TaxTMI 
TaxTMI 
2018 (9) TMI 1750
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....e case and in law, the order passed by the Learned Assessing Officer ("Ld. AO") under section 143(3) read with section 144C of the Act is bad in law. 2. That on the facts and in circumstances of the case and in law, the Learned Dispute Resolution Panel ("Ld. DRP") erred in confirming the additions made by the Ld. AO in draft order thereby enhancing the income of the appellant by Rs. 73,23,49,876. 3. That the Ld. AO/Learned Transfer Pricing Officer ("Ld. TPO") erred in not appreciating the characterisation of Wrigley India and in not appreciating that: 3.1 key decisions making functions with respect to Marketing function are performed by Appellant 3.2 by testing each of the "international transactions" (including import of raw materials and sale of finished goods) separately, it has been clearly demonstrated that the residual/entrepreneurial profits, interalia relating to AMP functions, are lying in the hands of appellant in India and thus, the associated enterprise ("AE") should not reimburse the Advertisement, Marketing and Promotion ("AMP") expenses incurred by the appellant 3.3 all expenses with respect to the aforesaid activities and....
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....Ld. AO/TPO erred in not appreciating that AMP expenses cannot be considered as a transaction undertaken by the Appellant. However, the same should be constituted as a function performed by the Appellant and not a transaction undertaken by the Appellant. 10. That the Ld. AO/TPO erred in not applying any method to determine the arm‟s length price of AMP expenses incurred by the Appellant. 11. That without prejudice to the contentions above, the Ld. AO/Ld. TPO has erred: 11.1 Without prejudice to all other grounds, the quantification of the AMP expense by the Ld. TPO/ DRP for the purpose of the alleged adjustment is not appropriate. The same includes expenses which are essentially in connection with the sales such as selling expenses, trade & channel discounts, etc. which cannot be attributed to brand enhancement 11.2 by not adhering to the principles of comparability and in using inappropriate comparables to determine the bright line limit 11.3 rejecting certain comparables and decreasing the purported bright line limit by giving incorrect arguments 11.4 applying a mark-up on the excess AMP spend thus characterizing the appe....
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.... to its foreign associated enterprise (AE) and therefore it is an international transaction and arms length price of these transaction is required to be ascertained. 5. The learned transfer pricing officer issued a show cause notice dated 16/12/2013 holding that its foreign associated enterprise situated in the United States is legally the owner of the trademark and brand name of the products manufactured in the respective countries. Therefore, the legal owner of the brand is a US company. It was further stated that the assessee has made huge expenses relating to advertisement, marketing and promotion expenditure of Rs. 77,91,01,209/- against sales of Rs. 2,77,13,39,302/- which is 28.11%. Therefore, according to the learned transfer pricing officer, it indicated that level of AMP expenditure incurred by the assessee is beyond that of a risk of routine distributor. Therefore, it was noted by the learned transfer pricing officer that assessee is making significant AMP expenditure as well as high-level of human efforts are invested in this transactions. Therefore, the learned transfer pricing officer selected 6 comparable whose average margin of AMP/sales was 4.66% holding that the....
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....n international transactions under section 92B of The Income Tax Act. It was stated that the principal ground in the appeal filed by the assessee for the assessment year 2010 - 11 is therefore covered in favour of the assessee by the order of the coordinate bench for the above three years. 10. On the merits of the adjustment, The learned authorized representative submitted as under:- "1. The appellant, a private limited company, is engaged in the manufacture and sale of confectionary products i.e. chewing gums, bubble gums, lollipops and toffees. The aforesaid company came into existence in October, 1993. 2. It is a wholly owned subsidiary of M/s Wm Wrigley Jr. Co., Chicago USA which had been established in April, 1891. 3. For the AY 2010-11, on 24.09.2010, the appellant filed a return disclosing aggregate loss of Rs. 42,93,17,566/-. 4. Since the appellant had undertaken eleven international transactions with its associated enterprise ("AE"), the learned AO made a reference u/s 92CA(1) of the Act to the learned TPO. 5. The Report from the Accountant in Form 3CEB did not report the expenditure on AMP as an International Transaction since ....
