the onus which was on ....
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....annot be reason enough to infer that there was an international transaction. There has to be something more than the mere quantum of expenditure to indicate, even if not establish, that the said expenditure was incurred on behalf of the AE. That is not the case here and the AO and TPO themselves have abandoned this stand in the later assessment years. Not only the level of expenditure incurred by the assessee is so exorbitantly high that this expenditure has to be essentially for the purposes other than the purposes of the business of the assessee, the nature of the expenses is also not such that it reflects that the expenditure is incurred on behalf of the AE. The nature of the expenses, as set out in page 279 of the paperbook, which is a copy of annexure to the letter dated 23rd January 2013 to the TPO, is as follows: During FY 2008-09, Moet India has spent an amount of INR 6,18,37,549. The nature of this expenditure is as under: 1. Expenses incurred for events: The Assessee has tied up with few outlets where in it conducts events and would incur for such events like Guest list manager, decor, invite printing, courier charges for sending the invite, food, bar te....
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....ances to so warrant or justify. In any case, there are direct judicial precedents from Hon'ble jurisdictional High Court which clearly suggest that the matter regarding existence of international transaction under section 92B, as far as possible, should be decided at the level of Tribunal itself. In the case of Bacardi India (supra), Their Lordships, inter alia, have observed as follows: 5. Having heard learned counsel for the parties, the Court finds that the case before the ITAT was argued at length and the views of the TPO as well as the Dispute Resolution Panel ('DRP') were already available to the ITAT. Arguments were advanced on the strength of judgments of this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. vs. Commissioner of Income Tax (2015) 374 ITR 118 (Del.) as well as a string of subsequent judgments beginning with Maruti Suzuki India Ltd v. CIT, (2016) 381 ITR 117. 6. Nevertheless, the main reason that weighed with the ITAT to remand the matter to the TPO was that the TPO did not have the benefit of the above decisions of this Court when the order was initially passed by the TPO. That can hardly be a ground for remanding the ent....