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....t is submitted that the assessee is incurring the expenditure for its own business for making advertisement, publicity and marketing its products. 9. However, for the AYs 2007-08, 2008-09 and 2009-10 the learned TPO had held expenditure on AMP to be an international transaction. In doing so the learned TPO, did not have the benefit of the judgment of Delhi High Court in the case of Maruti Suzuki India Ltd. vs. CIT which had been rendered on 11.12.2015 . The perusal of the judgment of the High Court of Delhi at page 143 in para 57 specifically examined the issue as to whether AMP expenditure incurred bv the licensed manufacturer could be regarded as an international transaction. It held in para 87 that "the issue of arm's length price per se does not arise when deduction under section 37(1) is claimed". It is submitted that the situation is identical i.e. the expenditure incurred on AMP has been claimed as business expenditure allowable u/s 37(1) of the Act and there is no basis for the TPO to regard the same as an international transaction. It is undisputed fact that the assessee is a manufacturer and not a distributor as has been observed by the learned TPO in his ord....
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....tifies the expenditure attributable to the requirement of domestic sale and those expenditure which are over and above the requirement. Reliance by the TPO on clause (f) in rule 1 OB (1) of the Income-tax Rules does not advance the contention of the Income-tax Authorities. The said clause (f) provides another method for determining the arm's length price, namely, "any other method as provided in rule 10AB". The method for determination of arm‟s length price in 10AB is "any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts". The TPO has ignored the fact that the aforesaid clause (f) of rule 10B(1) and rule 10AB were inserted by the Income-tax (Sixth amendment) Rules, 2012 with effect from 1 April, 2012. Therefore, these rules have no application for the assessment year 2010-11. Even if these rules were in force, they would have no application to the case of the appellant because the expenditure of AMP cannot be regarded as an international transaction. ....
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....at the Assessee was permitted to use the brand name 'Valvoline' will not automatically lead to an inference that any expense that the Assessee incurred towards AMP was only to enhance the brand 'Valvoline'. The onus was on the Revenue to show the existence of any arrangement or agreement on the basis of which it could be inferred that the AMP expense incurred by the Assessee was not for its own benefit but for the benefit of its AE. That factual foundation has been unable to be laid by the Revenue in the present case. On the basis of the existing record, the TPO has found no basis other than by applying the BLT, to discern the existence of international transaction. Therefore, no purpose will be served if the matter is remanded to the TPO, or even the ITAT, for this purpose. 18. This Court has in similar circumstances in a series of decisions including Maruti Suzuki Ltd. (supra); Bausch & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT [20161 381 ITR 227/237 Taxman 24/65 taxmann.com 141 (Delhi)and Honda Siel Power Products Ltd. v. Dy. CIT [20161 237 Taxman 304/[20151 64 taxmann.com 328 (Delhikmphasized the importance of the Revenue having to first discharge the....
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.... 2016] 380 ITR 307 (Punjab &" 11. He further referred to the various documents submitted in the paper book to support his claim, such as the annual accounts of the assessee and the methodology adopted by the assessee for determination of ALP of the international transactions contained therein. He further referred to the various submissions made by the assessee before the learned transfer pricing officer. In the end, his submission was that the addition made by the learned transfer pricing officer of adjustment towards the arms length price of the international transactions stated to be on account of advertisement, marketing and promotion expenditure incurred by the assessee is not sustainable. 12. The learned departmental representative vehemently supported the order of the learned transfer-pricing officer and the learned dispute resolution panel - 2, New Delhi. He further stated that that the order of the coordinate bench in the case of the assessee for earlier years has not dealt with the whole gamut of the issues involved in the above appeals and therefore same may not be followed. 13. We have carefully considered the rival contention and perused the orders of the lower....
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....e TPO found that the taxpayer had incurred these expenses which were much above the average expenses incurred by the comparable companies. According to her while the taxpayer‟s AMP expenses were 16.93% of its sales similar expenses of the comparables were only 4.32%. Applying the "bright line" test, the TPO held that AMP expenses in excess of 4.32% of the taxpayer‟s sales amounted to international transaction and the same should have been reimbursed by the AE, Such excess expenditure was computed by her at Rs. 28.60 crores. The TPO applied a mark up of 13.04% on the aforesaid excess expenditure on the ground that in arm‟s length condition an independent enterprise would not be satisfied merely with the reimbursement of the cost but will also expect mark-up thereon She thus selected six comparables engaged in provision of advertisement, publicity and allied services and determined a mark¬up of 13.04% on the aforesaid excess AMP expenditure. The same was computed at Rs. 3.73 crores. Thus, total adjustment of Rs. 32.33 crores was proposed to the income of the taxpayer. The ld AR submitted that the issue raised is fully covered in favour of the assessee by the dec....